## Facts

- Plaintiffs were minority shareholders of Cerro Corporation, a New York corporation with approximately 8,000,000 common shares outstanding.
- A Pritzker-family entity acquired a large block of Cerro stock through market purchases and a tender offer financed largely by borrowing, then transferred about 45% of Cerro’s common stock to an affiliated entity, effectively giving the Pritzker interests control.
- Cerro, the controlling entities, and a newly created corporation entered agreements to merge Cerro into the new entity.
- Under the proposed merger, the controlling interests would retain voting control and the post-merger company’s “residual equity,” while public shareholders would receive preferred stock with fixed dividend, redemption, and liquidation terms and substantially reduced voting power, limiting participation in future growth.
- A proxy statement/prospectus described the transaction and noticed a special shareholder meeting to vote on the merger.
- Plaintiffs alleged the merger was unfair self-dealing by the controlling shareholders and directors and sought to enjoin the merger and the shareholder meeting.
- Cerro’s process included use of independent advisors and an independent committee of directors to evaluate the transaction.

## Issues

1. Whether plaintiffs were entitled to a temporary (preliminary) injunction enjoining the shareholder meeting and proposed merger based on alleged controller/director self-dealing and unfairness to minority shareholders.
2. Whether equitable relief should be granted before the vote when dissenting shareholders have statutory post-transaction remedies, including appraisal.

## Decision

- The court denied the motion for a temporary injunction.
- The shareholder meeting and merger process were permitted to proceed.
- The court held that plaintiffs had not met the requirements for preliminary injunctive relief, given the record and available post-merger remedies.

## Legal Principles

- A preliminary injunction requires a sufficient showing of likelihood of success on the merits, irreparable harm absent relief, and a balance of equities favoring the movant.
- Controller-influenced mergers are subject to fiduciary scrutiny, and indicators of fair dealing include meaningful participation by independent directors and independent financial advisors and adequate disclosure to shareholders.
- Injunctive relief to stop a merger is generally disfavored where shareholders receive full disclosure and dissenters have appraisal or similar statutory remedies, absent a strong showing of fraud, overreaching, or gross unfairness not remediable by monetary relief.
- Disputes centered on valuation and allocation of merger consideration commonly can be addressed through appraisal or damages rather than pre-closing injunctions.

## Conclusion

The court refused to halt a controller-led merger at the preliminary stage because plaintiffs did not demonstrate irreparable injury or a sufficient likelihood of success, and because the transaction was disclosed and subject to procedural checks while dissenting shareholders could pursue appraisal and other post-transaction remedies.


Schulwolf v. Cerro Corp., 86 Misc. 2d 292 (N.Y. Sup. Ct. 1976)