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Implications of the Court of Chancery’s Decision that De-SPAC Mergers Will Be Reviewed Under the Entire Fairness Standard—Amo v. MultiPlan

M&A/PE Briefing | January 11, 2022

Amo v. MultiPlan, issued last week, is the first Delaware decision to address fiduciary duties and related principles in the context of a SPAC. The Court of Chancery, held (at the pleading stage) that the entire fairness standard of review would apply to the challenged de-SPAC merger and rejected dismissal of the plaintiffs’ fiduciary claims against the SPAC’s sponsor and directors. As the issues in the case arose from, and the court’s rulings were based on, conflicts of interest that are inherent in the SPAC structure (rather than specific to the transaction being challenged), the decision likely will have broad applicability to de-SPAC transactions. Notably, practitioners have long viewed the SPAC stockholders’ right to redeem their shares prior to a de-SPAC merger as a distinguishing feature that would significantly mitigate fiduciary duty risk for SPAC sponsors and directors in connection with de-SPACs (as compared to controllers and directors in the non-SPAC context). While MultiPlan should serve to discourage certain conduct by aggressive actors, we believe that, in light of the redemption feature in SPACs, further development of Delaware law will define workable parameters under which the court will more readily dismiss challenges to de-SPAC transactions where the disclosure to stockholders is adequate. Pending such development, in light of MultiPlan, there likely will be significantly more litigation challenging de-SPACs; SPAC sponsors and directors should intensify their efforts to ensure adequate disclosure; and modifications to the SPAC structure and practices should be considered. In the attached Briefing, we analyze the decision, discuss how the law may evolve, and offer related practice points for SPAC sponsors and directors.
 

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