## Facts

- Grupo México controlled Southern Peru Copper Corporation (a public company) and also controlled Minera México (a private mining company).
- In 2004, the controller proposed that Southern Peru acquire the controller’s 99.15% stake in Minera for about $3.1 billion in newly issued Southern Peru stock (67.2 million shares).
- Southern Peru’s board formed a special committee of purportedly independent directors, authorized to evaluate, negotiate, and approve or reject the deal; the committee retained counsel and a financial advisor.
- The advisor’s early fundamental valuation work indicated Minera’s standalone value was more than $1 billion below the implied $3.1 billion price.
- The special committee did not insist on a lower price or a different structure; it moved toward a “relative value” approach that treated Southern Peru’s market price as overstated and sought to rationalize the controller’s requested exchange ratio.
- The committee largely worked within the controller’s preferred fixed-share, stock-for-stock structure and did not meaningfully test alternatives (e.g., different deal structures or strategic options).
- The committee recommended, and the board unanimously approved, issuing 67.2 million shares to the controller affiliate in exchange for Minera.
- Stockholders approved the transaction, but it was not conditioned on a non-waivable, fully informed majority-of-the-minority vote.
- A minority stockholder brought a derivative action alleging loyalty breaches and that the transaction was not entirely fair to Southern Peru.

## Issues

1. What standard of review applies to a controller-driven, conflicted acquisition, and did the use of a special committee or stockholder approval shift the burden of proof?
2. Was the acquisition entirely fair to Southern Peru as to fair dealing (process) and fair price (economic terms)?
3. If the transaction was not entirely fair, what monetary remedy should be awarded to address the overpayment?

## Decision

- The Court of Chancery applied entire fairness review because the controlling stockholder stood on both sides of the transaction.
- The court held the defendants did not carry their burden to prove entire fairness; the process was flawed and the price was unfair.
- The court held the special committee and stockholder vote did not shift the burden because the committee did not function as an effective independent bargaining agent and the vote was not structured as an effective majority-of-the-minority approval.
- The court found the controller and certain directors breached the duty of loyalty by causing Southern Peru to overpay.
- The court awarded a quasi-appraisal monetary judgment of approximately $1.263 billion plus statutory simple interest from the merger date.

## Legal Principles

- A controller-led transaction in which the controller receives non-ratable benefits is reviewed for entire fairness, requiring proof of both fair dealing and fair price.
- Burden shifting under entire fairness requires effective procedural protections (e.g., a genuinely independent, fully empowered special committee that bargains at arm’s length and/or a fully informed, non-waivable majority-of-the-minority vote condition).
- Fair dealing analysis examines how the transaction was initiated, structured, negotiated, disclosed, and approved, including whether the committee had real leverage and a credible ability to reject the controller’s terms.
- Fair price analysis compares what the corporation gave and received; market evidence can be highly probative for the value of publicly traded shares used as consideration.
- When entire fairness is not proven, Delaware courts may award monetary relief measured by the difference between the value transferred and the value that would have been paid in a fair transaction, with interest.

## Conclusion

The court held that Southern Peru’s controller-driven acquisition of Minera failed entire fairness because the special committee did not replicate arm’s-length bargaining and the company overpaid using a fixed number of publicly traded shares, resulting in a large monetary award to remedy the overpayment and associated loyalty breaches.


In re S. Peru Copper Corp. S’holder Derivative Litig., 30 A.3d 60 (Del. Ch. 2011)