## Facts

- Synutra International, Inc. was controlled by its CEO, Liang Zhang, who held about 63.5% of the company’s stock.
- Zhang sent the board a letter proposing a take-private merger at $5.91 per share without conditioning the deal on special-committee approval or a majority-of-the-minority vote.
- The board soon formed a special committee of directors but did not negotiate price at that meeting.
- About a week later, Zhang sent a second letter to the special committee reaffirming the $5.91 offer and expressly conditioning any transaction on (1) approval by the special committee and (2) approval by a majority of the minority stockholders.
- The special committee retained independent legal and financial advisors and delayed bargaining until its banker completed due diligence.
- Price negotiations began months after the conditions were added and resulted in an increased merger price of $6.05 per share.
- The transaction was approved by a majority of the minority stockholders.
- A minority stockholder sued, alleging the controller-led freeze-out should be reviewed for entire fairness; the Court of Chancery applied MFW, used business-judgment review, and dismissed under Rule 12(b)(6).

## Issues

1. Whether MFW’s requirement that the dual protections be imposed “ab initio” is satisfied when the controller adds those conditions after an initial, unconditioned proposal but before any substantive economic negotiations begin.
2. Whether the complaint pled facts creating a litigable question that the special committee failed to satisfy its duty of care (i.e., acted with gross negligence), defeating business-judgment deference.

## Decision

- The Delaware Supreme Court affirmed dismissal.
- The court held the “ab initio” requirement is met if the controller conditions the transaction on both MFW protections before any substantive economic negotiations commence.
- The court held the complaint failed to plead facts supporting gross negligence by an independent special committee; therefore, no litigable due-care issue was stated and business-judgment review applied.

## Legal Principles

- A controller squeeze-out merger receives business-judgment review (not entire-fairness review) if, from the outset of negotiations, it is conditioned on:  
  - approval by an independent, adequately empowered special committee that satisfies its duty of care; and  
  - an uncoerced, informed vote of a majority of the minority stockholders.
- “Ab initio” under MFW is satisfied when the conditions are imposed before substantive economic negotiations begin, even if not included in the controller’s first expression of interest.
- To plead around MFW at the motion-to-dismiss stage, a plaintiff must allege facts supporting at least gross negligence by the independent special committee; disagreement with price or tactics, without well-pled process failures meeting that standard, is insufficient.

## Conclusion

The court held that MFW’s procedural protections need not appear in the controller’s first proposal if they are imposed before substantive economic bargaining starts, and that absent well-pled gross negligence by an independent special committee, a controller-led freeze-out meeting MFW’s requirements is reviewed under the business judgment rule and may be dismissed at the pleading stage.


Flood v. Synutra Int’l, Inc., 195 A.3d 754 (Del. 2018)