In 2007, chancellor William B. Chandler III has had one of Delaware’s hottest dockets. In addition to two significant stock options backdating cases, the chancellor issued a striking decision on judicial oversight of merger transactions. In Louisiana Municipal Police Employees’ Retirement System v. Crawford C.A., nos. 2635-N, 2663-N (New Castle Co., Del., Ch. Feb. 23, 2007) (better known as Caremark), the Delaware Court of Chancery was asked to enjoin a proposed merger of Caremark Rx Inc. and CVS Corp. While the outcome may seem benign — the Caremark shareholder vote was enjoined for at least 20 days after additional disclosures by the defendants — the case has potentially broad practical and doctrinal implications.
Delaware jurisprudence has, since 1990, drawn a distinction between mergers of equals and mergers involving a change of control or breakup of a corporate entity. In Revlon v. MacAndrews & Forbes Holdings Inc., 506 A.2d 173 (Del. 1986), the Delaware Supreme Court held that enhanced judicial scrutiny applies when a corporation undertakes a transaction that will cause a change in corporate control or a breakup of the corporate entity. In Paramount Communications Inc. v. Time Inc., 571 A.2d 1140 (Del. 1989), however, the court exempted a certain category of business combinations from Revlon enhanced scrutiny: mergers of equals not involving a change of control. Those combinations, said the court, should be reviewed under the more deferential business judgment standard.
