Recently in Arkansas Teacher Retirement System v. Alon USA Energy, Inc., the Delaware Court of Chancery (in an opinion by Vice Chancellor McCormick) held, on a motion to dismiss, that Delek US Holdings, Inc.’s acquisition of Alon may have violated Section 203 of the Delaware General Corporation Law, Delaware’s anti-takeover statute. The Alon board had exempted Delek from Section 203’s restrictions on business combinations, subject to a standstill provision. However, Delek later allegedly breached the standstill provision, and the court ruled that the breach may have “vitiated the Alon board’s Section 203 approval and restored the protections of Section 203.” The court further ruled that Alon stockholders had standing to directly enforce the standstill as third party beneficiaries. Finally, the court ruled that the merger was not entitled to business judgement review because the parties negotiated substantive deal terms before committing to use the procedural protections required by Kahn v. M&F Worldwide Corp. in controlling stockholder transactions, among other things.
The Alon decision recounts allegations of a less-than-pristine process for negotiating a controlling stockholder merger, as well as what the court characterized as “creative” theories of the stockholder-plaintiff in challenging that process, especially regarding Section 203 of the DGCL. Due to the high stakes involved in controlling stockholder mergers, the opinion serves as an important reminder of the types of process issues (whether real or only alleged) of which merger parties and their counsel should be mindful, and of the willingness of Delaware courts to hold parties to terms to which they have agreed.
