October 22, 2007
SLM: More on Yesterday's Hearing
I thought I would set forth a few more thoughts on yesterday's SLM hearing. It really is a fun read.
For those who think that SLM's interpretation of the MAC clause is correct, VC Strine may have revealed his initial leanings yesterday. VC Strine mused:
I have to say, the defendants, the weakness from their position is this idea that, basically, one penny on top of what is outlined in the agreement more makes you count the whole thing as an MAE. That is not intuitively the most obvious reading of this. On the other hand, the plaintiffs' position could have been much more clearly drafted if they wished to say that, essentially, all the legislation was a baseline, and you measure the incremental effect.
I have stated before why I disagree with this reading. Nonetheless, for those who read their tea leaves one could infer that VC Strine's initial thought is that SLM's reading is the correct one. To be obvious, though, this case has a long way to go before any decision and Flowers et al. will get many more opportunities to influence VC Strine's thinking.
Otherwise, the transcript is a bit back and forth on this, but VC Strine effectively ruled that there will be a trial in January with reasonable discovery, but only if the parties agree to the covenant waivers in the merger agreement. So, SLM may conclude that the right strategy for it given the above statement is to avoid just such an agreement. This is because VC Strine said he would entertain a "mini-trial" or summary judgment disposition with no ancillary or parol evidence if the parties come back to him on that. Expect SLM to attempt this maneuver, though I think Strine will push back if there is actually no agreement. Strine seemed quite loathe to make any ruling without just such parol evidence and SLM may overreach here.
Another great quote in the hearing was also pointed out to me:
THE COURT: A fairness opinion is just a fairness opinion.
MR. WOLINSKY: A fairness opinion, you know -- it's the Lucy sitting in the box: "Fairness Opinions, 5 cents."
Marc Wolinsky is a partner at Wachtell, a firm which regularly advises clients and investment banks on the legal necessity and provision of fairness opinions. For him to go off message like this in a Delaware court once again exposes the common and openly acknowledged problems with fairness opinions. As I argue in my article Fairness Opinions, the time has long past for Delaware to overrule the implicit requirement for a target fairness opinion established in Smith v. Van Gorkom.
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