Recently, the
Since the ruling in MFW in 2014, transactional planners, stockholder plaintiffs, and corporate defendants have all probed the contours of the ruling in various ways. For instance, can the MFW framework be deployed outside a squeeze-out merger context or does the entirety of the special committee need to be independent and disinterested or can just a majority of the members of the committee be satisfactory?
In the Match opinion, the Supreme Court discusses in detail (1) the historical framework of the various standards of review that the
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Long-standing precedent holds that "in a suit claiming a controlling stockholder stood on both sides of a transaction with the controlled corporation and received a non-ratable benefit, entire fairness is the presumptive standard of review"—this is not limited to going-private mergers, but rather applies to all transactions with a controlling stockholder that would historically have been reviewed for entire fairness.
- A "controlling stockholder can shift the burden of proof [to prove the transaction was not entirely fair] to the plaintiff by properly employing a special committee or an unaffiliated stockholder vote" (emphasis added). However, "the use of just one of these procedural devices does not change the standard of review" from entire fairness to business judgment.
- If "the controlling stockholder wants to secure the benefits of business judgment review, it must follow all [of] MFW's requirements." That is, the transaction must be conditioned on both the approval by an effective and independent special committee, and the informed vote of approval by the unaffiliated stockholders.
- For the special committee to be effective in "replicat[ing] arm's length bargaining, all [special] committee members must be independent of the controlling stockholder."
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.
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