August 7, 2007
Dow Jones: The Voting Agreement and Orman v. Cullman
The Voting Agreement for the Dow Jones/News Corp. deal locks up 37% of Dow Jones's voting interests. As with the Merger Agreement, the voting agreement contains a fiduciary out which permits the signing shareholders to terminate the agreement to support a superior proposal. The agreement contains no prohibition on these shareholders then subsequently entering into a new voting agreement with respect to this superior proposal.
In Omnicare, Inc. v. NCS HealthCare, Inc., the Delaware Supreme Court effectively required that underlying merger agreements with these types of voting arrangements contain a “fiduciary-out” clause whereby the acquiree board could terminate the transaction and the voting agreement if, in light of subsequent developments, including a competing offer, their fiduciary duties required it to. In response, acquirors began to insist that clauses be written into these deals which permitted such termination but then obligated the shareholder parties to the voting agreement not to sell their shares or support a competing acquisition proposal for an extended period of time after termination(typically a year to eighteen months). The result was that any potential subsequent bidder would have to commit to holding out their superior bid for this time. This is a powerful discouraging device for such bids and is an effective side-step of Omnicare's requirements. But the practice was upheld in the Delaware Chancery Court in Orman v. Cullman, No. Civ.A. 18039, 2004 WL 2348395 (Del. Ch. Oct. 20, 2004).
The Dow Jones voting agreement is unusual in that it does not contain this type of clause. Instead, if a superior proposal emerges the party shareholders can terminate the agreement and agree to support the superior proposal immediately. The lack of such a clause is testament to the bargaining power of the Bancroft family (maybe Wachtell did earn some of their rumored $10 million fee), or, alternatively, News Corp.'s confidence that no such superior proposal will emerge.
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