Delaware Supreme Court Establishes New Standard Of Review For Controlling Stockholder Going-Private Mergers

In a landmark decision issued this morning, the Delaware Supreme Court held for the first time in Kahn v. M&F Worldwide Corp. that the deferential business judgment standard of review should apply to a merger between a controlling stockholder and its subsidiary, where the merger is conditioned from the outset on both the approval of an independent, adequately empowered special committee and the uncoerced, informed vote of a majority of the minority stockholders.

The Court rejected the plaintiffs’ argument that entire fairness (“the highest standard of review in corporate law”) was the exclusive standard of review for controller mergers and also dispelled the view that the best a defendant could do, regardless of the protections used, was obtain a burden shift at trial. The Court explained that the entire fairness standard applied in the controller merger context as a substitute for the dual statutory protections of disinterested board and stockholder approval, because both protections are potentially undermined by the influence of the controller.

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