July 6, 2016
Medium Form Mergers: In re Volcano
Last week, the Delaware Court of Chancery held – In re Volcano Corp. Stockholder Litig. – held that the acceptance of a first-step tender offer by fully informed, disinterested, uncoerced stockholders representing a majority of a corporation’s outstanding shares in a two-step merger under Section 251(h) of the Delaware General Corporation Law had the same cleansing effect as a fully informed, uncoerced vote of a majority of the disinterested stockholders of a target in a merger. In other words, a third-party, cash-out merger accomplished through a fully informed tender offer will be governed by the business judgment standard of review, requiring dismissal of all litigation challenges to the transaction unless a plaintiff can establish corporate waste. Upon the receipt of the required tendered shares, the business judgment rule “irrebuttably” applied to the merger and the plaintiff could only challenge it on the basis that it constituted waste.
We’re posting memos in our “Fiduciary Duties” Practice Area. As one of the memos notes, the decision extends an important line of recent Delaware case law that substantially inoculates transactions other than controlling stockholder squeeze-out mergers from litigation challenge so long as they have been approved by a majority of the independent shares outstanding on the basis of proper disclosure.