The Delaware Chancery Court, in reviewing a reverse stock split effected by a controlling stockholder for the purpose of freezing out the minority stockholders, applied the entire fairness standard. Under the entire fairness standard, both the fairness of the (i) dealings between the controlling stockholder and minority stockholders and (ii) price paid to the minority stockholders are analyzed. The court placed the burden of proving the entire fairness of the reverse stock split upon the controlling stockholder. In support of its decision, the court noted that neither a special committee of the board of directors nor a majority-of-the-minority stockholder approval vote procedural protection was employed in connection with the reverse stock split. The court stated that the less stringent business judgment rule would have applied to the reverse stock split if both procedural protections had been employed.
Reis v. Hazelett Strip-Casting Corp., C.A. No. 5145-VCL (Del. Ch. Feb. 21, 2011)