## Facts

- MacAndrews & Forbes Holdings, Inc. (M&F) owned about 43% of M&F Worldwide Corp. (MFW) and was its controlling stockholder.
- M&F proposed a going-private, controller freeze-out merger to acquire the remaining minority shares for $24 per share in cash.
- From the outset, M&F conditioned any transaction on (1) approval by an independent special committee with authority to reject the deal and (2) approval by a majority of the unaffiliated minority stockholders.
- MFW formed a special committee of directors unaffiliated with M&F; the committee retained independent legal and financial advisors and negotiated with M&F.
- The special committee obtained an increased price of $25 per share.
- Minority stockholders approved the merger by approximately 65.4% of the disinterested shares, and the merger closed.
- Minority stockholders who did not support the transaction sued, alleging fiduciary breaches and seeking entire fairness review.

## Issues

1. Whether a controlling-stockholder freeze-out merger is reviewed under the business judgment rule, rather than entire fairness, when it is conditioned ab initio on both approval by an independent, properly empowered special committee and an informed, uncoerced majority-of-the-minority vote.
2. Whether the record presented material factual disputes about satisfaction of the required procedural protections sufficient to preclude summary judgment.

## Decision

- The Delaware Supreme Court (en banc) affirmed summary judgment for defendants.
- The court held business judgment review applies to a controller freeze-out merger when six conditions are met, including ab initio conditioning on both special-committee approval and a majority-of-the-minority vote.
- The court concluded the special committee was independent, adequately empowered, and acted with due care; the minority vote was informed and uncoerced.
- Because business judgment applied and plaintiffs failed to show a non-exculpated loyalty or bad-faith claim or that the transaction was irrational, defendants were entitled to judgment.

## Legal Principles

- Entire fairness is the default standard for controller freeze-out mergers unless the transaction structure supplies protections that justify business judgment review.
- Business judgment review applies if all six elements are satisfied:
  - The controller conditions the transaction, from the outset, on both special-committee approval and a majority-of-the-minority vote.
  - The special committee is independent.
  - The special committee is empowered to select its own advisors and to reject the transaction definitively.
  - The special committee satisfies its duty of care in negotiating.
  - The minority vote is informed.
  - The minority vote is uncoerced.
- When business judgment applies, plaintiffs must plead and prove a basis to overcome that deference, such as non-exculpated disloyalty or bad faith, or that no rational person could view the transaction as favorable to the minority.

## Conclusion

A controlling stockholder can obtain business judgment review for a freeze-out merger by committing at the outset to both an independent, fully empowered special committee process and an informed, uncoerced majority-of-the-minority vote; where those protections functioned and no non-exculpated misconduct was shown, the merger was upheld.


Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014)