SPAC Groundhog Day

On March 1, 2023, the Delaware Court of Chancery issued its third decision concerning fiduciary duties in connection with de-SPAC transactions (and impliedly, SPAC formation).  See Laidlaw v. GigAcquisitions2. The case involved many of the same parties as the second decision about which we issued an advisory last month, and the court reached nearly identical conclusions.  See Delaware Chancery Court Issues Delman Decision.  It held that the de-SPAC transaction was subject to entire fairness review because there was a conflicted controlling stockholder and a conflicted board.  Applying the entire fairness standard, it held that the plaintiff had alleged facts sufficient to state a claim for breach of fiduciary duty given that the plaintiff "need only 'allege some facts that tend to show the transaction was not fair.'"  And the court held that the plaintiffs had met that standard because the proxy issued in connection with the de-SPAC transaction misstated the net cash per share that the SPAC was investing in the target.

After three decisions by the Delaware Court of Chancery in de-SPAC transactions, it remains an open question whether defendants can win a motion to dismiss in connection with a de-SPAC transaction when the proxy does not contain any allegedly false or misleading statements.  As the Delman decision stated, "[a]lthough fairness has two component parts -- price and process -- the court must make a single judgment that considers each of these aspects," and it is unknown whether, even with "perfect" disclosures, plaintiffs can state a breach of fiduciary duty claim based only on alleged conflicts (fully disclosed), an acquisition process run by persons with those alleged conflicts, and no fairness opinion from a fully independent investment bank.

In addition, given that all three decisions have been issued by the same Vice Chancellor, it is unclear whether the Chancellor or other Vice Chancellors will reach the same conclusions as reflected in the three decisions thus far.  Indeed, on March 2, another vice chancellor noted that "[t]he only importance of the [Delman] decision is its persuasive legal authority upon which this court may or may not rely."