2024 M&A Year in Review - Flipbook - Page 89
M&A Year in Review | 2024
U.S. Litigation Landscape
Controlling Stockholder Cases and Statutory Responses
The United States continues to experience the highest volume, globally, in both
transactional activity and business disputes. Taken together, these elements
produce a level of legal predictability that facilitates successful dealmaking under
U.S. laws and norms. This trend is expected to continue in 2025 as businesses seek
stability and certainty.
During 2024, the Delaware Chancery Court issued several decisions, involving
controlling stockholder transactions, that drew scrutiny and sparked debate. As a
result, several corporations announced plans to re-incorporate from Delaware in
favor of U.S. states such as Texas or Nevada, seeking more favorable legal
environments. In response, Delaware has enacted several amendments to its
corporations statute. These proposed changes include safe harbor provisions for
controlling stockholder transactions, which will enhance predictability in M&A
transactions under Delaware law.
In parallel, over the course of 2024, the Delaware Chancery Court issued three posttrial decisions that clarified how “commercially reasonable efforts” covenants
should be interpreted in the context of earnout disputes, providing dealmakers with
greater clarity for contract drafting.
In Himawan v. Cephalon, Inc., the Delaware Chancery Court reviewed the facts and
circumstances and ruled that the buyer had not breached its “commercially
reasonable efforts” obligation. In each of Fortis Advisors LLC v. Johnson & Johnson
and Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc.,
however, the Delaware Chancery Court concluded that the buyers breached their
efforts covenants, and, in one of those matters, the Chancery Court awarded the
seller more than US $1 billion in damages. The Delaware Supreme Court affirmed
the Himawan decision in January 2025 and is expected to rule on the Fortis
Advisors and Shareholder Representative cases later this year. These forthcoming
decisions will provide transacting parties with important new guidance on
drafting and interpreting “commercially reasonable efforts” covenants, particularly
in the context of earnout disputes and related matters.
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