Stuck in “Between”: Delaware Court Stops Bid Due to Breach of Confidentiality Agreements
|Area||Corporate Finance and Securities, Mergers and Acquisitions, Shareholder Rights and Activism|
On May 4, Chancellor Strine of the Delaware Court of Chancery stopped a hostile exchange offer by Martin Marietta Materials, Inc. for Vulcan Materials Company, and a related proxy process, after finding that in making the offer Martin Marietta breached the terms of two confidentiality agreements between the two parties. In a judgment highly reminiscent of the Ontario Superior Court of Justice’s well known RIM v. Certicom decision, Strine concluded that the agreement – which did not include a separate “standstill” provision – precluded Martin Marietta from using Vulcan’s confidential information to pursue the offer and the proxy process because those transactions were not – as one of the agreements required – business combinations between the parties. As in Certicom, the court looked past the absence of an explicit standstill provision in the confidentiality agreements to enjoin unsolicited control transaction proposals because of the way the agreements restricted the bidder’s use of confidential information. The decision reinforces the key lesson of Certicom that parties considering entering into a confidentiality agreement should consider very carefully the specific terms of the agreement and the possible limitations it may impose upon future activities if the initiative for which the agreement is entered into does not materialize.