Learn about the legal responsibilities of a controlling shareholder to the other owners when contemplating a sale and the importance of transparency in M&A deals. Explore a real case scenario highlighting these crucial aspects.
M&A Stories
March 2, 2019
Introduction:
When you’re in charge of a company and contemplating a sale, it’s essential to strike a balance between seizing a great opportunity and fulfilling your legal obligations to other stakeholders. Let’s delve into a recent case that highlights this crucial aspect of M&A deals.
The Scenario:
Imagine you’re the CEO and majority shareholder of a thriving company. You’ve received an offer to sell, including an enticing compensation package, but this decision has legal implications.
Legal Responsibilities:
As a board member and controlling owner, you must act in the best interests of all owners. This involves securing the highest possible value for the company’s shareholders during the sale process. Failing to do so breaches your duty of loyalty and due care to other owners.
The Deal:
In this case, a company was sold for $1.3 billion, but the initial $20 per share offer was rejected. Eventually, a deal was struck at $21.50 per share, with the buyer retaining current officers and directors. Senior management and board members received substantial cash-out payments, including the CEO’s $4.9 million payment, along with retention bonuses.
The Lawsuit:
Before the deal’s closure, a shareholder demanded access to the company’s records, suspecting that the board and officers had not acted in the shareholders’ best interests. The shareholder wanted to ensure that the purchase price truly represented the highest attainable value and that other potential suitors weren’t overlooked. The court ordered the company to produce relevant records and emails for investigation.
Conclusion:
While the court’s order doesn’t imply wrongdoing, it underscores the importance of transparency and fairness in M&A deals. As a company’s controlling owner, , always act transparently and fairly with the other owners, considering the legal ramifications of your decisions.
Case Reference:
Inter-Local Pension Fund GCC/IBT v. Calgon Carbon Corporation, C.A. No. 2017-0910-MTZ, Court of Chancery of Delaware, (Decided: January 25, 2019).
By John McCauley: I help businesses minimize risk when buying or selling a company.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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