Clifford Chance

Delaware Supreme Court affirms that the business judgment rule applies to a going-private merger proposed by a controlling stockholder

19 March 2014

In Kahn v. M&F Worldwide, C.A. No. 6566 (Del. Mar. 14, 2014), the Delaware Supreme Court ruled for the first time that a going-private merger with a controlling stockholder is not always subject to the entire fairness standard (which is Delaware's most rigorous standard of review).  Instead, a controlling stockholder going-private transaction can be subject to Delaware's most forgiving standard of review, which is the business judgment standard, when the merger is conditioned up-front on both approval by an independent special committee and a majority-of-the-minority stockholder vote, and both of those protective devices subsequently are properly and effectively implemented.  As we discuss, although the route to business judgment review approved by the Court doubtless will be followed in many future controlling stockholder going-private transactions, it will not always be the best approach.

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