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Updated Guidance (and Ground Rules) for Controlling Stockholder Deals
The Delaware Supreme Court’s 2014 decision in Kahn v. M&F Worldwide (“MFW”) provided a business judgment rule protection for controlling stockholder transactions which are conditioned from the outset on certain procedural protections being utilized, including approval by (1) a fully-empowered independent special committee and (2) a fully-informed, uncoerced vote of a majority of the target minority stockholders unaffiliated with the controller. While MFW provided helpful guideposts for avoiding entire fairness review in controlling stockholder transactions, questions remained as to the application of MWF to different types of deals and negotiations, and the consequences of small deviations from strict adherence to MFW. Recent guidance from the Delaware Court of Chancery has given way to updated ground rules for controlling stockholder transactions: (i) MFW also applies to deals where the controlling is only on the sell-side; (ii) other conflicted controller transactions besides mergers, such as recapitalizations, are eligible for MFW protection; and (iii) small foot faults will not cause the business judgment rule protection afforded by MFW to be lost.