Since President Biden’s July 2021 direction to the Federal Trade Commission (“FTC”) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” the FTC has ratcheted up its scrutiny of and investigations into non-compete agreements and other restrictive covenants. Now, the FTC has expanded beyond post-employment restrictive covenants to tackle “sale of business” non-competes. Most recently, the FTC voted in favor of a deal-changing proposed order against ARKO Corp. related to its 2021 acquisition of sixty fuel outlets from Corrigan Oil Company.
In Shareholder Representative Services LLC v. Albertsons Companies, Inc., 2021 WL 2311455 (Del. Ch. June 7, 2021), the Delaware Court of Chancery (Slights, V.C.) provided key guidance on mergers and acquisitions (“M&A”) earnout disputes regarding contractual earnout language, the applicability of the implied covenant of good faith and fair dealing, extra-contractual discussions and promises and post-closing behavior of the acquirer. This opinion serves as a reminder to M&A transaction parties on important drafting concepts in earnouts, as well as how to conduct themselves during the negotiations and earnout period.
Continue Reading Delaware Court of Chancery Decision Provides Guidance on M&A Earnouts
In two recent decisions, City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Comstock, C.A. No. 9980-CB, 2016 Del. Ch. LEXIS 133 (Del. Ch. Aug. 24, 2016) (Bouchard, C.) (“Comstock”), and Larkin v. Shah, C.A. No. 10918-VCS, 2016 Del. Ch. LEXIS 134 (Del. Ch. Aug. 25, 2016) (Slights, V.C.), the Delaware Court of Chancery addressed the salutary effect of stockholder approval on the standard of review to be applied when evaluating damages claims in post-closing merger litigation. The Delaware Supreme Court first recognized this effect in Corwin v. KKR Financial Holdings, LLC, 125 A.3d 304, 309 (Del. 2015), holding that “[w]hen a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of the disinterested stockholders, the business judgment rule applies.” But, since Corwin, the precise meaning of the phrase “not subject to the entire fairness standard” — and thus the scope of Corwin’s holding — had not been addressed. Comstock and Larkin do so, with Larkin extending Corwin’s holding the furthest. Larkin declares that fully informed, uncoerced stockholder approval changes the standard of review in post-closing litigation to the more deferential business judgment rule in all instances save one: when the presence of a controlling stockholder triggers entire fairness review, in which case the entire fairness standard remains applicable.
Continue Reading Delaware Court of Chancery Addresses the “Cleansing Effect” of Stockholder Approval In Post-Closing M&A Damages Actions
Volume VIII – Foreign Buyers Do Make a Difference
Not every potential buyer is a U.S. corporation controlled by U.S. interests. It is important, both for the buyer and the seller, to understand the implications of foreign ownership, control, or influence (“FOCI”) on the feasibility of a sale to foreign interests and the processes that apply to such sales. As the title of this posting makes clear, foreign buyers do, in fact, make a difference.…
Volume VII—Investing in Small Businesses
Numerous government contracts programs support small businesses. There are prime contracts set aside for various categories of small business entities. Agencies have small business contracting goals and take them very seriously. Prime contractors often are incentivized, through evaluation factors, to propose significant small business participation. They can also face liquidated damages for failing to make good faith efforts to comply with their small business subcontracting plans. These programs promote economic growth by incentivizing investment in small business entities.
The primary obstacle to investing in small businesses, from a government contracts perspective, is that it is quite easy to lose small business size status as the result of a corporate transaction. The difficulties arise from the doctrine of “affiliation.”…