Merger Disputes And Delaware Arbitration

Merger and acquisition agreements under which one company agrees to purchase another usually include provisions to protect
the parties until the deal is closed and all conditions met. These include commitments by the company being acquired that it will
continue to conduct its business in the regular ordinary course, and maintain and preserve its assets and customer relationships
until the transaction is complete. This warranty helps to ensure that no material change occurs in the business prior to closing,
and that the purchaser ends up with a company whose value is consistent with that revealed during due diligence.

Advanced Analogic Technologies, Inc. a semiconductor maker based in Santa Clara, California was to be acquired by a competitor based in Massachusetts, Skyworks Solutions, Inc. But the deal recently fell apart, with Skyworks claiming that Analogic Tech failed “to act and carry on its business in the usual, regular and ordinary course” and “use commercially reasonable best efforts, consistent with past practices, to maintain and preserve” customer relationships and assets.

This dispute, playing out in Delaware’s Chancery Court (the companies are incorporated in the state) is notable because it will be handled by the Chancery Court’s relatively new arbitration rules, meant to streamline the litigation process. Chancery Court arbitration permits one of the Court’s five judges to act as arbitrator.

Critics of the Delaware arbitration process bemoan the lack of transparency that accompanies arbitration and the fact that decisions by a Chancery Court judge acting as arbitrator will not become precedent that others can rely upon. Meanwhile, the parties involved may prefer saving legal fees, generally less in arbitration than trial, and the confidentiality an arbitration provides as to the details of the dispute.

However, it’s worth noting that Delaware is the state in which the majority of Fortune 500 companies are incorporated, not to mention many other public companies, as well startups that hope to raise money in the public markets. Regulatory filings required by public companies will force those involved in Delaware arbitrations to disclose certain information about the arbitration and its outcome that might otherwise remain confidential.

Schein & Cai is a law firm that works proactively with business clients to lessen the risk of disputes, but can litigate when necessary. We can also help you solve problems quickly and efficiently through litigation alternatives such as negotiation, mediation and arbitration.

Find us at www.sacattorneys.com.

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