In re MFW Shareholders Litigation
67 A.3d 496
| Del. Ch. | 2013Background
- MFW was 43.4% owned by MacAndrews & Forbes, controlled by Perelman.
- MacAndrews & Forbes proposed to take MFW private at $24 per share; later raised to $25.
- A special committee of independent directors was formed with its own advisers.
- The merger was approved by a majority of the minority stockholders (65%).
- The defendants argued that the two protections (independent committee and majority-of-the-minority vote) allow the business judgment rule to govern.
- The plaintiffs challenged independence, valuation, and argued for entire fairness review despite the protections.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| What standard of review applies when a controlling stockholder’s go-private merger is conditioned upfront on two protections | Lynch requires entire fairness regardless | Two protections cleanse the process and invoke business judgment rule | Yes; business judgment rule applies. |
| Do the MFW special committee and majority-of-the-minority vote qualify as cleansing devices | Special committee independence/duties may be defective | Independence and power to say no, plus informed minority vote, cleanse the deal | Yes; both devices qualify. |
| Was the MFW special committee independent and did it fulfill its duty of care | Directors were not truly independent; duty-of-care questioned | Committee independent; proper process and advised by professionals | Independent and satisfied duty of care. |
| Has the Delaware Supreme Court already answered the question presented | Court already resolved under Lynch | Question not previously addressed; open for first-principles ruling | Open question; court addresses it in this decision. |
| If standard-of-review is business judgment rule, was the merger rationally fair to the minority | Price and terms may be unfair; evidence of waste | Price at 47% premium; Evercore fair-value range supports deal | Yes; terms could be rationally fair under business judgment rule. |
Key Cases Cited
- Lynch v. Commc'n Sys. (Lynch I), 638 A.2d 1110 (Del. 1994) (burden shifting for controlling stockholder mergers under certain protections)
- Tremont Corp., 694 A.2d 422 (Del. 1997) (entire fairness when controlling stockholder involved; limitations on protections)
- Emerald Partners v. Berlin, 726 A.2d 1215 (Del. 1999) (broad language on entire fairness in related contexts)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (fiduciary duties and fairness in corporate transactions)
- Pure Res., Inc. S'holders Litig., 808 A.2d 421 (Del. Ch. 2002) (valuation and fairness analysis in going-private contexts)
- Revlon, Inc. v. MacAndrews & Forbes Hldgs., 506 A.2d 173 (Del. 1986) (arm's-length considerations and director duties in break-up contexts)