CHANCERY COURT APPLIES “WELL-WORN FIDUCIARY PRINCIPLES” TO ADDRESS “NOVEL ISSUES” PRESENTED BY SPAC DISCLOSURE LITIGATION
In In Re MultiPlan Corp. S’holders Litig., 268 A.3d 784 (Del. Ch. 2022) (“MultiPlan”), the Delaware Court of Chancery (“Chancery Court”) confronted—for the first time—litigation over one of the most popular devices currently available to privately-held businesses seeking “to access the public markets”: the “special purpose acquisition company,” or “SPAC.” A SPAC’s primary function is to raise financing through an initial public offering (“IPO”) of shares in a shell company, and then, within a prescribed time horizon, combine the shell company with a private operating company via a so-called “de-SPAC merger.” As compensation for its efforts in identifying a suitable merger candidate, the SPAC’s sponsor receives “founder shares” at a “nominal price,” plus other considerations. If the SPAC cannot complete a de-SPAC merger within the time horizon, the funds raised in the IPO are returned to the public SPAC investors, thereby rendering the founder shares worthless. But, if a de-SPAC merger is timely completed, the founder shares automatically convert into shares of the combined company. The value of these newly-converted shares is “pure upside” to the sponsor.
Robert S. Reder