Washington Law Review


Merger mania currently grips the United States as corporations scramble to find merger partners to achieve strategic goals. In their quest for a competitive advantage, large corporations are increasingly willing to use hostile takeovers to deny competitors the benefits of a strategic mergers. In response, merging corporations have granted record-breaking lockup. provisions in an attempt to protect their deals. Delaware's current framework for evaluating the validity of lock-up provisions requires courts to apply different levels of scrutiny depending on the form of the transaction. However, Delaware courts have inconsistently applied the correct standard and have failed to identify preclusive lock-ups. Although legal commentators have proposed alternatives to the current doctrine, none have been able to provide a solution without sacrificing the recognized benefits of lock-up provisions. This Comment examines the Delaware courts' inability to evaluate lock-up provisions properly and argues that a bright-line test severely limiting the value of lock-up provisions to three percent of a bidder's offer would solve the current dilemma. Without such a test, Delaware courts are unable to protect the interests of shareholders while still allowing the use of lock-ups to facilitate mergers.

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