Vice Chancellor Joseph R. Slights III’s decision In re OM Group Stockholders Litigation, Consol. C.A. No. 11216-VCS (Oct. 12, 2016), represents the latest Delaware Court of Chancery decision to apply Corwin v. KKR Financial Holdings, 125 A.3d 312-314 (Del. 2015), and rely on the business judgment standard of review to dismiss a Revlon challenge to a cash-out merger.
In the sale of a company for cash, the duty of the board of directors is to seek the transaction offering the best value reasonably available. Before Corwin and since the Delaware Supreme Court’s 1986 decision in Revlon v. MacAndrews & Forbes Holdings, 506 A.2d 173 (Del. 1986), Delaware courts applied the intermediate standard of review of “enhanced scrutiny” when evaluating challenges to the directors decision-making involving the sale of control. The court has justified enhanced scrutiny rather than the more deferential business judgment standard because of the potential conflicts that fiduciaries face when considering whether to sell the corporation, to whom and on what terms. In 2015, the Delaware Supreme Court in Corwin substantially circumscribed the Revlon standard of review in post–merger transaction challenges if a majority of disinterested stockholders, who are fully informed and not coerced, have approved the merger. In that instance the irrebuttable business judgment rule would apply, and the board’s decision to approve the merger would be insulated from all attacks (except waste) even if the board had Revlon duties in the merger. The rationale for Corwin is that the body of disinterested and informed stockholders remains a qualified decision-maker to which the court should defer, even if the board is compromised by the situational pressures subjecting it to enhanced scrutiny.
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