In a stockholder challenge to a going-private merger by a controlling stockholder to buy out minority stockholders, the operative standard of review is ordinarily the most rigorous judicial review, entire fairness.
New York’s highest court recently adopted a more lenient standard for reviewing certain types of corporate transactions between companies and controlling shareholders, similar to that adopted two years ago by Delaware’s highest court.
By John P. Stigi, III, Esq. & John M. Landry, Esq. & Robin A. Achen, Esq.
Two recent Delaware Court of Chancery cases addressed the salutary effect of stockholder approval on the standard of review to be applied when evaluating damages claims in post-closing merger litigation.
The Delaware Court of Chancery, in In re Volcano Corp. Stockholders Litigation, held that a majority of the outstanding, fully-informed, uncoerced, disinterested stockholders’ tender of their shares renders the business judgment rule “irrebuttable,” insulating a merger from challenge on any ground except for waste.
The Delaware Chancery Court, in The Williams Companies, Inc. v. Energy Equity, L.P., analyzed whether a prospective acquirer violated its agreement to use “commercially reasonable efforts” to satisfy a condition precedent to the consummation of a merger agreement.