M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Wednesday, February 29, 2012

Martin Marietta and Vulcan in Delaware

Steven Davidoff previously did a very good overview of the issues facing Martin Marietta. I just want to add something to the discussion of the current legal battle in Delaware.  Wait a minute ... what's a Maryland company seeking to take over a New Jersey company doing in a Delaware court? Martin Marietta and Vulcan are now before Chancellor Strine in Delaware arguing interpretation of a nondisclosure agreement.  Martin Marietta is seeking a declaratory judgment from the Chancery Court that the NDA does not preclude them from undertaking a hostile tender offer for Vulcan. Here are the complaint, the answer, as well as the NDA in question.

Central to the Martin Marietta's argument is that the NDA does not include a standstill agreement. Had the parties, Martin Marietta argues, wanted to ensure that Martin Marietta be precluded from undertaking such a transaction in the event friendly talks fell through, they could have included the provision in the NDA, but they didn't.  Martin Marietta is asking the court to give it a declaratory judgment that the NDA does not preclude them from pursing a hostile offer.

On the other hand, Vulcan claims that the confidential information handed over as part of the NDA can only be used in furtherance of the friendly transaction that the parties were contemplating when they signed the agreement.  By going hostile, and presumably relying on some of the confidential information and disclosing the earlier talks, Vulcan argues that Martin Marietta is in violation of the NDA.  Vulcan is looking for an injunction from the Chancellor to prevent the tender offer from going forward.

Here's the critical paragraph from the NDA:


First, Mets and Yankees?  And no one thinks this deal could possibly ever go hostile?  Why not call it Yankees and Red Sox?  C'mon!  Ok, there is no question that this NDA does not include a standstill provision of any sort.  It just doesn't. Now the lawyers who negotiated the NDA know how to write standstill provisions. I'd dare say that standstill provisions are probably in their NDA form contracts.  For whatever reason, they decided not to include a standstill in this agreement.  Why?  Who knows.  It really doesn't matter, does it?  

Now, look at the definition of "Transaction".  Vulcan is arguing that they were negotiating a friendly deal and that any use of Vulcan's confidential information for any purpose other than the friendly deal is in violation of the NDA.  The NDA defines "Transaction" as "a possible business combination transaction" between Martin Marietta and Vulcan.  It doesn't read a friendly merger, a negotiated transction, or the like...just a business combination.  I suppose a business combination transaction can be hostile as a well as friendly.  The definition of the Transaction in the NDA certainly doesn't make it obvious that the NDA was meant to only cover a friendly, negotiated transaction and no other.

Anyway, Vulcan is asking for Chancellor Strine to read the minds of the parties rather than enforce what the parties have written on paper. It seems like hard argument for Vulcan to win.



Update: Yes, I am aware that I passed on an opportunity to offer up the "Strine engaging in a Vulcan mind meld to figure out the intent of the parties" pun. I'll let him do that in his opinion...



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I've seen target lawyers try to include references to "negotiate" or "mutually agreeable" transaction in defining "Transaction."

Isn't there a fed securities law angle that can be raised? I recall a 1980s case where a hostile acquiror was enjoined because it was in possession of material public information about that target that it couldn't disclose pursuant to the NDA.

Posted by: anon | Feb 29, 2012 8:38:23 AM

Would a target ever really be entering into an NDA and "contemplating" a hostile transaction with a potential purchaser?

Posted by: anon | Mar 2, 2012 3:28:46 PM

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