Kitzur Shulchan Aruch as an M&A guide.

• Author: Kaback, Hoffer
• Position: QUIDDITIES

A way to clear the Delaware courts' dockets.

THE Kitzur Shulchan Aruch, a popular summary of Jewish law and ethics published in 1870 as an abbreviated version of the 16th century authoritative Shulchan Aruch, instructs that:

"You should be extremely careful not to deceive your fellow. If someone seeks to buy something and they already agreed on a price and before they completed the sale someone else outbid him, the latter is called a wicked person.... A man has the moral obligation to keep his word even though he gave no deposit as yet, nor did he mark the article, nor was the transaction completed; if the parties agreed on the price, neither may back out. ... To say one thing, while thinking the opposite, is forbidden. ... Your mouth and your heart should always be in perfect agreement" (Chapters 62 and 63, condensed).

[ILLUSTRATION OMITTED]

DIRECTORS & BOARDS readers will not be shocked to learn that key players in the world of M&A--the principals, boards, and executives of, and the investment bankers and lawyers representing, buyers, sellers, bidders, over bidders, and tire-kickers--do not punctiliously adhere to the Kitzur Shukhan Aruch.

Significant legal and ethical M&A issues like attempting to back away from a signed merger deal without legitimate cause (a.k.a. welching), seeking higher bids despite explicit contractual prohibition thereof, and interfering with others' signed deals have, in this column, been analyzed in some depth.

A Delaware case decided at year end, NACCO Industries v. Applica, highlights these important, recurring leitmotifs.

NACCO (owner of Hamilton-Beach appliances) signed a merger agreement to acquire Applica, also an appliance maker. The agreement contained standard provisions prohibiting Applica from looking for higher bids, requiring it to notify NACCO if an unsolicited bidder made contact, but permitting it to accept an unsolicited higher bid. In the picture was investment firm Harbinger, which steadily increased its ownership of Applica from about 9% to 40% before, during, and after the time the merger with NACCO was negotiated. NACCO alleges that Harbinger (a) was fed confidential information by Applica insiders about the state of play with NACCO, and (b) repeatedly deceptively maintained in federal filings that the purpose of its stock position was "investment," even though it had taken numerous steps consistent with seeking to break up NACCO's signed deal with Applica.

Vice Chancellor J. Travis Laster's...