October 17, 2016
Delaware: Control Means Never Having to Say “I’ll Sell”
This Cleary blog discusses a recent Delaware case – In re: Books-a-Million Stockholders Litigation – involving a sale of a company to its controlling stockholder (we’re posting memos on this case in our “Fiduciary Duties” Practice Area). The deal was structured to comply with MFW’s standard for business judgment rule review, but the plaintiffs contended that the special committee’s actions made MFW inapplicable. Here’s an excerpt describing the gist of the allegations:
The plaintiffs alleged that the committee’s decision to recommend the transaction was irrational and in bad faith because (i) a third party had indicated an interest in acquiring BAM at a price higher than that offered by the family, (ii) the committee determined that pursuing the third party offer was not feasible because the family (as is normal in these types of situations) indicated it was unwilling to sell its controlling interest in BAM and (iii) the committee nonetheless proceeded to negotiate with the family and ultimately recommend that the family’s offer be accepted even though the offered price was less than that proposed by the third party.
Vice Chancellor Laster rejected these arguments & applied MFW to the board’s decision. He reiterated Delaware’s long-standing position that a controlling stockholder is under no obligation to sell – and doesn’t breach any duty by offering a buyout at a lower price than a third party might offer.
– John Jenkins