Controlling-stockholder transactions are a regular part of many companies’ business; in some cases, they are essential. When challenged, however, such transactions have often been scrutinized under the entire fairness standard, the most exacting standard under Delaware law. Delaware courts are now increasingly recognizing that corporations can secure the protection of the business judgment rule even for controlling-stockholders transactions by implementing sufficient procedural safeguards. A recent addition to this developing body of law is IRA Trust FBO Bobbie Ahmed v. Crane, (Del. Ch. Dec. 11, 2017), as revised (Jan. 26, 2018).

In Crane, Chancellor Andre Bouchard held that a stock reclassification transaction involving a controlling stockholder was subject to the business judgment rule when the transaction was conditioned from the outset on the procedural precautions considered by the Delaware Supreme Court in Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014) (MFW)—namely, the approval of the transaction by a special committee of independent directors and the majority of the outstanding shares not owned by the controller (i.e., the majority of the minority votes). The controlling stockholder in Crane was NRG Energy Inc., a power company that produces, sells and delivers energy, energy products, and energy services. NRG controlled NRG Yield Inc., a Delaware corporation that owns a portfolio of income-producing energy generation and infrastructure assets from which dividends can be distributed to stockholders. Following its initial public offering in 2013, Yield had two classes of stock, each of which was entitled to one vote per share. Initially, NRG held approximately 65 percent of Yield’s voting power through its ownership of all of Yield’s Class B shares, and the public stockholders held approximately 35 percent of the voting power through ownership of the Class A shares. Over time, however, Yield issued additional Class A shares, and by the fall of 2014, NRG’s voting control of Yield had been diluted to approximately 55 percent.