Delaware Court denies FXCM’s request for reargument of opinion on Leucadia deal

Maria Nikolova

A memorandum of understanding that amended the terms of the Leucadia loan was not approved by a board composed of a majority of disinterested and independent directors, argues Vice Chancellor Sam Glasscock III.


As per FinanceFeeds’ earlier article, the loan extended by Leucadia National Corp. (NYSE:LUK) to FXCM Inc, now known as Global Brokerage Inc (NASDAQ:GLBR), has attracted the attention of the Delaware Chancery Court. Back in September this year, Vice Chancellor Glasscock published a Memorandum Opinion on the case Brett Kandell v. Dror Niv, et al, in which he stated that an entire fairness review of Leucadia loan to FXCM is appropriate.

Today, Vice Chancellor Glasscock had to defend his decision and he did – by denying the defendants’ request for a Limited Reargument of his opinion from September.

In his Decision from September, Vice Chancellor Glasscock found that a majority of the FXCM directors voting on the Leucadia deal was not independent and disinterested, as one outside director, James G. Brown, had expressed an interest in participating personally in the transaction and accordingly had abstained from voting, ending the possibility of a disinterested majority in favor.

The Vice Chancellor also denied the Motion to Dismiss with respect to a related transaction, a memorandum of understanding (MOU) that amended the terms of the Leucadia loan. It is that latter denial to which the Defendants address their Motion for Limited Reargument.

The Defendants argue that the Leucadia loan “was made solely by Leucadia” and that “Brown had no part in the Leucadia loan.”

According to the Complaint and the documents it incorporates by reference, however, Brown himself announced an interest in the loan, and determined that such interest required him to recuse himself from the vote on that transaction. That interest is sufficient to cause a reasonable doubt as to his interest in the MOU transaction as well, the Vice Chancellor argues.

FXCM alleges that the Vice Chancellor misplaced the burden onto the Defendants to show that the MOU was not approved by a board composed of a majority of disinterested and independent directors. However, according to the Vice Chancellor, Brown’s conflict of interest—which caused him to abstain from the vote on the Leucadia transaction but not from the vote on the modification of that transaction via the MOU—is sufficient to raise a reasonable inference that a majority of the MOU Board was not independent and disinterested with respect to the MOU.

Given the conflicted vote in favor of the Leucadia transaction, the Vice Chancellor said he must also consider the consequences of the MOU that modifies that transaction, which presumably would not have been in question but for the conflicted vote on the Leucadia transaction itself.

He denied the Motion for Limited Reargument.

Let’s recall that according to the Complaint, filed by Brett Kandell, a stockholder of FXCM Inc at all times relevant to this case, the Leucadia loan represented a waste of assets and the terms of the transaction were unfair to the broker.

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