DealLawyers.com Blog

Sorting out all of the nuances in Delaware’s approach to transactions involving controlling stockholders can be a challenge.  The courts apply different standards of review depending on whether the controller is the buyer, is cutting its own deal as a seller, is participating pro rata with all other stockholders in a sale, or is acquiring an ownership stake in the surviving corporation.

This K&E memo reviews case law addressing each of these situations, and notes that identifying that a controlling stockholder is involved in the deal is merely the first part of the analysis:

A finding that there is a controlling stockholder of a target company is just the first part of the analysis in determining the applicable standard of review that the court will use in assessing an M&A transaction involving that target. As a number of recent cases have shown, the contours and terms of the M&A transaction are as important as the question of whether the stockholder is “controlling” to the court’s determination of whether — and to what extent — heightened scrutiny will be applied.

Understanding how a court will approach a particular transaction allows dealmakers to implement appropriate procedural safeguards when necessary, while avoiding excessive and unnecessary procedural protections.

– John Jenkins