On June 20, 2016, the Court of Chancery released another opinion in the nationally controversial saga of TransPerfect Global, Inc. (the “Company”). In re: TransPerfect Global, Inc., C.A. No. 9700-CB (Del. Ch. Jun. 20, 2016); Etling v. Shawe, C.A. No. 10449-CB (Del. Ch. Jun. 20, 2016); see also In re Shawe & Elting, LLC, C.A. No. 9661-CB, 2015 WL 4874733 (Del. Ch. Aug. 13, 2015) Here, having previously ordered the sale of the Company by a designated custodian (the Custodian”), Chancellor Bouchard approved a modified auction of the Company (the “Modified Auction”), as recommended in the Custodian’s sale report (the “Sale Report”). The Custodian recommended, and the Court agreed, that of the options provided in the Sale Report, the sale of the Company would be accomplished most effectively through:
[a] modified auction where each stockholder could solicit third-party investors as partners in an acquisition of [the Company], and where the Custodian could work with outside bidders who are interested in partnering with an existing stockholder in connection with any acquisition.
Despite objections from Philip Shawe, a 49% stockholder of the Company, the Court held that the Modified Auction was the “alternative most likely to maximize shareholder value while continuing the business as a going concern….”
In addition to providing the terms of the Modified Auction, the Sale Report included the Custodian’s requests for additional authority and discretion to oversee the Modified Auction. The Custodian’s requests included “complete control over the auction process…; retention of financial advisors and other consultants to assist…with execution of the auction process; implementation of management and key employee incentive retention plans…; expansion of each selling stockholder’s existing non-compete and non-solicit arrangements…; [and] execution and delivery of agreements and other documents of each selling stockholder and [the Company].” The Court accepted all of the Custodian’s requests, except for the expansion of the selling stockholders’ non-compete and non-solicit arrangements (the “Non-Compete Provision”).
The Court sustained Philip Shawe’s objection to the Non-Compete Provision, holding that “it would be inappropriate to impose non-competition or non-solicitation restrictions on a selling stockholder as a condition of the sale of the Company absent evidence of wrongdoing….[T]he purpose of the sale process is to maximize the value of the Company as it is and not to derive a hypothetically higher value based on contractual protections the Company many not currently possess.”
The Court ultimately requested that the Custodian submit an order that will effectively begin the Modified Auction process. The order is to include the Custodian’s requests for additional authority and discretion (but not the Non-Compete Provision), a reservation of the right to seek non-competition or non-solicitation agreements upon a showing of wrongdoing by the selling stockholders, a provision that the sale of the Company is conditioned on approval by the Court, and any other provision necessary to effect the Modified Auction.