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Clifford Chance

Clifford Chance


Chancery Court Dismisses Claims Over Buyout of Externally Managed Company

22 October 2014

Rules that entire fairness standard of review does not apply to merger between an externally-managed specialty finance company and an affiliate of the manager.

In April 2014, KKR & Co. LLP acquired KKR Financial Holdings LLC in a share-for-share transaction (in the transaction, common units representing limited partnership interests of KKR were exchanged for the common shares of KFN). The terms of the transaction implied a value for KFN of $2.6 billion, and represented a 35% premium above the price at which KFN’s common shares traded immediately before the announcement of the transaction. The transaction was approved by a transaction committee of independent directors of KFN, by the holders of a majority of KFN’s outstanding shares and by the holders of a majority of KFN’s outstanding shares not held by KKR or its affiliates. The agreement governing the transaction contained deal protection provisions that included no-shop provisions, a fiduciary out subject to a four-day matching provision and a break fee of $26.25 million (approximately 1% of the implied transaction value at the time of announcement).

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