SUMMARY OF THE CASES

A confidentiality agreement (“CA”) is typically the first negotiated document in a purchase transaction. These agreements are often negotiated by junior members of the transaction team prior to one (or both) parties engaging outside legal counsel. CAs set the stage for a transaction and, as recent cases have shown, can define the playing field in the event that a deal falls apart. Three cases decided in the last 70 days highlight the significant effect a CA can have after the parties have decided not to pursue a transaction.

On May 4, 2012, the Delaware Court of Chancery issued an opinion in Martin Marietta Materials, Inc. v. Vulcan Materials Co. enjoining Martin Marietta’s hostile takeover attempt of Vulcan for four months. The decision was affirmed by the Delaware Supreme Court on July 10, 2012. Martin Marietta and Vulcan signed two CAs in connection with discussions regarding a possible merger. While neither of the CAs included an express standstill, the court found that the definition of transaction and the CAs’ restrictions on the use and disclosure of confidential information effectively prevented Martin Marietta from using the confidential information it received from Vulcan in a hostile takeover. In addition, the court found that Martin Marietta breached its non-disclosure obligations in the CAs by disclosing some of Vulcan’s information and information regarding the transaction discussions in Martin Marietta’s SEC filings and that such disclosure was not permitted by the CAs’ exceptions for “legal requirements ” Thus, in certain situations where a party may not even use the confidential information about a target, a subsequent event which requires comprehensive disclosure may require a party to disclose references to discussions regarding the potential transaction and cause the disclosing party to potentially be in breach of the CA.