Delaware Court of Chancery — no fiduciary breach, although directors engaged in unfair process: four key takeaways

By John J Gilluly III and John L Reed

While management and the preferred stockholders of Trados, Inc received all of the merger consideration in an end-stage transaction and the common stockholders received nothing, the Delaware Court of Chancery has found that the transaction was still ‘entirely fair’ to the common stockholders because the common stock had no monetary value before the merger.

The 114-page opinion by vice chancellor J Travis Laster in In re Trados Incorporated S’holder Litig deals extensively with a variety of issues that directors and investors should consider.

In July 2005, SDL plc acquired Trados for $60m. The Trados board of directors, composed primarily of management and appointees of venture capital investors in Trados, approved the merger and a management incentive plan that awarded incentives to management for a sale, even if the sale netted nothing for the common stock…

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