The Delaware Supreme Court’s 2014 decision in Kahn v. M&F Worldwide Corp. (“MFW”) [1] provided business judgment rule protection for controlling stockholder transactions that are conditioned from the outset on certain procedural protections being utilized, including approval by (1) a fully-empowered independent special committee that meets its duty of care and (2) a fully-informed, uncoerced vote of a majority of the target minority stockholders unaffiliated with the controller. While MFW provided helpful guideposts for avoiding entire fairness review in controlling stockholder transactions, as with any new doctrine, questions remained as to the application of MFW to different types of deals and negotiations, and the consequences of small deviations from strict adherence to MFW. Recent guidance from the Delaware Court of Chancery has given way to updated ground rules for controlling stockholder transactions: (i) MFW also applies to deals where the controller is only on the sell-side; (ii) other conflicted controller transactions besides mergers, such as recapitalizations, are eligible for MFW protection; and (iii) small, alleged foot faults will not cause the business judgment rule protection afforded by MFW to be lost.
Posted by Paul S. Scrivano, Jane D. Goldstein, and Sarah H. Young, Ropes & Gray LLP, on Thursday, March 22, 2018
Editor's Note: Paul S. Scrivano and Jane D. Goldstein are partners and Sarah H. Young is an associate at Ropes & Gray LLP. This post is based on a Ropes & Gray publication by Mr. Scrivano, Ms. Goldstein, and Ms. Young, and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here).