An unexpected shareholder approval requirement can suddenly throw a monkey wrench into the calculus of deal certainty for a divestiture transaction.

In light of the recent uptick in subsidiary divestitures (particularly via spinoff), buyers and sellers should be mindful of recent guidance from Delaware courts on whether a shareholder vote or lender consent would be required to approve such divestitures. A shareholder vote can significantly lengthen the time and increase the expense it takes to close the transaction, resulting in a buyer's loss of appetite for a deal or missing increasingly ephemeral financing windows.

Most people in the dealmaking business know that the sale of all or substantially all of the assets of a Delaware or New York corporation would require shareholder approval and, depending on the indenture, consent from the seller's banks or bondholders.

Unsurprisingly, there is no bright-line rule as to when a divestiture constitutes "substantially all" of a corporation's assets. While there are several exceptions (including at least one case where the threshold was as low as 51%), practitioners will generally advise that a sale of 60% of the book value may be the tipping point, particularly when the corporation's remaining assets are unprofitable.

But practitioners recognize there are multiple ways of slicing and dicing -- while shareholder approval statutes and bond indenture provisions often refer to "assets," courts look not only at book value, but also at other indications of financial value including Ebitda, net income and cash flow.

Less obvious is that a transaction for only a small fraction of a corporation's assets could trip those approval and consent requirements in certain circumstances.

In Bank of New York Mellon Trust Co., N.A. v. Liberty Media Corp., the Delaware Supreme Court reviewed a bondholder's challenge to a 2010 split-off from Liberty Media Corp. Even though the assets divested represented only 15% of Liberty Media's book value at the time the alleged "disaggregation strategy" commenced, the indenture trustee contended that those assets, when combined with Liberty Media's other three divestitures under the alleged plan, constituted substantially all of Liberty Media's assets.

The court confirmed that the "substantially all" analysis is not a snapshot, and that separate transactions, effected as part of an overall scheme, could be aggregated to determine if they constituted "substantially all" of the assets of the corporation. In Liberty Media, however, the court found that the four separate divestitures were not part of such an overall plan and therefore did not need to be aggregated.

A review of Liberty Media and other precedents identifies some important questions buyers and sellers should ask in the context of a subsidiary divestiture. The first step would be to identify any past, pending or near-term future divestitures. The next step would be to review the divestitures' materiality by assessing their size in terms of assets, Ebitda and net income, as well as qualitative factors including profit potential and importance to the remaining business.

If the divestitures (taken together) could constitute "substantially all" of the seller's assets, a close review of the seller's board minutes and public statements is warranted to ensure there was no overarching plan or scheme of divestiture and each transaction had independent justification.

Other divestiture agreements should also be reviewed to determine that each divestiture was not linked contractually (for example, as closing conditions) to one another. A prudent seller should generally anticipate this line of inquiry and provide support for its conclusion that the various sales should not be aggregated. Although a buyer may be tempted to rely upon a termination right if its transaction is credibly challenged or is determined to require shareholder approval, the parties need to be careful not to create a record attracting such challenges for hold-up value.

Even if the parties determine shareholder approval is not required, they should be prepared for challenges from bondholders, activist shareholders or the plaintiffs' bar.

Franci J. Blassberg is a partner and co-chair of the private equity group and Kamal Agrawal is an associate in the New York office of Debevoise & Plimpton LLP. A version of this article originally appeared in the fall 2011 issue of the Debevoise & Plimpton Private Equity Report.