New Amendments To Delaware Law Impacts Mergers And Defective Corporate Acts

Delaware recently passed amendments to its General Corporation Law, which will impact corporate and acquisition rules for the automotive industry. The amendments add several new provisions to the DGCL, including provisions that (1) allow a corporation to opt into a streamlined back-end merger process by removing the need under certain circumstances for a stockholder vote, (2) authorize the ratification of certain defective corporate acts and stock issuances, and (3) permit the use of a formula in connection with the consideration for an issuance of stock. A number of other technical and conforming revisions are also made. These amendments are made effective as of August 1, 2013, except for the amendments authorizing the ratification of certain defective corporate acts, which will become effective on April 1, 2014.

Prior to the enactment of new Section 251(h), an acquirer contemplating a back-end merger was required to obtain an affirmative stockholder vote, even if the acquirer owned enough shares to assure such approval will be obtained, unless the acquirer owned at least 90 percent of each class of the target's voting stock. The addition of new Section 251(h) allows a corporation to execute a back-end merger without the need for a stockholder vote, as long as the parties to the merger agreement comply with the terms of the new statute. Section 251(h) provides that, unless otherwise required by the target company's certificate of incorporation, a merger agreement involving a publicly held Delaware corporation may permit the acquiring company to approve a back-end merger without the need for a stockholder meeting. A Delaware public corporation is defined as a corporation whose stock is listed on a national securities exchange or held of record by more than 2,000 stockholders. Furthermore, the following conditions must be met: (1) the merger agreement should state that the contemplated transaction is governed by Section 251(h), and the back-end merger is required to be completed "as soon as practicable" following the consummation of the first-step tender or exchange offer; (2) the offer is for any and all of the target's outstanding voting stock; (3) following the consummation of the tender or exchange offer, the acquirer must own the percentage of target stock required by the DGCL to adopt the merger agreement, or any higher threshold required by the target's...