On December 19, the Delaware Supreme Court overturned a Delaware Chancery Court decision that imposed a mandatory obligation on a target company to solicit alternative transactions for 30 days despite a prohibition against such solicitation in the merger agreement. The Supreme Court decision affirmed both a board’s flexibility under Revlon to fashion a reasonable sale process and the court’s reluctance to “blue-pencil” a negotiated agreement. C&J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation Employees’ Retirement Trust, Del. Supreme Court, Dec. 19, 2014.

BACKGROUND -

On June 25, 2014, C&J Energy Services, Inc. and Nabors Industries, Inc. agreed to a merger of C&J with a division of Nabors, creating a new company to be owned 47% by former C&J stockholders and 53% by Nabors. C&J also agreed to pay $938 million to Nabors as additional consideration. C&J was the putative acquirer, but Nabors would be the majority shareholder of the surviving company to qualify the transaction for inversion tax status. Despite Nabors’ majority shareholding, the merger agreement provided that C&J management would run the new company and that four C&J directors would join, and comprise a majority of, the new company’s board of directors, for at least five years. Additional post-closing protections for the C&J minority shareholders included supermajority shareholder votes for specified corporate transactions, standstill and transfer restrictions on the part of Nabors, and a requirement that all stockholders receive pro rata consideration in any sale of the new company.