Delaware law has long embraced the concept of expansive judicial deference to the decisions of corporate directors. The seminal MFW decision, in 2014, ushered in an era of even further expanded deference. MFW provides a pathway for early dismissal of challenges to M&A transactions under the business judgment rule standard of review even in the context of a transaction between a corporation and its controlling shareholder. Prior to MFW, the more stringent entire fairness standard of review has been applicable in this context.
MFW is applicable to a controller transaction if the transaction was subjected ab initio (i.e., from the “outset of negotiations”) to the unwaivable conditions that the transaction be approved by both (1) an independent special committee and (2) a majority of the minority stockholders (the so-called “ab initio requirement”). In addition, the committee must have been fully authorized (including to definitively “say no” to the transaction) and must have met its duty of care in negotiating the deal price; and the stockholder vote must have been fully-informed and uncoerced. The underlying premise of MFW is that these procedural protections, if followed, will circumscribe the controller’s influence over the transaction from the outset and thus will replicate the process that would pertain to an arm’s-length third party transaction (thus eliminating the need for a higher standard of review).
