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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