Confidentiality Agreement Impedes Hostile Take-Over Bid


In Martin Marietta Materials, Inc. v. Vulcan Materials Company, Chancellor Strine of the Delaware Court of Chancery enjoined a hostile take-over bid on the ground that confidentiality agreements between Martin Marietta, the bidder, and Vulcan, the target, prevented the bid. The judgment temporarily prevents Martin Marietta from acquiring Vulcan pursuant to a US$5.3-billion hostile bid, and from pursuing a proxy contest in which Martin Marietta was seeking the election of four of its nominees to Vulcan's board of directors. In support of his decision, Chancellor Strine cited the 2009 Ontario Superior Court of Justice decision, Certicom Corp. v. Research in Motion Ltd. In that decision, following an application brought by Blakes on behalf of Certicom, the Court enjoined RIM's hostile bid for Certicom as a result of RIM's breach of its confidentiality agreements with Certicom. Martin Mariettaserves as a reminder that confidentiality agreements should only be entered into after careful consideration, as they may have the effect of a standstill.

The Decision

During the course of negotiations for a friendly merger, Martin Marietta and Vulcan entered into a non-disclosure agreement (NDA) and a joint defence agreement (collectively, the Confidentiality Agreements). The NDA limited the parties' rights to use the information obtained during the due diligence process solely for the purpose of evaluating a business combination transaction "between" the parties. After the parties broke off negotiations, Martin Marietta prepared to launch a hostile bid for Vulcan. The same key personnel and advisers of Martin Marietta that were involved in the friendly discussions participated in the preparation of its bid. Following Martin Marietta's launch of its hostile bid, Vulcan brought an action seeking an injunction precluding Martin Marietta from misusing information obtained pursuant to the Confidentiality Agreements, which would have the effect of preventing Martin Marietta from proceeding with the bid.

Similar to the Court's findings in Certicom, Chancellor Strine ultimately held that the Confidentiality Agreements prohibited Martin Marietta from using information provided under the Confidentiality Agreements for any transaction other than a contractually negotiated business combination between the parties, thereby prohibiting Vulcan's hostile take-over bid. The decision prevented Martin Marietta from continuing with the take-over bid and acquiring the shares...

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