Kahn v. M & F Worldwide Corp.
2014 Del. LEXIS 115
| Del. | 2014Background
- MFW and M&F negotiated a going-private merger in 2011, with two protective conditions: a special independent committee must approve the deal and a majority of unaffiliated minority stockholders must also approve.
- MFW’s minority stockholders ultimately voted 65.4% in favor after disclosure and negotiation, closing the merger in December 2011.
- M&F, which owned 43% of MFW through MacAndrews & Forbes, sought to privatize MFW with a price around $24–$25 per share.
- The Special Committee of independent MFW directors was formed to evaluate the proposal, empowered to hire advisors, and allowed to say no definitively.
- Delaware Court of Chancery had previously determined that dual protections could shift the burden of proof to the plaintiffs under the business judgment rule if certain conditions were met.
- The appellate court affirmed that the merger should be reviewed under the business judgment standard due to the dual protections being present and effective, precluding a trial on the entire fairness standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standard of review for dual protections in controller buyouts | Plaintiffs contend entire fairness should apply despite dual protections | Defendants contend business judgment applies when both protections are effective | Business judgment standard applies when both protections are effective |
| Independence and empowerment of the Special Committee | Special Committee was not independent or fully empowered | Committee was independent, empowered to hire advisors, and could say no | Special Committee independent and empowered; burden shift warranted |
| Majority-of-the-minority vote sufficiency | Vote alone cannot protect minority if safeguards are ineffective | Informed, uncoerced majority-of-minority vote shifts burden under entire fairness | Vote fully informed and uncoerced; burden shift established |
Key Cases Cited
- Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110 (Del. 1994) (burden shift if independent committee or informed majority exists)
- Kahn v. Tremont Corp., 694 A.2d 422 (Del. 1997) (establishes burden shifting in dual-protection context)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (price may be preponderant consideration; basis for dual protections)
- Americas Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) (discussion of independent committee and burdens in price determination)
- Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040 (Del. 2004) (independence standards and director impartiality guidance)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (independence and burden-shifting framework foundational to review)