Governance Insights 2025 M&A Process Matters: Lessons from a Contested Fairness Hearing
Key Takeaways: Avoid Noise and Expense with Governance Best Practices
Although perfection is not the yardstick against which courts and regulators will judge a transaction, a robust governance process not only increases the likelihood of the deal’s success, but also protects the target, management and the directors from reputational harm, execution risk and delay. Even if transaction parties believe that the fairness of a transaction can be successfully defended, relatively inexpensive measures to insulate a transaction from “low hanging” governance critiques will, in many cases, be preferrable to increasing deal risk or public criticism. This is particularly true in the case of arrangements, which provide shareholders and other stakeholders with a fairly low-cost and effective forum in which to raise concerns regarding a proposed transaction. Directors and executives should engage with counsel at the outset of a potential deal to
consider how governance procedures can be leveraged to steer their transaction away from avoidable criticism (including from stakeholders, proxy advisory firms and other market commentators) and costly litigation. This is all the more important when dealing with a conflict of interest transaction, where a sound governance regime adopted at the earliest stages is often a key measure of fairness and a basis for deference to the board’s business judgment. For regulatory guidance on this topic, refer to CSA Staff Notice 61-302 (SN 61-302), which includes commentary from securities regulators regarding governance best practices for material conflict of interest transactions. Of course, the process adopted in this instance must be situated in the specific context in which the target found itself. However, boards that are similarly situated in the future should consider the following governance “best practices.”
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