In Great Hill, the court held that the right to assert the privilege over attorney-client communications and ownership of such communications passes to the acquirer in acquisitions structured as mergers under Delaware law. This case clarifies the law in Delaware mergers by expressly refusing to follow prior New York case law and raises issues that adversely impact selling stockholders.
As a result of this case, in acquisitions structured as mergers under Delaware law, a stockholder representative charged with handling post-closing disputes on behalf of the seller’s former stockholders would be prohibited from accessing pre-closing, attorney-client privileged communications between seller and its counsel. Such information could be important to the success of the stockholder representative’s position in a post-closing dispute. The case acknowledges, however, that the parties may take pre-closing steps to obtain a different result, including through addressing the matter in the acquisition agreement.
Because of the difficulties this case presents for selling stockholders, we anticipate an increase in the negotiation of contractual provisions addressing these issues in applicable transactions going forward. These provisions would be in addition to commonly-included provisions specifically allowing a seller’s pre-closing counsel to represent the stockholder representative post-closing. Sellers need to be aware of these issues and be prepared to negotiate for appropriate terms governing these rights. Buyers, on the other hand, need to understand the law and know what rights and information they are willing to permit to be retained by the selling stockholders and their representatives. All M&A practitioners should expect to be dealing with these issues going forward.