DealLawyers.com Blog

In this memo, Milbank Tweed’s Bob Reder discusses a recent court decision – In Re Sunbelt Beverage Corp. – in which the Delaware Chancery Court applied the entire fairness standard in reviewing a freeze-out merger involving Sunbelt Beverage Corporation. In siding with a minority shareholder, the court determined that the merger’s sole purpose was to exclude a minority shareholder from participating in an attractive post-merger transaction.

Here are some thoughts from the memo:

Typically, care is taken in corporate transactions in which minority shareholders are treated differently from the majority to incorporate procedural devices aimed to ensure the transaction will survive an entire fairness analysis. There is no per se rule that prohibits the majority from using its superior voting power to “freeze out” the minority; however, courts will not simply defer to such use of majority power, but rather will closely scrutinize the process employed. If the court perceives that the process is unfair, then it becomes exceedingly difficult for the majority to carry the burden of establishing both fair dealing and fair price. It’s incumbent on dealmakers and their legal counsel to resist the temptation to allow the majority to flex its muscle without taking the necessary procedural steps to shift the burden of proving entire fairness to the minority.