(137) The court's insistence on the inclusion of a fiduciary out is based on the board's "continuing fiduciary responsibilities to the minority stockholders." (138) The contractual expectations of the merging company "must yield to the supervening responsibility of the directors to discharge their fiduciary duties on a continuing basis." (139)
By analogy, if the Delaware Supreme Court found it necessary to include a fiduciary out in instances in which the board and the majority voting shareholders obtained a lock-up, it makes sense that the court would seek to ensure equal protection of minority shareholders in the event that a candidate's election was not in the best interests of the company.
(146) The inclusion of a fiduciary-out clause has the potential to make a shareholder-proposed bylaw useless if a board has discretion in exercising its fiduciary out. (147) The Blasius standard of review, reserved for instances in which the board of directors interferes directly with the election process for directors, is the proper standard for judging directors' invocation of a fiduciary-out clause in the reimbursement context.
In a rare 3-2 split, Delaware Supreme Court reversed, observing that the NCS board was required to contract for an effective fiduciary out
clause to exercise its continuing fiduciary responsibility to its minority stockholders.
requiring a fiduciary out in every merger agreement, (3) and for the
contained a no-shop clause with a standard fiduciary out and benign
headed "Fiduciary Out Required," the Court offered an
In light of IBP, it is thematic to recall my Fall 1999 column, "The Strange Nature of 'Fiduciary Outs.'" I there made the point that there are "benefits (to both parties) of having a hard contract." I also noted that a buyer that signed a contract containing loose "fiduciary out" (and related) provisions had, in effect, bound itself to buy even while the seller had not correspondingly bound itself to sell to that buyer precisely because of the existence of those "fiduciary out" provisions.
When "fiduciary out" provisions do kick in, a seller winds up selling to a different buyer (in which case the original buyer receives a break-up fee but does not get to acquire its target) or that original buyer ends up paying a higher price than it earlier contracted to pay.
The arrangement agreement in respect of the corporate acquisition includes customary provisions relating to non-solicitation, fiduciary outs
for Kinder Morgan Canada with respect to financially superior alternate proposals and Pembina's right to match such proposals until the date of the Kinder Morgan Canada shareholders' approval of the transaction.
(2.) Julian Velasco, Fiduciary Duties and Fiduciary Outs
, 21 Geo.
MY COLUMN "The Strange Nature of 'Fiduciary Outs
' " (Fall 1999) analyzed some of the marked asymmetries of mergers and acquisitions contract law.