Draft Del. Corporate Law Changes Clarify M&A Tender Offers

By Che Odom

March 17 — The preferred method of accomplishing a tender offer in public mergers and acquisitions will be tweaked if a proposal out of Delaware's bar association turns into law.

The Corporation Law Section of the Delaware Bar Association will meet April 5 to decide whether to endorse draft amendments to the General Corporation Law and introduce it as a bill to the General Assembly, Delaware's legislative body.

The most significant proposed change is one that would allow rollover of shares to be deemed tendered when determining whether the statutory minimum tender condition is satisfied, said Eric Klinger-Wilensky, a partner at Morris Nichols Arsht & Tunnell LLP and a member of the council that drafted the proposals.

Not considering rollover shares tendered increases the percentage of non-rollover shares that must be tendered to satisfy the statutory minimum, in turn making Section 251(h) less attractive for transactions involving a large rollover, he said.

“Currently there is concern that, because most rollovers are effected after consummation of the tender offer, they would not be considered tendered for purposes of determining whether that condition is satisfied,” Klinger-Wilensky told Bloomberg BNA in an e-mail March 17, adding that the proposed amendments would eliminate the issue.

Section 251(h) ‘Very Successful'

Section 251(h) is the preferred method of effecting two-step transactions under Delaware law. The proposed changes to Delaware's corporation statute also would dispense with certain minor stock-appraisal claims and allow parties to make payments to appraisal claimants to prevent further accrual of interest.

Section 251(h) has been “a very successful initiative, enabling acquirers to conclude their acquisitions more quickly and predictably and at the same time enabling stockholders to receive the value of an acquisition more quickly, all without sacrificing important protections,” Lawrence Hamermesh, a professor at Widener University Delaware Law School, told Bloomberg BNA in an e-mail March 17.

Technical Amendments

Hamermesh, who is a member of the Corporation Law Section, said the proposed amendments are “technical,” clarifying how to count whether the buyer has acquired the necessary percentage of ownership to accomplish the merger.

The definition of “received,” for example, would be “elaborately amended to clarify what it means to acquire shares in a tender offer,” he said.

The amendments also would clarify how the statute works in cases where the target company has multiple classes of outstanding stock, he said.

“All in all, I don’t believe that the substance of Section 251(h) is being changed in any significant way,” Hamermesh said. “The changes are just designed to clarify the operation of the statute.”

To contact the reporter on this story: Che Odom in Washington at codom@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

For More Information

The proposed amendments are available at http://src.bna.com/doQ.