Key Takeaways
Under Delaware law, following the acquisition of an entity through a cash-out or stock-for-stock merger, equityholders generally lose standing to pursue derivative claims in the name of the acquired entity unless certain limited exceptions apply.
In 2015, Delaware’s Chancery Court, in Primedia, established a three-part test for determining when former equityholders have standing to pursue post-merger direct claims for a controller’s alleged failure to secure the value of a material derivative claim during the merger negotiations.
Delaware’s Supreme Court has now, through
Spectra Energy, adopted the
Primedia test, but with two important clarifications:
Apart from making a threshold determination about plaintiff’s allegations, a trial court may not apply any further litigation risk discount in assigning value to the plaintiff’s claims on a motion to dismiss.