September 18, 2017

Controllers: “To MFW or Not to MFW, That is the Question. . .”

The Delaware Supreme Court’s 2014 MFW decision laid out a route to business judgment review for controlling shareholder buyouts.  That decision gave companies a choice – either implement MFW’s procedural protections or tough it out under the entire fairness standard of review.

This Ropes & Gray memo discusses that choice in light of Vice Chancellor Laster’s recent decision in the Clearwire appraisal case – and says that entire fairness isn’t always a show-stopper:

The burden of proving entire fairness and the perception of a significant risk of a negative outcome under an entire fairness review frequently results in deal participants allowing the fate of the transaction to be determined not only by a special committee, but, even more critically, by the majority of the minority stockholder vote. However, the recent Delaware Chancery Court decision in ACP Master, Ltd. v. Sprint Corp. / ACP Master, Ltd. v. Clearwire Corp. highlights that entire fairness may not be fatal, and that a finding of entire fairness may overcome earlier instances of conduct or process that may fall short or that otherwise had “flaws” and “blemishes.”

The memo addresses specific actions that controlling shareholder should take – or refrain from taking – in order to enhance a deal’s ability to survive entire fairness scrutiny.

John Jenkins