February 26, 2018

MFW Cleansing: Better Late Than Never. . .

In order to cleanse a transaction with a controlling stockholder under Delaware’s MFW doctrine, the deal must be conditioned upon approval by an independent committee & an uncoerced majority of the minority shareholder vote ab initio – from the beginning.

This Shearman blog reviews the Chancery Court’s recent decision in In re Synutra International Inc. Stockholder Litig. (Del. Ch.; 2/18) which suggests that “from the beginning” doesn’t necessarily mean “from day 1.” Here’s an excerpt:

The plaintiffs alleged that the transaction did not satisfy the ab initio requirement under Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014), because the controller group did not initially condition the proposed transaction on recommendation by a special committee and approval by a majority of the disinterested stockholders, features added weeks after the controller’s initial proposal letter and after the Synutra board had already met and formed a special committee.  Finding that “the controller announce[d] the conditions before any negotiations took place,” the Court held the ab initio requirement was satisfied and dismissed the complaint under MFW.

John Jenkins