The Delaware State Bar Association has proposed legislation that, if adopted, would amend the Delaware General Corporation Law in a number of significant ways. Among other things, the proposed legislation would amend the recently enacted Section 251(h), which facilitates the use of short-form mergers in certain two-step acquisitions, to eliminate the prohibition on the use of Section 251(h) by an “interested stockholder” and to clarify the provisions of Section 251(h) to address certain questions that have arisen in the months since its adoption. The proposed legislation also would clarify that director and stockholder action by written consent having a future effective time may be executed prior to becoming a director or stockholder and may be held in escrow (or similar arrangement), so long as the person executing such consent is a director or stockholder when the consent becomes effective.
Short-Form Mergers
Enacted in 2013, Section 251(h) provides an effective mechanism to consummate promptly a short-form merger without the need for stockholder approval in certain circumstances if the acquirer owns sufficient shares following a first-step tender or exchange offer to ensure that a merger would be approved if a meeting of the stockholders of the target corporation were held. Section 251(h) has been well received as a meaningful improvement over the previous requirement that the acquirer must hold 90 percent of each class of the target’s outstanding voting stock to effect a short-form merger. In the first six months after Section 251(h) became effective, 22 two-step acquisitions were consummated by utilizing Section 251(h), according to Graziella Babb’s FactSet Mergers Research Spotlight from March.
