Jackson Ross PLLC

Going-Private Transactions after the MacAndrews Case

I am in-house with a public company incorporated in Delaware.  Are there any recent Delaware decisions of which I should be aware?

Yes.  The Delaware Supreme Court recently issued a decision in the case of Kahn v. M&F Worldwide Corp., holding that in a going-private transaction between a controlling stockholder of a Delaware corporation and its corporate subsidiary, in which the merger is conditioned on the approval of both an independent special committee and the vote of a majority of the minority stockholders, the “business judgment” standard should govern, rather than the higher “entire fairness” standard.

In the case, privately-held MacAndrews & Forbes Holdings Inc. (“MacAndrews”) owned 43% of M&F Worldwide Corp. (“M&F”), and offered to purchase the remaining shares for $24 a share, which would take M&F private.  MacAndrews stated that it would not consider the transaction unless it was approved by a special committee of independent M&F directors as well as by a vote of a majority of the minority stockholders, the latter of which was made a non-waivable conditional to the transaction.  Ultimately MacAndrews agreed to pay $25 a share.

The Court observed that the entire fairness standard is generally appropriate in such “controller buyouts,” since due to the influence of the controlling shareholder the protections of a disinterested board and stockholder approval are lacking.  The Court found that in this case the special committee was sufficiently empowered and fulfilled its duty of care, and that the minority shareholder vote was both informed and uncoerced.  These findings negated concern relating to the influence of the controlling shareholder.  The Court summarized its holding as follows:

[I]n controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority.  (emphasis in original)

Going-private transactions can be useful but are often tricky, especially when a controlling shareholder is involved.  Even if your company may be valued at less than the $482.5 million that M&F was valued, if you are considering a going-private transaction you would be well-served to seek out and retain good corporate legal counsel to guide you through the transaction.