## Facts

- Stockholders of KKR Financial Holdings LLC sued after a stock-for-stock merger in which KKR acquired the company.
- The merger consideration converted each share into 0.51 shares of KKR stock, reflecting a premium over the company’s unaffected trading price.
- The company’s business included financing KKR’s leveraged buyout activity, and its operations were managed by a KKR affiliate under a management agreement terminable only upon payment of a fee.
- KKR owned less than 1% of the company’s equity and lacked contractual rights to appoint directors or veto board action.
- Stockholders approved the merger through a majority vote that the courts treated as fully informed, uncoerced, and cast by disinterested stockholders.
- Plaintiffs brought a post-closing class action seeking money damages for alleged fiduciary-duty breaches; defendants moved to dismiss.

## Issues

1. Whether the complaint pled facts supporting a reasonable inference that KKR was a controlling stockholder such that the merger was subject to entire fairness review.
2. In a post-closing damages action challenging a non-controller merger approved by a fully informed, uncoerced majority of disinterested stockholders, what standard of review applies, and whether enhanced scrutiny (Revlon/Unocal) can be used.

## Decision

- The Delaware Supreme Court unanimously affirmed dismissal of the complaint.
- The court held plaintiffs failed to plead that KKR was a controlling stockholder.
- Because the merger was not subject to entire fairness and was approved by a fully informed, uncoerced majority of disinterested stockholders, the business judgment rule applied to the post-closing damages claims.
- The court rejected application of Revlon or Unocal as post-closing money-damages frameworks in these circumstances.

## Legal Principles

- A non-majority stockholder is a “controller” only if it exercises such voting and managerial power over the corporation that it is functionally equivalent to majority control; business dependence or a management contract, without board-control power, is insufficient.
- In a post-closing damages action, when (a) entire fairness does not apply and (b) a fully informed, uncoerced majority of disinterested stockholders approves the transaction, the stockholder vote restores business judgment review.
- After such a cleansing vote, fiduciary-duty challenges to the merits of the transaction are generally foreclosed; absent disclosure or coercion defects, the remaining avenue is typically a waste claim subject to an exceptionally demanding standard.
- Revlon and Unocal are primarily pre-closing equitable review tools and are not designed to provide a post-closing money-damages standard once a fully informed, uncoerced, disinterested stockholder majority has approved a non-controller transaction.

## Conclusion

The court held that KKR was not a controlling stockholder and that, in post-closing damages litigation over a non-controller merger approved by a fully informed, uncoerced majority of disinterested stockholders, the approval restores business judgment review and warrants dismissal absent an adequately pled waste claim.


Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015)