A recent decision of the Delaware Court of Chancery, In re MFW Shareholder Litigation, held that the business judgment rule standard of review applies in cases where a going-private transaction has been conditioned on both the approval of a special committee comprised of independent directors with the absolute authority to reject the deal and a fully informed, uncoerced majority-of-the-minority stockholder vote. In this case, Chancellor Leo E. Strine, Jr. answered the question that practitioners have been asking for years, which is whether a going-private merger with a controlling stockholder can be structured to be subject to the business judgment rule, a lower standard of judicial review.
On June 13, 2011, MacAndrews & Forbes, then the 43.4 percent stockholder of M&F Worldwide (“MFW”), offered to purchase the remaining shares of MFW’s equity in a going-private merger for US$24 per share in cash. MacAndrews & Forbes conditioned such merger on the approval by an independent special committee of the board of directors and by an affirmative vote of a majority of the minority stockholders. The MFW board formed a special committee of independent directors, which had the ability to and did employ its own legal and financial advisors, and was empowered to negotiate the merger and definitively say no to the transaction. In addition, MacAndrews & Forbes promised that it would not proceed with any transaction that was not supported by the special committee, including a tender offer directly to the minority stockholders. The special committee met eight times during the course of three months and negotiated with MacAndrews & Forbes, which resulted in MacAndrews & Forbes raising its bid approximately 5 percent to US$25 per share in cash.3 Once the higher bid was approved by the special committee, the merger was submitted to a vote of the MFW stockholders, with 65 percent of the minority stockholders approving the transaction.
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