Strategic Planning and Judicial Review Chapter 10 Part 4

In re Cox Communications, Inc. Shareholder Litigation Deal looks like other transactions discussed corporation with a 74% shareholder who has proposed a cash‐out transaction. Given obvious conflict of interest in setting terms – a special committee of directors was appointed – financial and legal adviser are named for the committee – vigorous negotiations leading to the family increasing its bid to $34.75 (from $32) – and settlement of the fiduciary duty litigation and – closing of the acquisition done by a tender offer which moved the family’s share above 90% followed by a short form cash‐out merger for the remaining minority shares.

Strine concern re atty fees Before Court is a request for approval of a fee request for plaintiff lawyers. Vice‐Chancellor Strine’s concern is that the plaintiffs’ lawyers are free‐riding on the negotiations of the independent committee and are not providing any value. He observes the pattern that when a special committee works out a higher price, plaintiffs’ lawyers always go along. Part of the argument for attorney fees becomes the difference between what happens when the majority shareholder uses a tender offer to get to the 90% threshold where appraisal is the only remedy (post‐Glassman) and the majority shareholder’s use of a long‐form merger.

Strine & Silicinox deals VC Strine finds support for the proposition that the Lynch deals (e.g. long form merger deals) generate higher premiums than Siliconix deals (e.g. deals using tender offers to get to the 90% level). In his coda, VC Strine seeks to promote universal use of a transactional structure that deploys an active, disinterested negotiating agent to bargain for the minority with disinterested stockholder approval. While the Siliconix case bring the tender offer and long‐form merger closer together (similar to the way that Glassman and Berger have brought short form appraisal and common law fiduciary duty closer together) there remains a difference that neither the legislature nor the Delaware Supreme Court has as yet sought to resolve.

Strine’s Worry The Lawyers – Filing often and quickly; settling too cheaply? – 85% of public company litigation in Delaware is class actions (i.e. not derivative) and 94% of class actions arise in acquisition setting – Quick to file – Multiple suits – Repeat law firms and plaintiffs

2 types of going private deals Lynch deal (long form merger) Parent Sub 50-90% Entire fairness applies Siliconix deal (TO followed by SFM Parent TO for 90%+ sub shares Parent Sub SFM

Post-Siliconix Freeze-Outs: Theory & Evidence Guhan Subramanian Harvard Law School ABSTRACT: At approximately the same time that the Sarbanes- Oxley Act increased the costs associated with being a public company, important Delaware case law created a difference in the standard of judicial review for the two basic methods of freezing out minority shareholders. While a freeze-out executed as a statutory merger is subject to stringent “entire fairness” review, the Delaware Chancery Court held in In re Siliconix Shareholders Litigation that a freeze-out executed as a tender offer is not. This paper presents the first systematic empirical evidence on post- Siliconix freeze-outs. Using a new database of all freeze-outs executed during the current doctrinal regime, I find that controlling shareholders pay less to minority shareholders, on average, in tender offers relative to mergers. This difference between tender offers and mergers increases if the controlling shareholder is large.