Editor’s Note: Victor Lewkow is a partner at Cleary Gottlieb Steen & Hamilton LLP. This post is based on a Cleary Gottlieb memorandum by Mr. Lewkow, Ethan Klingsberg, and Neil Whoriskey, and is part of the Delaware law series, which is co-sponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
Chancellor Leo Strine’s opinion in In re MFW Shareholders Litigation (Del Ch. May 29, 2013) marks the culmination of an effort by the Chancellor, going back to his lengthy dicta in In re Cox Communications Shareholders Litigation (Del Ch. 2005), to arrive at a more unified standard for review of buy-outs of a company’s public float by a controlling stockholder. The headline conclusion is that, assuming this decision is not reversed by the Delaware Supreme Court on appeal, controlling stockholder buyouts structured as negotiated mergers may now join controlling stockholder buyouts that take the form of unilateral tender offers in having available a theoretical path that permits challenges to be dismissed on pre-trial motions.
About ten years ago, a series of Chancery Court opinions, the most prominent of which was then-Vice Chancellor Strine’s opinion in In re Pure Resources Shareholders Litigation (Del. Ch. 2002), laid out safeguards that would qualify a unilateral tender offer by a controlling stockholder as non-coercive and entitled to dismissal of challenges based on pleadings prior to a trial or an evidentiary hearing. The most important of these safeguards were the presence of both: