The Delaware Court of Chancery’s recent opinion in the case of NACCO Industries v. Applica suggests that the liability of target companies for failing to abide by deal protection provisions in definitive agreements, such as “no shop” and “prompt notice” requirements, may not be limited to a stated termination fee. The Court’s decision is also important for its implications regarding Schedule 13D disclosures. Specifically, the Court held that plaintiffs may validly assert claims for common-law fraud based on false or misleading statements made in Schedule 13D filings. Although it is important to note that the Court addressed these issues in the context of a defendant’s motion to dismiss, and therefore assumed the facts as pleaded and reviewed the claims by a “plaintiff-friendly standard,” the case establishes important lessons for buyers and targets alike.
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