Is a Merger Agreement Ever Certain? The Impact of the Omnicare Decision on Deal Protection Devices
Justin W. Oravetz
The board of directors for a corporation adopts defensive measures, such as shareholder agreements, to protect the corporation from hostile bidders. The deal protection devices increase the likelihood that a transaction will be consummated in merger transactions. Deal protection devices are advantageous for both the bidding and the target corporation. The Delaware Supreme Court, in Omnicare, Inc. v. NCS Healthcare, Inc., addressed the issues of “locking-up” a merger transaction with deal protection devices and a board of directors’fiduciary duties surrounding the transaction. In a rare 3-2 split, the court held that deal protection devices in merger transactions will be reviewed with enhanced scrutiny, deal protection devices which result in a “locked-up” transaction are invalid without a ‘fiduciary out” clause and the board of directors has fiduciary duties to minority shareholders in merger transactions.