SNAP IPO Debuts On NYSE

SNAP Inc., the parent company of Snapchat, went public yesterday with a valuation of approximately $33.4 billion. The Company raised $3.4 billion at $17 per share, and is now trading well above the IPO price. While SNAP has reported growing revenues ($404.5 million in 2016, up from $58.7 million in 2015), it has also reported growing net losses ($514.6 million in 2016, up from $372.9 million in 2015).

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New York Appellate Division Revives Non-Monetary Class Action Settlement in M&A Class Action with Revised Standard of Review

In Gordon v. Verizon Communications, Inc., No. 653084/13, 2017 WL 442871 (N.Y. App. Div. Feb. 2, 2017), the Appellate Division of the Supreme Court of the State of New York, First Judicial Department (the “First Department”), reversed an order denying plaintiffs’ motion for final approval of a proposed non-monetary settlement in a shareholder class action litigation related to Verizon Communication Inc.’s (“Verizon”) acquisition of Vodafone Group PLC’s (“Vodafone”) stake in Verizon Wireless (“VZW”).  With its decision, the New York Appellate Division breathed new life into beleaguered disclosure-only class action settlements, and modernized what it believed had become an outdated analytical framework for approving class action settlement agreements.  It also appeared to accord special weight to provisions in such agreements whereby corporations promise to obtain fairness opinions in connection with future transactions in determining the overall fairness of the agreements.  Thus, while non-monetary class action settlements are increasingly disfavored in other courts — most notably, in the Delaware Court of Chancery — New York courts remain receptive to their utility.

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Delaware Court Affirms Utility of Non-Reliance Clause in Dismissing Fraud Claim

In IAC Search, LLC v. Conversant LLC (f/k/a ValueClick, Inc.), 2016 WL 6995363 (Del. Ch. Nov. 30, 2016), the Delaware Court of Chancery provided a reminder on how potentially-overlooked contractual provisions could have a significant bearing on the types of claims an aggrieved party may bring.

IAC v. Conversant is the progeny of cases decided by the Delaware Court of Chancery examining fraud claims in the mergers and acquisition context. Previously, the court had established in Abry Partners V, L.P. v. F & W Acquisition LLC, 891 A.2d 1032 (Del. Ch. 2006), that “murky integration clauses, or standard integration clauses without explicit anti-reliance representations, will not relieve a party of its oral and extra-contractual fraudulent representations.”

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Ninth Circuit Holds that Alleged Violations of Aspirational Corporate Conduct Standards Are Insufficient to State a Claim for Securities Fraud

In Retail Wholesale & Department Store Union Local 338 Retirement Fund v. Hewlett-Packard Co., 2017 U.S. App. LEXIS 955 (9th Cir. Jan. 19, 2017), the United States Court of Appeals for the Ninth Circuit addressed for the first time whether an undisclosed violation of a company’s code of ethics can support a claim of securities fraud.  The Ninth Circuit held that general pronouncements that a company seeks to adhere to high ethical standards, despite the later revelation that the company’s chief executive officer failed to meet those standards, cannot support a claim.  The Court observed that in order to support a claim for securities fraud, a statement must be capable of being shown to be “objectively false,” and noted that general, aspirational statements about adhering to corporate ethical standards are akin to immaterial puffery.  A contrary result, the Court explained, would turn every instance of wrongdoing by corporate employees into a securities case.  This decision reconfirms the Ninth Circuit’s strict application of the heightened pleading standards applicable in securities cases.

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Delaware Court of Chancery Rejects Bylaw That Required Supermajority Stockholder Vote to Remove Directors in Violation of 8 Del. C. § 141(k)

In Frechter v. Zier, C.A. No. 12038-VCG, 2017 WL 345142 (Del. Ch. Jan. 24, 2017) (Glasscock, V.C.), the Delaware Court of Chancery granted plaintiff’s motion for summary judgment on a declaratory relief claim and held that 8 Del. C. § 141(k) prohibits company bylaws from requiring more than a majority vote to remove directors from a company’s board.  The Frechter decision confirms that company bylaws may not impose requirements or implement procedures that conflict with 8 Del. C. § 141(k).  Continue Reading

Higher Filing Thresholds for HSR Act Premerger Notifications and Interlocking Directorates Announced

1. Higher Thresholds For HSR Filings

On January 19, 2017, the Federal Trade Commission announced revised, higher thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The filing thresholds are revised annually, based on the change in gross national product and will be effective thirty days after publication in the Federal Register. Publication is expected within one week, so the new thresholds will likely become effective in late February 2017. Acquisitions that have not closed by the effective date will be subject to the new thresholds.

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Delaware Supreme Court Confirms that Dilution Claims Typically Are Derivative and Are Extinguished After a Merger

Stockholder claims alleging wrongful dilution are typically considered to be derivative in nature.  Several decisions out of Delaware, however, have created exceptions to this general rule allowing stockholders to sue directly (rather than derivatively on behalf of the corporation) where, for example, a controlling stockholder authorizes a “disloyal expropriation” which reduces the economic value and voting power of the non-conflicted stockholders.  See, e.g., Gentile v. Rossette, 906 A.2d 91, 100 (Del. 2006); Gatz v. Ponsoldt, 925 A.2d 1265 (Del. 2007); Feldman v. Cutaia, 951 A.2d. 727 (Del. 2008).  In El Paso Pipeline GP Company, L.L.C. v. Brinckerhoff, No. 103, 2016, 2016 Del. LEXIS 653 (Del. Dec. 20, 2016), the Delaware Supreme Court declined to add to these exceptions and reaffirmed the general rule that dilution claims must be brought derivatively.  As a result, a derivative plaintiff losses his or her standing to pursue a dilution claim if the entity is acquired through a merger.

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U.S. Supreme Court Confirms that a Corporate Insider Receives a “Personal Benefit” by Providing Confidential Information to a Trading Relative or Friend, Affirming Conviction for Insider Trading

In Salman v. United States, No. 15-628, 580 U.S. ___, 2016 WL 7078448 (2016), the United States Supreme Court (Alito, J.) unanimously affirmed the insider trading conviction of petitioner Bassam Salman on the ground that Mr. Salman’s brother-in-law had breached his fiduciary duty by making a gift of confidential information to a “trading relative or friend.”  In doing so, the Supreme Court adhered to its prior ruling in Dirks v. SEC, 463 U.S. 646 (1983), and rejected a more lenient application of insider trading liability that the United States Court of Appeals for the Second Circuit had adopted in United States v. Newman, 773 F.3d 438 (2d Cir. 2014).

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Rule 504 Becomes Useful Tool for Smaller Capital Raising and M&A Transactions

On October 26, 2016, the SEC amended Rule 504 of Regulation D under the Securities Act of 1933 (the “Securities Act”) to increase the maximum amount of securities that may be sold thereunder in any 12-month period from $1 million to $5 million. Consequently, the rarely used Rule 504 may now prove useful to issuers of securities in smaller capital raising and M&A transactions.

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