Governance Insights 2025 M&A Process Matters: Lessons from a Contested Fairness Hearing
target; (v) the lack of a market check either through a “go shop” provision or auction; and (vi) the purchaser’s use of the VSAs, which the dissident suggested had a negative impact on the effectiveness and integrity of the shareholder vote. Notably, in the lead-up to the fairness hearing, the dissident shareholder issued a series of highly critical press releases aimed at the target and its board. Among other things, the dissident accused the board and special committee of agreeing to a deal that grossly undervalued the target and of being focused more on the interests of the controlling shareholder than those of minority shareholders. Serious public accusations such as these raise the spectre of reputational risk for the institutions and individuals involved and underscore the importance of avoiding real and perceived conflicts. Court Dismisses Governance Concerns To assess whether the arrangement was “fair and reasonable,” the court applied the two-pronged test from BCE Inc. v 1976 Debentureholders , the second prong of which requires the court to examine whether “the rights of affected parties were resolved in a fair and balanced way.” The court noted that, although BCE stands for the proposition that the substance of the arrangement, rather than the board’s process, is the object of the court’s fairness determination, courts can and should consider governance matters as indicia of the fairness of the transaction. Although the court noted certain imperfections in the transaction process, it concluded that the target’s governance was reasonable in the circumstances. This determination, together with other indicia considered by the court, formed the basis of the court’s conclusion that the arrangement was fair and reasonable to minority shareholders.
shareholders and other interested parties are permitted to attend a fairness hearing and make submissions. In this case, the hearing was attended by a 4% minority shareholder of the target (the dissident shareholder) who contested the fairness and reasonableness of the transaction. It is generally expected that a court will issue its final approval for an uncontested arrangement on the same day as the hearing. Here, the court’s final approval arrived 10 days after the hearing, adding to the delays and uncertainties precipitated by the dissident shareholder’s arrival on the scene. The Dissident Shareholder’s Critiques of the Governance Process At the hearing, the dissident shareholder argued that the transaction’s alleged governance failures, including the process followed by the target’s special committee in negotiating and reviewing the transaction, resulted in a transaction that was not fair and reasonable to minority shareholders. The dissident shareholder’s governance criticisms principally targeted (i) the involvement of the CEO of the target in negotiations, where the target CEO was also the CEO of the controlling shareholder (a conflicted party), and allegations of improper influence of the controlling shareholder on the sales process; (ii) the special committee’s engagement of regular company counsel rather than independent legal advisers; (iii) the late engagement of a independent financial adviser to provide financial advice to the special committee and prepare the required formal valuation of the target shares; (iv) the lack of disclosure to shareholders regarding an unsolicited third-party offer received by the
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