The Delaware Supreme Court recognized that the historical, more intrusive, “entire fairness” standard of review imposed a substantial unnecessary litigation burden on defendant directors and the controlling stockholder without any practical benefit to minority investors. Under the new standard, if the process is properly structured, the defendants should win dismissal of shareholder lawsuits without expensive and time-consuming discovery regarding the financial fairness of the deal. If the sale process is sufficient from a procedural perspective to invoke the new business judgment standard, the claims against the defendant directors and controlling shareholder must be dismissed unless no rational person could have believed that the merger was favorable to the minority stockholders.
Under the new standard, the business judgment standard of review will be applied if and only if:
If any of these conditions are not established, the historical entire fairness standard of review will continue to apply.
1 Kahn v. M&F Worldwide Corp., 2014 WL 996270 (Del. March 14, 2014).
Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss the topic further, please contact your Foley attorney or the following: