Guidelines From Two Important Delaware M&A Cases

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Applying the Entire Fairness Standard, Buyer and its Affiliated Directors Held Liable for $1.263 Billion

Sale Transaction Not Enjoined Even Though Customary Value Enhancement Procedures Not Followed

In the past month, the Delaware Court of Chancery issued two decisions providing important guidance on directors' duties in connection with M&A transactions.

In re Southern Peru S'holder Deriv. Litig.

On October 14, 2011, following a trial on the merits, Chancellor Leo E. Strine, Jr. issued his post-trial decision in the shareholder derivative action in In re Southern Peru Shareholder Derivative Litigation, C.A. No. 961-CS. Chancellor Strine awarded $1.263 billion plus interest in damages against the acquiror, Grupo Mexico, S.A.B. de C.V. ("Grupo Mexico"). Grupo Mexico was the controlling stockholder of a NYSE-listed company, Southern Peru Copper Corporation ("Southern Peru"). The individual directors affiliated with Grupo Mexico who served on the Southern Peru board also were held liable. The lawsuit challenged the acquisition by Southern Peru from Grupo Mexico of a Mexican mining company owned by Grupo Mexico, named Minera Mexico, S.A. de C.V. ("Minera Mexico").

The court succinctly described the transaction proposal as follows: "How about you buy my non-publicly traded Mexican mining company for approximately $3.1 billion of your NYSE stock." Because Grupo Mexico (the buyer) was the controlling shareholder of Southern Peru (the seller), Chancellor Strine concluded that this was a "manifestly unfair transaction" that resulted in Southern Peru substantially overpaying for its acquisition of Minera Mexico, and that as a controlling shareholder, Grupo Mexico breached its duty of loyalty.

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