## Facts

- Lynch Communication Systems, Inc. was a Delaware telecommunications equipment company.
- Alcatel (within the CGE corporate group) owned about 43.3% of Lynch’s stock and exercised control over Lynch’s strategic direction.
- Lynch sought improved technology and considered acquiring Telco Systems, Inc., but Alcatel opposed that acquisition.
- Alcatel proposed combining Lynch with Celwave (an Alcatel affiliate); Lynch’s board formed an independent committee to evaluate and negotiate controller-related transactions, and the committee rejected the Celwave proposal.
- Alcatel then proposed acquiring the remaining public shares through a cash-out transaction; negotiations moved from $14.00 to $15.50 per share after the independent committee pressed for a higher price.
- The committee’s bargaining occurred under Alcatel’s stated intention to proceed with a lower-priced hostile tender offer if its terms were not accepted.
- A transaction at $15.50 per share (tender offer followed by a cash-out merger) eliminated the minority stockholders.
- Minority stockholders challenged the transaction as unfair and asserted inadequate disclosure, including failure to describe the tender-offer threat more explicitly.

## Issues

1. Whether the defendants proved the controller-led cash-out transaction was entirely fair (fair dealing and fair price) with the burden of persuasion on defendants.
2. Whether fiduciary disclosure duties required a more explicit description of Alcatel’s threat to pursue a lower-priced hostile tender offer.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery’s post-remand judgment for defendants.
- The Court held defendants met their burden of proving the transaction was entirely fair, including despite coercive elements in the negotiation context.
- The Court held there was no disclosure breach because the omission of a more explicit description of the tender-offer threat was not material.

## Legal Principles

- A cash-out transaction in which a controlling stockholder stands on both sides is reviewed for entire fairness, and the controlling stockholder and aligned fiduciaries bear the burden of persuasion.
- An independent committee can be strong evidence supporting fairness but, standing alone, does not shift the burden of proof in an entire-fairness case.
- Entire fairness includes both fair dealing (process) and fair price (economic fairness), evaluated as a unified inquiry.
- Fair price analysis considers all relevant valuation factors; trial-court credibility and methodological findings on expert valuation evidence are reviewed deferentially on appeal.
- Delaware fiduciary disclosure requires disclosure of material facts; directors are not required to disclose every negotiation tactic or detail absent material effect on the total mix of information.

## Conclusion

The court upheld a controller cash-out at $15.50 per share after determining defendants carried the burden to show entire fairness under all the circumstances, and it rejected a disclosure challenge because the omitted, more explicit description of the controller’s lower-priced tender-offer threat was not material to stockholders’ decision-making.


Kahn v. Lynch Commc’n Sys., Inc. (Lynch II), 669 A.2d 79 (Del. 1995)