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Solera Decision Underscores (Again) Difficulties of Challenging a Transaction That Was Approved by Disinterested Stockholders

M&A/PE Briefing | January 10, 2017

The Delaware Court of Chancery’s recent Solera decision (Jan. 5, 2017), relating to the all-cash acquisition of Solera Holdings Inc. by a private equity firm, follows an increasingly familiar template. Based on the landmark 2015 Corwin decision, Chancellor Bouchard rejected applying enhanced scrutiny under Revlon in a post-closing action; held that the merger was “subject to the business judgment presumption because, in a fully-informed and uncoerced vote, a disinterested majority of Solera’s stockholders approved” it; found the nondisclosure claims to be without merit; and dismissed the plaintiff’s claims at the pleading stage of the litigation.

The decision is notable for:

  • Reiterating that, based on Corwin, post-closing damages actions challenging transactions that have been approved by the disinterested stockholders in a “fully-informed” vote will be accorded great deference and should be dismissed at the pleading stage;
  • Clarifying that the plaintiffs have the “burden of pleading” that the vote was not “fully-informed;”
  • Underscoring that there is a high standard for establishing the materiality of claims challenging proxy statement disclosure; and that plaintiffs cannot re-package substantive claims as disclosure claims; and
  • Apparently endorsing the view that the only transactions not subject to potential “cleansing” under Corwin are controller transactions (i.e., that  transactions that would be subject to entire fairness review because a majority of the directors approving the transaction were not independent and disinterested would be cleansed by a fully-informed, uncoerced vote of disinterested stockholders).

We discuss these key points and provide related practice points in the attached Fried Frank Briefing.

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