Earlier this month, the Delaware Court of Chancery issued its much-anticipated post-trial decision in the dispute between "the top two rock stars in the aggregates industry," Martin Marietta Materials and Vulcan Materials. In his 138-page opinion, Chancellor Leo E. Strine, Jr., held that Martin Marietta violated both use and disclosure restrictions in two confidentiality agreements signed by the parties during friendly merger discussions in 2010 when, in late 2011, Martin Marietta launched a hostile $5.5 billion bid to take over Vulcan. As a result, the Chancellor enjoined Martin Marietta from persisting in its tender offer for Vulcan stock and its proxy contest for seats on Vulcan's board for a period of four months. The Chancellor's decision is especially noteworthy in light of the fact that neither confidentiality agreement contained an explicit standstill provision, which would have expressly prohibited one party from seeking to acquire another party in an unsolicited manner. Indeed, the decision sends a stark warning that customary, early-stage confidentiality agreements — even those that do not contain explicit standstill provisions — can preclude parties from pursuing unsolicited takeovers.

Background

In the spring of 2010, the CEOs of Martin Marietta and Vulcan began discussing the possibility of a negotiated merger transaction. Although the parties never discussed a standstill agreement, Martin Marietta's CEO did stress in negotiations that his company was "not for sale" and "made clear that Martin Marietta was not interested in being purchased by anyone, including by Vulcan, and that the discussion had to be for the purpose of a consensual deal only." To facilitate the negotiations and in light of these concerns, the parties entered into two confidentiality agreements.

Both agreements limited the ways information could be used: the parties agreed that they could use information exchanged under the agreements solely for the purposes of evaluating and pursuing a transaction. One agreement defined "transaction" as "a possible business combination transaction. . .between [Martin Marietta] and [Vulcan] or one of their respective subsidiaries," and the other defined it as "a potential transaction being discussed by Vulcan and Martin Marietta. . . involving the combination or acquisition of all or certain of their assets or stock." Both agreements also required the parties to keep the information exchanged — and the very existence of the negotiations — confidential unless disclosure was legally required.