Delaware Court of Chancery Denies Injunctive Relief, Instructs on Deal Protection Provisions and Disclosure of Projections

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In re: Orchid Cellmark Inc. Shareholder Litigation, May 12, 2011

In a letter opinion issued on May 12, 2011, the Delaware Court of Chancery declined to extend preliminary injunctive relief to plaintiff shareholders objecting to Laboratory Corporation of America Holdings, Inc.'s (LabCorp) acquisition of Orchid Cellmark Inc. (Orchid). In denying the plaintiffs' request for injunctive relief, the Court reviewed two important areas of corporate M & A law and practice: the permissibility of deal protection mechanisms and the adequacy of projection disclosures made to shareholders in connection with a tender offer.

The plaintiffs sought to enjoin the $85.4 million transaction on two general grounds: (1) claims that the approval of the transaction by Orchid's Board of Directors (the Board) was based on a flawed and inadequate decision-making process that failed to reasonably maximize shareholder value, and (2) claims that Orchid's shareholders were provided with materially misleading and incomplete disclosures in connection with the transaction.

The Court determined that the plaintiffs failed to demonstrate a reasonable probability of success on the merits under each claim. In rejecting the plaintiffs' first claim, the Court concluded the information relied upon by the Board in the decision-making process was adequate, and the Board's decisions to approve the merger agreement and the deal protection measures the agreement included were reasonable. Similarly, the Court concluded the plaintiffs fell short of their burden with respect to the disclosure claim because the information disclosed to shareholders by the Board was accurate and sufficient.

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