Special Committees in Conflicted M&A Transactions: Implementing Processes, Negotiating the Deal, Avoiding Pitfalls

Special committees of company boards often play a critical role in M&A transactions that involve conflicts of interest, such as transactions involving controlling stockholders, corporate insiders, or affiliated entities (including "going private" transactions, or purchases or sales of assets or securities from or to a related party). Such "conflict transactions" raise complicated legal issues and, in today's environment, a high likelihood of litigation. Special committees are judicially recognized and encouraged as a way to address director conflicts of interest in deals and mitigate litigation risk.

The special committee process, while highly beneficial if properly executed, is complex and can be expected to be subject to rigorous review in litigation. It is therefore imperative that all special committee interactions be undertaken thoughtfully and with a view to how they may be perceived in hindsight.

Companies must carefully consider in the context of a transaction--when the specter of a real or potential conflict arises--whether a special committee is in fact the best approach, whether it is advisable at all, and whether alternative approaches could be implemented. Equally important is the proper formation and empowerment of the special committee and the execution of its work.

The decision by the Delaware Court of Chancery in the In re Oracle Corporation Derivative Litigation underscores the advantages of a board's use of an independent special committee to lead the process for a potentially conflicted M&A transaction. The case also provides a helpful framework for determining whether the presence of an influential, non-majority shareholder results in a conflicted M&A transaction, and the procedural guardrails to consider implementing in order to have the directors' decisions be subject to the "business judgment rule" and not the more onerous "entire fairness standard."

Listen as our authoritative panel of M&A experts discusses best practices in connection with the establishment and operation of a special committee of disinterested and independent directors to successfully close complex deals and avoid after-the-fact litigation.

1. Overview and legal framework for special committees
   1. Director fiduciary duties in M&A transactions and the "business judgment rule"
   2. Conflicted M&A transactions and the "entire fairness standard"
   3. Shifting the standard of review through the use of a special committee
2. Key considerations in determining whether, when, and how to form a special committee
3. Components of an effective special committee process
   1. Disinterestedness and independence of committee members
   2. The committee's role, authority, and process
   3. Selection of the committee's advisers
   4. Interactions with conflicted persons
   5. Additional considerations
4. Lessons learned from the In re Oracle Corporation Derivative Litigation and other recent Delaware decisions
5. Practice points and key takeaways

The panel will review these and other key issues:

• What kinds of transactions make the appointment of a special committee necessary or advisable?
• What is the legal framework for engaging a special committee in a conflicted M&A transaction?
• What are the components of an effective special committee process?
• What are the key lessons and practice points from the recent In re Oracle Corporation Derivative Litigation?