Corporate Governance

Delaware Court Adopts Unified Standard for Controlling Stockholder Going Private Transactions

By Harvard Law School Program on Corporate Governance

In a recent Delaware decision issued in In re CNX Gas Corp. Shareholders Litigation, C.A. No. 5377-VCL (Del Ch. May 25, 2010), Vice Chancellor Travis Laster imposed additional requirements for controlling stockholders and boards to obtain the benefit of the more deferential business judgment standard of review by a court in litigation over a going private tender offer, and advocates a unified standard of review for going private transactions generally, whether structured as a merger or a tender offer. Vice Chancellor Laster endorsed the reasoning first set forth in dicta in Cox Communications (Del. Ch. 2005), in which Vice Chancellor Leo Strine, Jr. argued that the Delaware courts should reject the notion that negotiated mergers with controlling stockholders are subject to the stringent ?entire fairness? review, while certain two-step transactions (i.e., a tender offer followed by a short-form merger) with the same controlling stockholders are subject to the business judgment rule. In CNX, Vice Chancellor Laster held that the business judgment rule (and not entire fairness) will apply to a going private transaction by its controlling stockholder only if the transaction is both (1) negotiated and recommended by an active and informed special committee of independent, disinterested directors and (2) subject to a ?majority-of-the-minority? tender or vote condition.

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Full post as published by The Harvard Law School Corporate Governance Blog on June 10, 2010 (boomark / email).