Delaware Case Research Articles

THE MANY LIVES OF CONSTANCE BAKER MOTLEY

THE MANY LIVES OF CONSTANCE BAKER MOTLEY

From the Editor

I hope this issue finds you and your families all safe and well. As I write this, I am sitting at my desk looking at snow falling peacefully in my yard on top of several feet of snow from prior storms. I read that over 70 percent of the U.S. is covered in snow, so I know that I am not alone. The snow is so beautiful in December, but by February and March I am tired of shoveling and would very much like it all to go away. Fortunately, I have heat and light and a new issue of Business Valuation Review to read.Many thanks to the authors of the articles in this issue. Bradford Cornell and Richard Gerger explore the practicality of terminating terminal values. While I do not think that many of the courts where I practice are going to stray far from single-period capitalizations, their insights provide much food for thought given the amount of data available today. Roger Grabowski delves into the components of the growth in earnings and cash flows in discounted cash flow calculations while Gil Matthews provides an outstanding update on Delaware Case Law. I have also included an interview of Jay Fishman on his Lifetime Achievement Award and a lifetime of business valuation. Please join me in congratulating Jay on his award and thanking him for his contributions to the profession.I would once again like to invite all you authors and would be authors to consider submitting something to the Business Valuation Review. Most valuation engagement have a nuance, either in the valuation approaches and methods, the standards of value or the practice area that causes us to reflect on the way the valuation is done. Whether you are considering terminating the terminal value or something else new and interesting, we as a community are interested in any new thoughts that can contribute to the body of knowledge. The Business Valuation Review also provides a forum for discussion, albeit at a somewhat slower rate than Reddit. This reminds me of a quote from J.R.R. Tolkien's The Two Towers, “… we never say anything unless it is worth taking a long time to say.” The articles in this journal are thorough and well vetted, but this does not mean that they are the end all of any topic. Feel free to send me a letter if you have a comment on an article, whether it is for or against the subject matter, so that we can continue the slow but thoughtful conversation.Please enjoy this issue and while you are reflecting please consider contributing something to Business Valuation Review as well as the profession.Stay warm,Kyle Garcia

Recent Developments in Delaware Valuation Cases

This article discusses current developments in Delaware case law as they relate to valuation. It reviews all relevant Delaware Supreme Court decisions since 2017 and all relevant Court of Chancery decisions since 2019. We discuss the emphasis being placed by the Delaware courts on using discounted cash flow for valuations in related party transactions, as well as the substantial reliance on transaction price as the valuation measure in arm's-length transactions that have a satisfactory negotiation process. We conclude with a discussion of the impact of these and prior Delaware decisions on the valuation community and comments on the role of expert witnesses.

A New Theory of Material Adverse Effect Clauses

MAE clauses in business combination agreements almost never define the phrase “material adverse effect,” and so the meaning of that key expression derives primarily from a line of Delaware cases starting with In re IBP Shareholders Litigation. In that case, the court said that a material adverse effect requires an event that substantially threatens the overall earnings potential of the target in a durationally-significant manner. In implementing this standard in IBP and subsequent cases, the courts have had to determine how the target’s earnings should be measured (e.g., by EBITDA or by some other measure of cashflow), how changes in earnings should be determined (e.g., which fiscal periods should be compared with which), and how large a diminution in earnings is material. Neither IBP nor subsequent cases have provided clear and convincing resolutions of these issues. On the contrary, later cases have introduced yet new problems, such as whether it matters that the risk that has materialized and adversely affected the target’s business was known to the acquirer at signing, whether material adverse effects should be measured in quantitative ways, qualitative ways, or both, and whether a material adverse effect must be felt by the company within a certain period of time after the occurrence of the event causing the effect. This article proposes a new understanding of material adverse effects that solves all of these problems. Beginning from the foundational premise that a material adverse effect should be understood from the perspective of a reasonable acquirer, this article argues that such an effect is a material reduction in the value of the company as reasonably understood in accordance with accepted principles of corporate finance—that is, as a material reduction in the present value of all the company’s future cashflows. Hence, to determine if there has been a material adverse effect, the court has to value the company twice, once as of the date of signing and again as of the date of the alleged material adverse effect, in each case much as it would in an appraisal action. Valuing the company is easier and more reliable in the MAE context than in the appraisal context, however, not only because the court need obtain only a range of values for the company at the two relevant times (and not pinpoint valuations as in appraisal proceedings) but also because it turns out that there is a canonical way to determine if a reduction in the value of the company would be material to a reasonable acquirer. The new theory of MAEs presented here solves all of the problems in the caselaw noted above and explains why those problems could not be solved with the conceptual resources available in the existing caselaw.

Corporate Oversight and Disobedience

Over a decade has passed since landmark Delaware corporate law decisions on oversight responsibility, and only a small handful of cases have survived a motion to dismiss. Scholars have puzzled over what it means to have the potential for corporate accountability lodged within the duty of good faith, but almost never brought to fruition in terms of trial liability. This article explores the public-regarding purpose of the obedience and oversight duties in corporate law and provides a descriptive account of how they are applied in practice. The Article argues that the fidelity to external law required by the duty of good faith largely serves a legitimizing role for corporate law. Expressing obligations of legal compliance and oversight within corporate law acknowledges societal interests in the rule of law and preserves the ability of courts to flexibly respond to particularly salient and egregious violations of public trust, should they arise, without upending case law developed over decades. Further, this article examines the body of Delaware law concerning the oversight and obedience aspects of the duty of good faith and argues that they have become functionally linked. In practice to date, Delaware courts have prioritized giving directors broad latitude to take business risk by drawing a line at legal risk, despite the possibility that both types of activity could create social value or harm depending on the circumstances. Under current Delaware case law, courts have allowed Caremark claims to proceed where evidence exists to infer that the board utterly failed to implement a compliance monitoring system or that the directors engaged in disobedience by knowingly managing legal risk or flouting, violating, or ignoring the law. Bringing together these threads of discussion, this Article concludes that corporate law’s public-regarding commitment to the rule of law supports accountability in these instances of disobedience as well as more broadly when fiduciaries act with willful ignorance or an awareness that their efforts at compliance are insufficient.

Deference to Delaware Corporate Law Precedents and Shareholder Wealth: An Empirical Analysis

Delaware is home to more than half of all public corporations, and its market share among initial public offerings is even higher. Not surprisingly, therefore, an extensive body of literature is dedicated to exploring the causes and consequences of Delaware's preeminence as a state of incorporation. There exists, however, a second and largely ignored dimension in which Delaware has come to dominate U.S. corporate law: the common law process. Courts in numerous other states now accord Delaware case law a previously unheard-of level of deference: many state judiciaries have declared explicitly that they will look to Delaware cases in deciding open legal questions. In this paper, I undertake an empirical analysis of Delaware's impact on the corporate common law of other states. Using a hand-collected dataset of state and federal cases, I gain a number of important insights. First, deference to Delaware may be driven in part by functional considerations. States that have based their law on the Model Business Corporation Act (MBCA) and can therefore rely on case law from other MBCA states are less likely to defer to Delaware precedents. Second, firms are more likely to incorporate locally if their home states' courts look to Delaware precedents in corporate law matters. Third, stocks of corporations that are incorporated in the deferring state tend to experience positive abnormal returns at the time of court decisions that introduce the principle of deferring to Delaware case law. Fourth, there is some, albeit mixed, evidence that that stock price reaction is substantially stronger for those firms where agency conflicts between managers and shareholders are more pronounced. This last finding is intuitive in the sense that well-governed firms, if they stood to benefit from the application of Delaware case law, might already have (re)incorporated in Delaware.

Officers’ fiduciary duties and acquisition outcomes

AbstractUsing a Delaware case law that recognized officers’ distinct fiduciary duties for the first time in 2009, I examine the effect of officers' fiduciary duties (OFDs) on corporate acquisitions. I find that firms with entrenched officers prior to 2009 experienced increased announcement‐period abnormal stock returns, mainly because their acquisitions created more synergies and reduced officers’ incentives to preserve control. These firms increased liability insurance premium expenditures, but reduced value‐decreasing acquisition frequencies. Furthermore, the effect of OFDs is more pronounced in firms where officers are not directors, have wealth risk, face less product market competition, are insulated from the market for corporate control, or are able to avoid board monitoring. Overall, OFDs are a critical corporate governance mechanism that works in tandem with other disciplinary mechanisms.

The Corporate Governance Case for Board Gender Diversity: Evidence from Delaware Cases

Gender diversity on company boards is becoming an increasingly important issue. The theoretical bases for the desirability of gender diversity regulations can be understood under three categories i.e. social benefits; business benefits; and corporate governance benefits. Since corporate governance is the main task of the board of directors, the corporate governance case for board gender diversity needs to be developed further. This article tests the corporate governance benefits of board gender diversity by conducting a qualitative content analysis of Delaware cases. The observations from this study are then analysed against the quantitative and qualitative literature on the about the corporate governance benefits of board gender diversity. The findings suggest that gender diversity might help boards overcome some impediments to effective functioning in certain cases but also suggests other complementary solutions to make boards more effective. The article thus, builds the corporate governance case for board gender diversity, but also sets out its limits.

Asking the Right Question: The Statutory Right of Appraisal and Efficient Markets

In this Article, we make several contributions to the literature on appraisal rights and similar cases in which courts assign values to a company’s shares in the litigation context. First, we applaud the recent trend in Delaware cases to focus on the market prices of the company being valued, if the company’s shares trade in an efficient market, and defend this market-oriented methodology against those who maintain that recent discoveries in behavioral finance indicate that markets are inefficient and that share prices are unreliable due to various cognitive biases. Next, we maintain that the framework and methodology for utilizing market prices should be clarified. We contend that courts should look at the market price of the securities of a target company whose shares are being valued, unadjusted for the news of the merger, rather than at the deal price that was reached by the parties in the transaction. Unadjusted market price has two distinct advantages over deal price. First, the unadjusted market price automatically subtracts the target firm’s share of the synergy gains and agency cost reductions impounded in the deal price. This is appropriate to do because dissenting shareholders in appraisal proceedings are not entitled to these increments of value which are supplied by the bidder. Second, the unadjusted market price is unaffected by any flaws in the deal process that led to the ultimate merger agreement. Recently, commentators have contended that deal prices in merger transactions should be ignored in appraisal cases where there are flaws in the process that led to the sale. However, flaws in the sales process are not reflected in the unadjusted market price, so such prices are valid indicators of value regardless of whether there were flaws in the deal process. Further, no deal process is perfect, and ignoring market prices when a deal process is flawed succumbs to what economists call the Nirvana fallacy, which posits that an analytical approach (such as relying on market prices) should not be ignored or abandoned even if using that approach does not produce perfect results. Rather, an analytical approach should be used if it is better than the available alternatives and provides useful information to a tribunal or policymaker. Finally, we extend our analysis of market efficiency to a new domain. We point out that market prices can be used even when shares of nonpublicly traded target companies are being evaluated to determine whether the acquirer paid a fair price in certain cases by examining the share price performance of the acquirer’s shares. In cases where a bidder has paid an unfairly low price for the target’s shares due to self-dealing or incompetence or inattention on the part of the seller, the acquirer’s stock should react positively to the announcement of the transaction if the transaction is significant. In the absence of such a positive share price reaction on the part of the acquirer, the price should be deemed presumptively fair. This analysis seems particularly apt in situations where there is a decline in the value of the bidder’s stock upon announcement of an acquisition.

Fiduciary Principles and Delaware Corporation Law: Searching for the Optimal Balance by Understanding that the World is Not

This Chapter, forthcoming in the Oxford Handbook of Fiduciary Law, examines the principles that animate Delaware’s regulation of corporate fiduciaries. Distilled to their core, these principles are to: give fiduciaries the authority to be creative, take chances, and make mistakes so long as their interests are aligned with those who elect them; but, when there is a suspicion that there might be a conflict of interest, use a variety of accountability tools that draw on our traditions of republican democracy and equity to ensure that the stockholder electorate is protected from unfair exploitation. After reviewing the evolution and institutional setting of the pertinent Delaware case law, the Chapter details how these principles have emerged in several high-salience contexts (the business judgment rule, controller freeze-outs, takeovers, and stockholder elections), and demonstrates that the identified principles aim to preserve the benefits of profit-increasing activities in a complex business world where purity is by necessity impossible. Further, the Chapter demonstrates that, even when a stricter approach to fiduciary regulation is warranted because of the potential for abuse, these principles hew to our nation’s republican origins and commitment to freedom in another way: when possible to do so, regulation of fiduciary behavior that might involve a conflict of interest should involve not after-the-fact governmental review, but before-the-fact oversight by the fiduciaries of the corporation who are impartial and, most importantly, by the disinterested stockholders themselves.

The Regulation on Directors’ Remuneration: focusing on the analysis of the Supreme Court Decision 2014Da11888

상법 제388조는 이사 보수 결정에 있어 정관 또는 주주총회결의를 통하여 결정하도록 하는 절차적 요건을 제시하고 있으나, 그 결정된 보수가 이사의 업무에 비하여 과다하게 책정된 경우 이를 규제하는 상법상 근거에 대하여는 입법적으로 명확하지 않다. 이와 관련하여 대법원은 이사의 보수를 결정하는 상법 제388조의 절차적 요건이 흠결된 경우 결정된 이사의 보수에 대한 효력을 부인하여 왔고, 보수의 내용에 있어서도 이사가 회사에 대하여 제공하는 급부와 보수 간에 합리적인 비례관계가 있어야 함을 강조해왔다. 최근 대법원은 2016년 1월 28일 선고된 2014다11888 판결에서 이러한 대법원의 기존 입장을 유지하면서 대표이사를 비롯한 이사들의 보수 책정에 있어 그 과다성이 문제되는 경우 이를 판단하는 기준을 보다 상세하게 제시하고 있다. 본 논문에서는 대상판결의 의미를 모색하고자 상법상 이사의 보수가 규제되는 기본 원칙과 함께 대상판결에서 제시한 법적 근거를 절차적 규제와 내용적 규제로 구별하여 검토한다. 특히, 대법원이 이사의 보수를 규제하는 관련 법리 중 상법 제382조의3 충실의무에 대하여는 미국 델라웨어 주의 주요 판례들과의 비교법적 연구를 통하여 그 의미를 재고해 보기로 한다.Recently, directors’ remuneration is one of the most important issues in corporate governance because it is an area of corporate governance where potential conflicts of interest are very acute. In the light of this matter, in deciding directors’ remuneration, under article 388 of the Korean Commercial Code, a corporate should determine it in a shareholders meeting if there are no provisions regarding such rewards. It means that the Korean Commercial Code interests only in the procedure and the authority for deciding remuneration. But we have to concern on the quantitative appropriateness of directors‘ remuneration. In 2016, Korean Supreme Court noted more details about the legal legitimacy when it calculates severance pay in the decision 2014Da11888. This article analyzes the basic legal regime of directors’ remuneration under the Korean Commercial Code, focusing on the duty of loyalty, breach of trust, abuse of power of representation, and relevant korean cases in order to find the meaning of this case. The article also researches the delaware cases for the comparative study, especially regarding on the duty of loyalty.

Freedom to Mislead

In the past 15 years, Delaware courts seem to have created a rule that allowed sophisticated parties to contract around fraud by using an unambiguous disclaimer and integration clause. Supposedly, an extra-contractual fraud claim would be dismissed had there been an unambiguous disclaimer. However, a survey of Delaware cases tells a different story. They have not held that even sophisticated parties who have relied on fraudulent misrepresentations are bound by contract with a clear disclaimer and integration clause. In the cases in which the courts have supposedly done so, either the party seeking to uphold the contract did not make any fraudulent misrepresentations or the other party did not rely on them or the case could as easily have been decided on other grounds.

Officers’ Fiduciary Duties and Acquisition Outcomes

A Delaware case law recognized officers’ distinct fiduciary duties (OFDs) for the first time in 2009. I use this legal event as a natural experiment to examine the effect of OFDs on corporate acquisition decisions. I find that firms whose officers were protected from market discipline prior to 2009 experienced increased announcement-period abnormal stock returns after the event, mainly because post-event acquisitions by these firms created more synergies and reduced officers’ control. These firms also increased liability insurance premium expenditures, but reduced value-decreasing acquisition frequencies after the event. Furthermore, I find that the effect of OFDs is more pronounced at firms where officers are not directors (thus, do not have access to liability insurance), have wealth risk, face less product market competition, are insulated from the market for corporate control, or are able to avoid board monitoring. Overall results suggest that OFDs are a critical corporate governance mechanism that works in tandem with other disciplinary mechanisms.

The effect of poison pill adoptions and court rulings on firm entrenchment

We challenge a common presumption that poison pills and two Delaware case rulings in 1995 validating such pills materially entrench firms. Based on unsolicited takeover attempts from 1985 to 2009, we find that poison pills enhance takeover premiums, but do not reduce completion rates. Furthermore, the 1995 Delaware rulings affected neither the use of poison pills among the targets, the effectiveness of the pills that were used, the completion rate of the takeover attempts, nor the takeover premiums.

Lockups and Delaware Venue in Corporate Law and Bankruptcy

This article addresses two issues that have generated enormous debate in both the corporate law and the bankruptcy literature: the use of breakup fees and other lockup provisions, and Delaware's prominence as the nation's leading corporate address. The first half of the Article weighs in on the role of lockup provisions. Corporate law commentators have adopted widely divergent views of the propriety of lockups, with several calling for courts to uphold all lockups and others proposing varying levels and kinds of scrutiny. To make sense of this debate, I show that the existing literature can be distilled to three central issues: 1) commentators' views on the larger corporate law controversy over managers' proper response to unsolicited takeover bids; 2) their views as to whether target managers can or will prove disloyal to shareholders' interests; and 3) their assumptions about the appropriate size of lockups - that is, how much compensation should be allowed. In describing the importance of these three issues, I develop and defend my own normative position. Because lockups can entice managers to accede to a change in control they might otherwise resist, I argue that courts should enforce both first and second bidder lockups. Courts should limit lockup bidders to their reliance interest, however, rather than allowing even larger lockups. Interestingly, the Delaware case law on lockups has evolved in a direction quite similar to the normative approach I defend. I conclude the lockup analysis by considering the role of lockup provisions in bankruptcy. Although many courts and commentators have contended that bankruptcy calls for an entirely different approach to lockups, I argue that the extensive similarities between the two contexts suggest that courts should also apply a reliance-based approach in bankruptcy - though the approach should be tailored to reflect the nature of the bankruptcy decision making process. The second half of the Article considers the longstanding state law charter competition debate. The analysis begins by describing the two traditional views: to the bottom theorists insist that Delaware and other states cater to managers at the expense of shareholders, whereas to the theorists contend that market forces impel managers and states to take shareholder interests into account. Much of the most recent literature leans toward the race to the top view, but concludes that Delaware's dominance enables it to favor local interests such as the Delaware bar. In assessing the literature, I emphasize the moral dimension in the Delaware case law, and show that many of the rules the benefit Delaware lawyers also further Delaware's role as moral arbiter in corporate law. Turning to corporate bankruptcy, I argue that Delaware's increasingly prominent role in bankruptcy offers many of the same benefits as its preeminence in state corporate law. Because corporate bankruptcy is regulated by Congress rather than the states, the analogy is far from perfect. But the similarities make clear that the recent campaign to prohibit large corporate debtors from filing for bankruptcy in Delaware is misguided. Several recent commentators have challenged an earlier article of mine that defended Delaware's popularity as a bankruptcy forum. I conclude by pointing out the problems in their critique.

The Effect of Delaware Doctrine on Freezeout Structure and Outcomes: Evidence on the Unified Approach

Historically, Delaware corporate law provided different standards of judicial review for buyouts by controlling shareholders (also known as “freezeouts”) based on what transactional form was used: deferential business judgment review for freezeouts executed as tender offers, and stringent “entire fairness” review for transactions structured as mergers. Subramanian (2005), Subramanian (2007), and Restrepo (2013) provide doctrinal and empirical evidence that transactional planners responded to these differences in standards of judicial review; that these differences in judicial scrutiny created differences in outcomes for the minority shareholders; and that differences in outcomes created a social welfare loss, not just a wealth transfer from minority shareholders to the controlling shareholder. Over the past decade, in a series of important decisions, Delaware law has migrated toward a “unified approach” to freezeouts regardless of transactional form. In this paper we present empirical evidence on all freezeouts of Delaware targets during this period of doctrinal evolution. In general, we find that deal outcomes have converged in the eight years since the Delaware Chancery Court’s decision in Cox Communications, but approximately half of merger freezeouts in the post-Cox era still did not follow the procedural template provided by the unified approach. Our findings suggest that: (1) transactional planners seem to respond to even probabilistic changes in the Delaware case law; (2) the social welfare loss identified in Subramanian (2005) seems to no longer be present; but (3) the Delaware Supreme Court may nevertheless wish to “finish the job” by endorsing the unified approach, in order to ensure adequate procedural protections to minority shareholders.

Do Director Interlocks Empower Outside Directors?

We examine the role of outside directors’ interlocks, in restoring directors’ indemnification protection in response to the Delaware case Schoon v. Troy Corp. The case, which permitted a board to alter indemnification and advancement of expenses arrangements for a former director retroactively, left directors vulnerable unless their firm acted to restore protection. Using a hand-collected data set, we find that firms became more than two times as likely to adopt enhanced indemnification protection once a firm with which they share an outside director adopted protection. Our results suggest that interlocks contribute to outside directors’ knowledge and bargaining power within the boardroom. Consistent with the bargaining power hypothesis we find that other measures of outside directors’ power: (i) a large proportion of outside directors; (ii) a designated independent lead director, and, with marginal significance, (iii) more board meetings in executive session. These results have legal and practical implications for corporate governance.

Assessing Potential Impacts of a Wastewater Rapid Infiltration Basin System on Groundwater Quality: A Delaware Case Study

Rapid infiltration basin systems (RIBS) are receiving increased interest for domestic wastewater disposal in rural areas. They rely on natural treatment processes to filter pollutants and use extremely high effluent loading rates, much greater than natural precipitation, applied to a small geographic area instead of disposal to surface water. Concerns exist today that adopting RIBS in areas with shallow groundwater and sandy soils may increase ground and surface water pollution. We conducted a field study of RIBS effects on N and P concentrations in soils and groundwater at Cape Henlopen State Park, Delaware, where a RIBS designed and operated following USEPA guidance has been used for >25 yr. Site and wastewater characteristics (water table of 8 m, Fe- and Al-oxide coatings on soils, organic-rich effluent) were favorable for denitrification and P sorption; however, we found high P saturation, reduced soil P sorption capacity, and significant total P accumulation at depths >1.5 m, factors that could lead to dissolved P leaching. Very low soil inorganic N levels suggest that wastewater N was converted rapidly to NO-N and leached from the RIBS. Extensive groundwater monitoring supported these concerns and showed rapid offsite transport of N and P at concentrations similar to the effluent. Results suggest that high hydraulic loads and preferential flow led to flow velocities that were too large, and contact times between effluent and soils that were too short, for effective N and P attenuation processes. These findings indicate the need for better site characterization and facility designs to reduce and monitor contaminant loss from RIBS in similar settings.

Auction Theory and Standstills: Dealing with Friends and Foes in a Sale of Corporate Control

A fundamental issue in Delaware mergers & acquisitions (M&A) law is the extent to which a target company’s board of directors may restrict a sales process to extract value from bidders and grant a “winning bidder” certain deal protections to protect a transaction from being overbid. Standstill agreements are one such form of deal protection. Standstills prevent bidders from making or announcing a bid for the target without the target’s consent both during the sales process and for a period after the sales process is completed and the target has executed an agreement with a “winning bidder.” Recent 2011 and 2012 Delaware Court of Chancery rulings have placed a new spotlight on the use of standstill agreements in M&A deals and specifically in change of control transactions. In particular, these cases highlight the restrictiveness of some standstills and open up discussion as to how restrictive a standstill may be without violating a target company board of directors’ duty to maximize stockholder value. This Article makes a unique contribution because it is the first paper to apply auction theory in critiquing and evaluating the need for standstills in M&A transactions. Auction theory utilizes economics to design optimal bid-ding procedures and revenue enhancing auctions. The application of auction theory to standstills is particularly well suited as the execution of a standstill is often cited as resulting in increased value during the sales process. Using auction theory and recent Delaware case law as a foundation, this Article provides a new framework for the use of standstills. It argues that to the extent standstills provide an entry into the due diligence and general sales processes, standstills may help to enhance value. Moreover, the promise of standstill restrictions continuing post-signing may aid in incentivizing bidders to submit their highest offers during the pre-signing sale process. But the use of more restrictive standstills like those in which a bidder agrees not to request a waiver and a target agrees in advance not to waive a standstill (or Don’t Ask, Don’t Waive (DADW) standstills) should turn on whether strategic or financial bidders are involved in the process as well as the amount of pre-signing shopping of the target engaged in by the board. This Article provides a new framework for dealmakers and for courts taking into con-sideration those factors. Among other things, this framework suggests that if dealmakers are to continue their use of DADW standstills, that they be paired with a minimal fiduciary out and with a staggered termination fee.

Just Say No: The Effects of Delaware Antitakeover Law on Shareholder Wealth

The goal of this paper is to analyze whether the current law is sufficient to protect shareholders of a target company in a hostile acquisition. Particularly, this paper focuses on the effect of the current law in empowering the board of directors to veto a tender offer through methods such as a poison pill and a staggered board combination. This paper will start with a brief introduction on merger mechanics and the considerations certain parties in the merger must face. Following is an overview of Delaware case law in the area of mergers. The bulk of the paper discusses the various benefits accruing to management and shareholders in blocking mergers and the suitability of the current law in allowing mergers that increase shareholder wealth. Finally, the paper evaluates alternative methods of dealing with takeovers and will attempt to formulate a solution best suited for the interests of the shareholders.