Attorney-client privilege addressed in merger agreements

June 19, 2014

Practitioner Insights thumbnail 2Companies entering into M&A agreements are addressing a decision by the Delaware Chancery Court last year in which the court held that that the attorney-client privilege among the target, its sellers and related counsel generally passes to the buyer upon closing.

Great Hill Equity Partners IV LP v. SIG Growth Equity Fund, 80 A.3d 155 (Del.Ch. 2013).

Two such recent transactions are Techne Corp.’s acquisition of ProteinSimple, and Stamps.com’s acquisition of ShipStation. Both demonstrate that sellers are heeding the advice of the Delaware Chancery Court and explicitly retaining the privilege in their transaction agreements.

ProteinSimple securityholders retain privilege

In the case of Techne and ProteinSimple, the parties agreed that the selling securityholders would retain the privilege and all parties waived any conflicts of interest related to it. Under Section 5.18 of the agreement and plan of merger, ProteinSimple, Techne and Techne’s merger subsidiary each acknowledged that Cooley LLP represented ProteinSimple in the preparation, negotiation and execution of the merger agreement.

Notwithstanding Cooley’s representation, the parties agreed that the law firm could represent ProteinSimple’s securityholders, its securityholders’ representative or their affiliates in connection with the merger or any issues that may arise under the agreement post-closing, including in connection with any litigation, claim or obligation arising out of or relating to the agreement or the acquisition.

The parties also addressed another issue identified by the Great Hill case, namely, which party controls the privilege to attorney-client work product. Under section 5.18 of the Techne/ProteinSimple agreement, that privilege remains with the selling parties, stating that:

[A]ll information and documents covered by [the attorney-client privilege] or [attorney work-product] protection, shall belong to and be controlled by the Seller Group and may be waived only by Seller Group, and not the Company, and shall not pass to or be claimed or used by Parent or the Surviving Corporation.