Deal protections are an important aspect of M&A transactions. Buyers will typically negotiate with the target of the transaction to include all kinds of deal protections mechanisms, including no-shop provisions, matching rights, and break fees payable to the buyer. No-shop provisions in particular restrict the ability of the target board to solicit alternative proposals (including negotiations with third parties) and recommend alternative transactions to shareholders. Receipt of an unsolicited proposal may trigger a notice requirement. However, no-shop provisions can be limited in scope. Three common and interrelated “exceptions” to no-shop provisions are fiduciary out, go-shop, and window-shop provisions. While the … Continue Reading
As part of meeting their fiduciary duties to the corporation, directors and officers are required to avoid a conflict of interest in the context of a M&A transaction. A conflict of interest is defined quite broadly by the law and contemplates situations where there is:
- a direct conflict of interest (i.e., where a director or officer of the corporation is a party himself/herself to a proposed material contract or transaction with the corporation);
- an indirect conflict of interest (i.e., where a director or officer has a material interest in a proposed material contract or transaction with
Negotiating an acquisition can be an intensive process for both buyers and sellers. For both parties, deal certainty is important when the right transaction is on the table. However for the target, the key is striking the appropriate balance between achieving deal certainty and ensuring that its board of directors maintains the ability properly discharge its fiduciary duties if a superior proposal is received.
A force-the-vote provision is a clause that requires the target’s board of directors to submit the proposed transaction to a vote of its shareholders. The provision protects the transaction since forcing a shareholder vote prohibits the … Continue Reading
Almost every acquisition agreement involving the acquisition of a public company will include a provision whereby the board of directors of the target company agrees to stop soliciting competing bids or stop having any discussions with any other party who might be interested in a making a competing bid. This is generally known as the “no-shop” clause. However, the directors of the target company have certain fiduciary duties that they must comply with. Directors must act honestly, in good faith, and with a view to the best interests of the company, which in the context of an acquisition includes getting … Continue Reading
Directors have clear duties when acting for the corporation, particularly when choosing whether to engage in M&A. Below is a brief summary of what duties directors owe to the corporation and how directors can uphold them in M&A.
At all times, and particularly during M&A, directors have the following duties: (1) a duty to supervise; (2) fiduciary duties; and (3) a duty of care.
- Duty to Supervise. Directors have specific, statutory duties to manage the corporation. To satisfy this duty, directors may select a senior management team that is qualified and worthy of the director’s trust. However, directors