The Delaware Court of Chancery has awarded Plaintiff-stockholders $1.3 billion in a derivative action challenging the fairness of an acquisition by Southern Peru Copper Corporation of a target company controlled by Southern Peru's controlling stockholder. The award amount, one of the largest by the Court of Chancery to date, constitutes the difference between the price that would have been paid in an entirely fair acquisition and the price actually paid.
Under Delaware's "entire fairness" doctrine, the burden of proving that a challenged transaction is entirely fair falls on the defendants in such action, who must show that either the transaction was approved by a Special Committee of independent directors or by an informed vote of the majority of the minority shareholders. Here, the Court found that the process by which the transaction was approved was not fair and did not result in the payment of a fair sale price. Even though Southern Peru formed a Special Committee to evaluate the transaction, the Court criticized Southern Peru for limiting the authority of the Special Committee in its evaluation of the transaction, for failing to identify available alternatives to the transaction and the Special Committee's failure to obtain an updated fairness opinion from its financial advisor, notwithstanding the rising price of Southern Peru's stock during the period between signing the merger agreement and the shareholder vote to approve the transaction. The Court stated that "the Special Committee put itself in a world where there was only one strategic option to consider, the one proposed by the controller, and thus entered a dynamic where at best it had two options, either figure out a way to do the deal the controller wanted or say no." After carefully analyzing the Special Committee's actions and finding them deficient in many respects, the Court held that the transaction was not entirely fair and awarded damages to Plaintiff-stockholders in the case.
In re S. Peru Copper Corp. S'holder Derivative Litig., C.A. No. 961-CS (Del. Ch. Oct. 14, 2011)