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Legal Developments

COVID-19 Issues Appearing in Representation and Warranty Insurance Policies

Since the escalation of the COVID-19 pandemic, we’ve seen the emergence of proposed exclusions from coverage in representation and warranty insurance (RWI) policies.  For example, a buy-side policy found in a recently signed deal contains the following exclusion: the inability to fulfil customer orders based on a lack of stock in the period after 5 months from Closing caused by disruptions to the Target Group’s supply chain as a result of the spread of the Novel Coronavirus, including, but not...

Uncategorized

Impacts of COVID-19 on Food, Beverage and Agribusiness M&A

The current macro and micro dynamics in the food and ag sector are rapidly shifting and uncertain, particularly in today’s world of the coronavirus. From a changing regulation and political environment to generational succession planning challenges, change and unknowns are creating both challenges and opportunities. As a result, consolidation in the food and ag sector is occurring at an unprecedented rate.  On March 25, 2020 Dorsey partner Michael Droke presented a webinar addressing the impacts of Coronavirus/COVID-19 on the M&A...

Legal Developments

More Grief for the “Big Guys”: Draft Revision of the China Anti-Monopoly Law Introduces Further Restraints on Influential Market Players

On January 2, 2020, China’s State Administration for Market Regulation, or the SAMR, released the Draft Revision of the Anti-Monopoly Law of China (the “Draft AML Revision”) for public comment.  The Draft AML Revision is significant in a number of respects, several of which will be highlighted below: (i) it makes it more likely that a transaction could trigger anti-monopoly review, (ii) it expands the concept of collusion to business operators who coordinate and assist in “collusion”, (iii) it increases...

Legal Developments

Effective Collaboration with the Governor Nets Pragmatic Solution to COVID-19 Corporate Issues in Alaska

On March 19, Dorsey attorneys successfully obtained an emergency order from the Governor of the State of Alaska, which temporarily suspends certain state laws during the coronavirus public health crisis, and allows all Alaska corporations to hold virtual and hybrid (in-person and communications equipment) annual shareholder meetings on short notice. Every Alaska corporation must have an annual shareholder meeting, and Alaska Statutes require corporations to hold in-person annual shareholder meetings (AS 10.06.405). Most other states allow virtual or hybrid meetings,...

Fiduciary Duties / Legal Developments

The “Long Goodbye” to Duty of Care as a Real Basis for Director Liability in M&A: The Legacy of Chancellor Allen

The fiduciary duty of care has become more aspirational than a real legal basis for potential director liability in M&A in the Age of DGCL Section 102(b)(7), Corwin v. KKR Financial Holdings LLC (Del. 2015) and In re Volcano Corp. Stockholders Litigation (Del. Ch. 2016).  At the 32nd Annual Tulane Corporate Law Institute in New Orleans on Thursday and Friday, March 5 and 6, 2020, a panel led by former Delaware Chief Justice Leo Strine (and including former Delaware Supreme...

Legal Developments / Practice Pointers

The Importance of Full Disclosure

Directors and officers of corporations owe a duty of care and a duty of loyalty to both the corporation and its shareholders, although the duty of care for directors can be exculpated.  A breach of these fiduciary duties can expose such directors and officers to liability.  In Morrison v. Berry, No. 12808-VCG, 2019 Del. Ch. LEXIS 1412 (Ch. Dec. 31, 2019), a recent decision published by the Delaware Chancery Court, Vice Chancellor Glasscock granted motions to dismiss against the majority...

Legal Developments

Increase in HSR Reportability Thresholds and Other HSR Developments

On January 28, 2020, the Federal Trade Commission (FTC) announced the annual adjustment of the thresholds that trigger premerger reporting obligations (and the mandatory waiting period) under the Hart-Scott Rodino (HSR) Act, which will apply to transactions closing 30 days after publication of the announcement in the Federal Register. The FTC also announced adjusted thresholds that trigger prohibitions on certain interlocking memberships on corporate boards of directors, which will become effective immediately on publication in the Federal Register. Both sets...

Legal Developments / Purchase and Merger Agreements

Recent Delaware Case Reinforces That Akorn is the Ceiling Not the Floor for MAE Terminations

2018’s landmark decision Akorn, Inc. v. Fresenius Kabi AG marked the first time that the Delaware Chancery Court upheld a buyer’s use of a Material Adverse Effect (MAE) clause to terminate a merger agreement. However, the Court’s reasoning in the case suggested that the favorable ruling was based on the particularity of the facts and that the general standard for successfully invoking such a clause remains high. The Court’s recent decision in Channel Medsystems v. Boston Sci. Corp confirms the...

Practice Pointers

Subsidiary Spin-Off Considerations

Care must be taken when a U.S. entity spins off assets to a newly formed wholly-owned subsidiary so that the legal protections offered by the desired separation are realized. This article presents a few high-level issues to consider. Fraudulent Conveyance Risks Associated with the Separation. A conveyance would be deemed fraudulent by a court of law if a company transfers assets for less than reasonably equivalent value while the company was insolvent. A board of directors cannot approve a spin-off...

Due Diligence / Private Equity

M&A and the Evaluation of Corporate Compliance Programs

Acquisitions of companies, especially target companies with international operations, require buyers to carefully scrutinize the target’s compliance programs, including the target’s compliance with the U.S. Foreign Corrupt Practices Act and other anti-bribery and anti-corruption laws. Doing so enables the buyer to more accurately assess the target’s value and risk profile, negotiate for the costs of any misconduct to be borne by the sellers and evaluate whether remedial steps are needed. When designing and executing a pre-M&A due diligence process on...

Fiduciary Duties

WeWork Debacle: Why Corporate Governance Matters

The recent saga of WeWork—a stylish co-working concept—provides a stark reminder of the importance of adhering to proven corporate governance principals.  The corporate form as a means of funding an enterprise works very well when the owners elect a board, the board hires and oversees management, and management adheres to metric-based goals.  However, when a cult of personality grows around a founder who believes he or she always knows best, paired with hands-off investors and a passive board, the governance...

Cross Border / Legal Developments

China Forex Liberalization Unlocks Massive M&A Opportunities for Foreign Invested Enterprises

On October 23rd, 2019, the China State Administration of Foreign Exchange (“SAFE”) issued a Circular on Further Promoting the Facilitation of Cross-border Trade and Investment (Hui Fa [2019] No.28) (《关于进一步促进跨境贸易投资便利化的通知(汇发[2019]28 号)》, “Circular 28“). The Circular 28 sets out 12 reform measures aiming to streamline the foreign exchange process in cross-border trade and ease controls over cross-border investments. But the highlight of the Circular clearly is the relaxation of foreign exchange controls over foreign-invested enterprises (“FIE”) utilizing funds converted from foreign...

Practice Pointers

Preparing for LIBOR Substitution: Commercial and Consumer Lending Considerations

As of December 31, 2021 (the “Effective Date”), the use of LIBOR as an index for commercial and consumer loans will likely cease—which presents lenders and other industry participants with the challenges to address: (a) the process for replacing LIBOR as an index for commercial and consumer loans outstanding as of the Effective Date that employ LIBOR as an index; and (b) how to proactively anticipate the end of LIBOR by beginning to substitute a new index for LIBOR between...

Legal Developments

State of Delaware Entity Statute Update

The State of Delaware typically amends its entity statutes annually to ensure that the statutes are state of the art and most effectively meet the needs of the changing business community.  Consistent with this practice, this year’s amendments to Delaware’s Limited Liability Company Act (the “LLC Act”), Revised Uniform Limited Partnership Act (the “LP Act”), Revised Uniform Partnership Act and General Corporation Law went into effect on August 1, 2019. Notably, the amendments to each of Delaware’s entity statutes establish...

Due Diligence

Next Level Due Diligence

Nearly every M&A transaction begins with a look at the possibilities: the strategic fit; the synergies; the drivers for the deal. Naturally enough, the next step will turn to an evaluation of risk.  Traditionally, legal exposure from toxic tort and other forms of product liability has rated high on the list of issues to identify and protect against — up there with environmental liabilities and compliance exposures. Recently, however, eye-popping damage awards have raised the stakes, suggesting that acquirers may...

Legal Developments / Public Company M&A / Purchase and Merger Agreements

MAE is MIA No Longer: Delaware Court Upholds Use of “Material Adverse Event” Clause for the First Time

In Akorn, Inc. v. Fresenius Kabi AG, the Delaware Chancery Court held that Fresenius, a German pharmaceutical company, was justified in invoking a “material adverse event” (MAE) clause to terminate its $4.8 billion merger agreement with American generics manufacturer Akorn, Inc.  Although MAE clauses are common in large transactions, Akorn marks the first time that the Chancery Court has upheld a buyer’s use of such a clause to back out of a merger agreement. Nevertheless, the Court’s reasoning suggests that...