The Del Monte Decision: Court Finds Likely Breach of Fiduciary Duties by Board Arising from Actions by Financial Advisor; Postpones Merger Vote and Enjoins Deal Protections

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In litigation over the $5.3 billion LBO of Del Monte Foods Company, the Delaware chancery court postponed for 20 days the shareholder vote on the buyout and prohibited the sponsor group during the postponement from exercising most of the deal protections included in the merger agreement.1 Following the postponement, Del Monte’s shareholders approved the acquisition and it closed.

The court’s orders arose from its finding, based on a preliminary record, that there was a reasonable probability that the Del Monte board had breached its fiduciary duties, even though the board had “sought in good faith” to fulfill them, in part because of actions by the board’s financial advisor that the financial advisor had concealed from the board. The court also found that the sponsor group likely had aided and abetted the board’s breach of fiduciary duty, and, following issuance of the court’s opinion, plaintiffs filed claims for aiding and abetting against the financial advisor as well.

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