The More Things Change? Delaware Supreme Court Applies Business Judgment Standard of Review in Going-Private Transaction

Shearman & Sterling LLP

Kahn v. M&F Worldwide Corp. -

On March 14, 2014, the Delaware Supreme Court issued its decision in the widely followed case Kahn v. M&F Worldwide Corp. (“M&F Worldwide”), providing a blueprint for a controlling stockholder of a Delaware corporation to do a going-private transaction without subjecting the deal to “entire fairness” review by the courts, but instead the less exacting “business judgment” standard. The Supreme Court held that the business judgment standard will “govern mergers between a controlling stockholder and its corporate subsidiary, where the merger is conditioned ab initio upon both the approval of an independent, adequately empowered Special Committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of the minority stockholders.”

The Supreme Court’s ruling affirmed the May 2013 decision of the Delaware Court of Chancery granting summary judgment in In re MFW Shareholders Litigation.2 The Court of Chancery’s decision was rendered by then-Chancellor Leo E. Strine, Jr., who became the Chief Justice of the Delaware Supreme Court on February 28, 2014, just two weeks before the Supreme Court affirmed his decision. While Chief Justice Strine did not participate in the decision of the Supreme Court affirming his own decision below, his colleagues on the court adopted and quoted much of his reasoning. Nonetheless, the Supreme Court added observations and commentary indicating a more constrained view of the extent to which a controlling stockholder following the blueprint laid out by the court will be able to limit or cut short the litigation that going private transactions invariably generate.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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