Delaware Chancery Court Upholds Reasonableness Of Board Strategy In Merger Transaction

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On September 8, 2010, the Delaware Court of Chancery rejected an attempt by shareholder plaintiffs to enjoin a proposed merger between Dollar Thrifty and Hertz. While emphasizing that there is no single roadmap for a board to fulfill its Revlon duties in considering the sale of a company, the court clearly articulated the key features of judicial review under Revlon, and provided guidance as to the actions a board can take to satisfy this standard.1

Dollar Thrifty engaged in numerous failed merger discussions with both Hertz and Avis in 2007 and 2008 when its business was doing poorly. Then, Dollar Thrifty managed to turn around its business under the leadership of its new CEO. In December 2009, Dollar Thrifty resumed merger discussions with Hertz. The board expressly considered whether to reach out to Avis or other potential buyers, but concluded that Avis was not well positioned to make a bid due to financing concerns and greater antitrust risk compared to Hertz. The board also worried about the strong possibility that Hertz would cease merger discussions if the company went into auction mode and that a failed public auction could damage the company by upsetting employees who had experienced downsizing and increased expectations during the turnaround. Thus, the board decided to engage solely with Hertz but reserved the opportunity to consider a post-signing topping bid.

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