On January 14, 2011, the Delaware Court of Chancery ruled in favor of the defendants in a third-party cash-out merger even though the controlling stockholder received different consideration from the minority stockholders. The defendants included the controlling stockholder of the target, the board of directors of the target and the acquisition vehicle used to complete the merger. The Court found (1) the merger price was at a fair value, (2) the controlling stockholder did not breach his fiduciary duties, and (3) the third-party acquirers did not aid and abet a breach of fiduciary duty.
In the Court’s summary judgment opinion, the Court applied the entire fairness standard of review to the merger. The Court noted, however, that had the procedural protections been sufficient (which they were not in this case), the standard would have been the business judgment rule. The procedural protections were not sufficient because the special committee could waive the majority of minority vote condition, and the voting condition only required approval of a majority of the minority stockholders voting on the matter, rather than a majority of all the minority stockholders.
The merger involved the third-party purchase of a corporation with a controlling stockholder who received consideration that was different from the minority stockholders. Since the merger was approved by an independent and disinterested special committee, the plaintiffs bore the burden of proving the transaction was unfair. Analyzing the transaction under the entire fairness standard, the Court found both the process and price to be fair.
Additionally, the Court found that the controlling stockholder did not breach any fiduciary duties. The Court reasoned that he took less per-share consideration than the minority stockholders received. Since no fiduciary duties were breached, the Court rejected the claim against the acquirers for aiding and abetting.