What Exactly Must A Board Approve When It Approves A Merger?

Last Friday, John Jenkins wrote about another momentous ruling by Chancellor Kathaleen St. J. McCormick.  In Sjunde AP-Fonden v. Activision Blizzard, Inc., 2024 WL 863290 (Del. Ch. Feb. 29, 2024), she ruled:

At bare minimum, Section 251(b) requires a board to approve an essentially complete version of the merger agreement (the “essentially complete interpretation”).  This is so because, absent an essentially complete draft, the board-approval requirement of Section 251(b) would make no sense.  What good would board approval of a merger agreement serve if the ultimate merger agreement was altered in essential ways?  And how could a board declare the advisability of the merger absent a review of essential terms?

(footnote omitted).   Does this ruling have any implications for mergers under the California General Corporation Law?

In my experience, California merger transactions typically involve two agreements - a long agreement typically styled as a "plan of reorganization" and much shorter agreement titled as an "agreement of merger".  The reason for this practice is that a merger (other than a short-form merger) is effected by filing with the California Secretary of State an "agreement of merger" and an officers' certificate.   Cal. Corp. Code § 1103.  The "agreement of merger" is only required to state four things, although it may include other desired details or provisions.  Cal. Corp. Code § 1101(a)(1)-(5).   The required items do not include such other heavily negotiated provisions such as representations and warranties, indemnification, escrows, hold-backs and schedules.  These are typically included in a separate plan of reorganization which is not filed with the Secretary of State.  See Must A Parent Of A Constituent Corporation Sign The Agreement Of Merger?

Section 1101(a) specifically requires that the Board of Directors "approve" an "agreement of merger".   It makes no mention of approval of a "plan of reorganization" nor does it require that the Board sign the agreement of merger (as incorrectly stated by the Ninth Circuit Court of Appeals in Jewel Companies, Inc. v. Pay Less Drug Stores Nw., Inc., 741 F.2d 1555, 1561 (9th Cir. 1984)).  Section 1200 more generally requires that a "reorganization" must be approved by the Board of each constituent corporation.  Because "reorganization" is defined in Section 181 as a merger pursuant to Chapter 11 other than a short-form merger, this statute also should not be read to require express Board approval of a plan of reorganization.  

While neither California statute expressly requires that the Board approve a plan of reorganization, the question of the Board's exercise of fiduciary duty  raised by Chancellor McCormick remains.