Cases such as genomics and other decisions made since the financial crisis, where the supervisory powers of the board of directors have been exhausted, seem to assume that the board is not really in office.  However, practical experience shows that this is not the case at all. Boards and target company executives should be allowed to make rational decisions about the negotiation strategy and tactics of the auction process. The genomics tribunal was concerned that in the future directors would be deliberately blinded by potential superior offers. But what motivates them to do so? In our experience, target boards do their best to maximize shareholder value, even in circumstances where management may have conflicting interests such as loan-financed buybacks. In addition, in addition to fulfilling their fiduciary duties, the directors of the target companies are almost always shareholders of the target and will personally benefit from maximizing the selling price. In the absence of a conflict of interest, why would they not choose the path they thought was the best opportunity for the company to get the highest price? If the board chooses to use a dead end that involves a “Don`t ask, don`t waive” settlement, is it not more likely that it did so because it thought it was the best tactical approach to conducting the auction? Two recent cases in Delaware remind us of the important provisions of confidentiality agreements made in connection with potential acquisitions. Buyer contact with suppliers, distributors, customers and other sellers` business relationships can affect sellers for a wide range of reasons, including potential transaction confidentiality, competition issues and the desire to manage relationships with important customers. Sellers may insist that access to these parts be delayed until late in the due diligence process (if any).
A company that is pressured by an aggressive bidder or activist investor believes that a status quo agreement is useful in weakening the unsolicited approach. The agreement gives the target entity greater control over the deal process by requiring the bidder or investor to buy or sell the company`s shares or launch proxy contests. However, given the ambiguity generated by the genomics, the participants of the agreement must decide how to proceed with respect to the cessation of the auction process. Some seem to suggest that “do not ask, not give up” provisions are abandoned in the light of genomics.  We believe that this goes too far and, as Chancellor Strine explained in Ancestry.com, is inconsistent with Delaware`s principled jurisprudence in the context of the merger. As noted above, the House should be informed of the recommended conditions of the auction process, including the shutdown, and confirm the approach on the basis of recommendations from external consultants. Given that Chancellor Strine and Vice-Chancellor Laster have focused on the impact of the provision on possible competing bids after the signing, the more cautious approach to the objectives may be to continue to insist on making it available and, if necessary, to adopt or condition it only when a final agreement is signed. In some circumstances, it may even be appropriate for the objectives to be limited to the provisions of the merger agreements that require them to impose confidentiality agreements, referring to an agent who may be limited to participants in the process who have not received detailed information or have not submitted concrete proposals.