DealLawyers.com Blog

February 13, 2017

Delaware: Supreme Court Says Corwin Applies to Tenders

Last week, the Delaware Supreme Court affirmed the Chancery Court’s decision in In re Volcano (Del. Ch.; 6/16) – which held that Corwin’s path to business judgment rule review for post-closing merger claims applied to two-step transactions under Section 251(h) as well.  This K&E memo summarizes the effect of the decision. Here’s an excerpt:

The Delaware Supreme Court in a one-sentence decision upholding the Chancery decision in Volcano provided welcome clarity on Delaware’s Corwin doctrine. In Corwin, the Supreme Court decided that the deferential business judgment rule should be the standard of review in post-closing damages cases in mergers (other than those subject to entire fairness review) that have been approved by a fully informed majority of disinterested stockholders.

In Volcano, the Chancery Court for the first time addressed the question of whether the Corwin doctrine applied to transactions completed under Delaware’s 251(h) tender offer structure or whether it was limited to so-called “one-step” mergers involving a stockholder vote. The Chancery Court held that a tender by the majority of Volcano’s stockholders was the equivalent of a majority vote of stockholders for purposes of the cleansing effect embodied by Corwin (a holding repeated in a subsequent Chancery decision in Auspex).

In affirming this ruling, the Supreme Court provides dealmakers with confidence that choosing a tender offer structure, which may be favored by parties because of potential speed advantages, will not deprive the target board of the litigation benefits of a fully informed approval by stockholders.

John Jenkins