Delaware Court Rejects M&A Challenge Over Adviser Conflict
The Court of Chancery dismissed claims against a board and its financial adviser, finding that detailed proxy statement disclosures about the adviser's relationship with the buyer cleansed the deal under the Corwin doctrine.
The Delaware Court of Chancery dismissed stockholder claims in 'Berger v. Fox' challenging the acquisition of Envestnet by Bain Capital. Plaintiffs had alleged the board breached its duties by hiring a conflicted financial adviser and that proxy disclosures about the adviser's relationship with Bain were inadequate. The court held that the transaction was protected by the business judgment rule under the 'Corwin' doctrine, as a fully informed, uncoerced majority of disinterested stockholders had approved the deal.
The decision is significant for dealmakers because it confirms that disclosing the nature of an adviser's concurrent work for a buyer, along with the relative scale of the fees—in this case, that they were "significantly more" than the fees from the target—can be sufficient to create a "fully informed" vote. Sophisticated counsel should note that the court declined to resolve whether a heightened pleading standard for aiding-and-abetting claims applies to sell-side financial advisers, leaving an important area of law unsettled. Boards and their advisers should continue to document their rationale for key decisions and err on the side of more specific conflict disclosures.