M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, September 21, 2011

Aggregation and Step-Transaction Doctrines in Asset Sales

Thanks to our friends at CourtroomView I was able to watch the argument last week's arguments before the Delaware Supreme Court in the BNY Mellon v Liberty Media litigation.  There weren't many fireworks in the courtroom, but isn't that the way appellate litigation usually is?  In any event, the Court just handed down its opinion in the matter affirming the lower court's decision that the spin-offs did not constitute a sale of substantially all the assets.

The issue before the court was whether the series of spin-off transactions undertaken by Liberty Media beginning in 2004 constituted a "series of transactions" for the purposes of determining whether the violated a covenant not to sell substantially all the assets of the corporation.  The opinion provides a nice overview of the relevant doctrine that applies to questions of to think about a series of transactions and asset sales.  

Applying NY law, the court agreed with the Chancery Court's application of the "aggregation doctrine": 

... where asset transactions are not piecemeal components of an otherwise integrated, pre-established plan to liquidate or dispose of nearly all assets, and where each such transaction stands on its own merits without reference to another, courts have declined to aggregate for purposes of a “substantially all” analysis.

Each of Liberty's spin-offs over the years was a transaction that stood on its own merits without reference to any of the previous spin-offs.  Thus, the aggregation doctrine counsels that the spin-offs would not constitute a sale of substantially all the assets.  

The Chancery Court applied an additional doctrine, the step transaction doctrine to the determination of whether the spin-offs constituted a sale of substantially all the assets.  The Supreme Court described the doctrine in the following way:

The Court of Chancery analyzed the facts under the “step-transaction” doctrine, which treats the “steps” in a series of formally separate but related transactions involving the transfer of property as  a single transaction, if all the steps are substantially linked.  Rather than viewing each step as an isolated incident, the steps are viewed together as components of an overall plan

The step-transaction doctrine applies if the component transactions meet one of three tests.  First, under the “end result test,” the doctrine will be invoked “if it appears that a series of separate transactions were prearranged parts of what was a single transaction, cast from the outset to achieve the ultimate result.”  Second, under the “interdependence test,” separate transactions will be treated as one if “the steps are so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series.”  The third and “most restrictive alternative is the binding-commitment test under which a series of transactions are combined only if, at the time the first step is entered into, there was a binding commitment to undertake the later steps.”

Though the Supreme Court felt application of the step transaction doctrine wasn't necessary, it's clear that under this test, when Liberty Media adopted a general business strategy of spinning out assets as the opportunity arose that it was not triggering a sale of substantially all the assets under the step transaction doctrine.

Here's Download BNY v Liberty Media

Liberty Media has just announced that the split-offs will start trading on Monday, Sept 26




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