Risks to Overbidders Under Delaware Law

by William Savitt, for The Harvard Law School Forum at Harvard Law School, January 18, 2010.

A recent Delaware Court of Chancery decision refusing to dismiss damages claims by NACCO Industries arising out of its failed attempt to acquire Applica Inc. provides important guidance for parties contemplating an overbid and highlights the risks that remain even after a topping deal is successfully closed. NACCO Indus., Inc. v. Applica Inc., C.A. No. 2541-VCL (Dec. 22, 2009).

The complaint alleged that while NACCO and Applica were negotiating a merger agreement in 2006, Applica insiders provided information to principals at the Harbinger hedge funds, which were then considering their own bid for Applica. During this period, Harbinger amassed a substantial stake in Applica (which ultimately reached 40 percent) but reported only an “investment” purpose on its Schedule 13D filings, disclaiming any intent to control the company. After NACCO signed up the merger, the complaint alleged, communications between Harbinger and Applica management about a topping bid continued. Eventually, Harbinger amended its Schedule 13D disclosures and made a topping bid for Applica, which then terminated the NACCO merger agreement. After a bidding contest with NACCO, Harbinger succeeded in acquiring the company…(continue reading)

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