We secured a complete victory for Nuvei in connection with litigation arising out of its acquisition of Paya

On October 17, 2024, Davis Polk secured dismissal of a lawsuit filed in the District of Delaware for its client Nuvei Corporation arising out of Nuvei’s acquisition of Paya Holdings, Inc. The decision marks one of the very few cases interpreting the All-Holders Rule and Best Price Rule, promulgated under section 14 of the Securities Exchange Act of 1934, and will provide useful guidance in these types of matters going forward.

Plaintiffs were holders of earnout shares in Paya, which had gone public through a de-SPAC transaction with Fintech Acquisition Corp. III, a special purpose acquisition company founded by plaintiffs and their investment vehicles. As part of the de-SPAC transaction, the plaintiffs had entered into a sponsor support agreement, pursuant to which certain of their shares in the SPAC were converted to earnout shares in Paya. Under the terms of the sponsor support agreement, in the event of any future change of control where the price per share paid did not meet a specified threshold, the earnout shares would be automatically forfeited “immediately prior to” the change of control. In January 2023, Nuvei entered into a merger agreement to acquire Paya for $9.75 per share. The transaction was structured as a two-step merger under section 251(h) of the Delaware General Corporation Law (DGCL), which permits a corporation to effectuate a merger without requiring a separate shareholder vote to authorize the merger where the corporation first consummates a tender offer for all of the outstanding stock of the target corporation. The plaintiffs sought to tender their earnout shares in the first-step tender offer but the shares were not accepted because, among other things, the $9.75 merger price did not meet the threshold required to avoid forfeiture under the terms of the sponsor support agreement in any change of control.

After their earnout shares were not accepted in the offer, the plaintiffs filed suit in Delaware federal court, asserting claims for violations of the All-Holder Rule and the Best Price Rule of the 1934 Act and of section 251(h) of the DGCL, and breach of the merger agreement. Davis Polk filed a motion to dismiss the complaint on November 15, 2023, arguing, among other things, that pursuant to the terms of the sponsor support agreement, the plaintiffs’ earnout shares were subject to transfer restrictions that made them ineligible for tender and, additionally, had been forfeited “immediately prior to” Nuvei’s acceptance of any shares for payment in the offer, whereby Nuvei gained control of Paya in a change of control transaction. The plaintiffs opposed the motion to dismiss and moved for summary judgment on the claims.

On October 17, 2024, Judge Gregory B. Williams of the United States District Court for the District of Delaware granted the motion to dismiss the complaint in the entirety, and denied as moot the plaintiffs’ motion for summary judgment. Judge Williams agreed with Davis Polk’s arguments that the plaintiffs had forfeited their earnout shares prior to the change of control transaction, and in some instances he adopted the reasoning of Davis Polk’s brief verbatim. The Court also rejected the plaintiffs’ claims under the All-Holders Rule and the Best Price Rule, finding that those rules were not intended to protect shareholders, like the plaintiffs, whose shares had distinct characteristics and were subject to forfeiture under the terms of an agreement contract. Finally, the Court held that Nuvei likewise did not violate section 251(h) of the DGCL in refusing to accept plaintiffs’ earnout shares.

The Davis Polk litigation team included partner Brian M. Burnovski, counsel Matthew Cormack and associates Chui-Lai Cheung and Jessica Simonelli. Partner Evan Rosen and counsel Heather Weigel provided mergers and acquisitions advice. All members of the Davis Polk team are based in the New York office.

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