RE:RE:RE:Biotech buyouts.Perhaps it would be useful for posters on this message board better understand the fundamentally different responsibilities between a company's board of directors and its management which I have tried to briefly summarize below. - Directors and officers play fundamentally different roles within a corporation. Under Delaware law, “[t]he business and affairs of every corporation . . . shall be managed by or under the direction of a board of directors . . ..” As a practical matter, most companies are managed under the direction of the board: the board oversees management, and management is responsible for the company’s day-to-day activities. At the highest level, the board is responsible for approving or setting the strategy for a business, and management is responsible for executing that strategy. Expressing this allocation of responsibilities colloquially, only the board can govern, and only management can manage.
- The role of the board in M&A varies with the significance of a transaction. Consistent with the role of the board generally, a board should be relatively uninvolved with insignificant transactions and increasingly involved as transactions become more significant. The board should be highly involved in major, strategic acquisitions and in sales of the company or all, or substantially all, of its assets.
In some transactions, generally known by the name of the leading Delaware case, Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the board is obligated to secure the best price reasonably available for stockholders.
Board Responsibilities in Connection with a Sale of the Company
On the sell-side, the situation is a bit different because a sale transaction, particularly a sale of the company as a whole, can be the best opportunity for stockholders to achieve a premium for their investment. Here, too, the board’s principal role is strategy, governance, and oversight, with added considerations that arise in connection with a sale. One of these considerations pervades the sales process; two arise at the commencement of any process.
- In some transactions, generally known by the name of the leading Delaware case, Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the board is obligated to secure the best price reasonably available for stockholders. .... in general, a sale of the company for cash triggers Revlon duties. For this reason, boards should begin with the end in mind: they should assume that their decisions may need to withstand scrutiny under Revlon, and they should act throughout the process to maximize stockholder value.
- Before initiating a sales process, the board should assess whether this is an opportune time to sell the company. Under Delaware law, the decision on whether to sell or not sell the company is a decision for the board. Even if the company receives an offer at a premium to the company’s current market value, the board – with the assistance of its advisors – can assess whether stockholder value would be maximized by selling at that time, in response to that offer, or selling at a different point in the business cycle or at a different point in the company’s development, taking into account the company’s long-term strategic plan and whether the company’s stockholders are better served by the company remaining independent.
- With the assistance of its professional advisors, the board should adopt a process that maximizes stockholder value. Under Delaware law, there is no single blueprint for the sale of a company, and the answer will vary depending on the company’s situation. But, in general, a thorough market check before signing an agreement, and the ability to accept superior offers that emerge after signing, help establish that the board has endeavored to maximize value for stockholders. A good process also helps mitigate litigation risk.
While the sales process is unfolding, the board should oversee the process, guiding management and the company’s advisors with a view to maximizing stockholder value and fulfilling the board’s Revlon duties.
At the conclusion of the process, the board will consider an agreement establishing the terms of the sale. Under Delaware law, the board of a company that wishes to merge with another entity must adopt a resolution approving a merger agreement and declaring its advisability to the company’s stockholders. Similar requirements apply to sales of all or substantially all of a company’s assets.