The Management Friendly Nature of Delaware Decisions: In re MFW Shareholders Litigation (The Real Benefit of Disinterested Shareholder Approval) (Part 8)
We are discussing the decision in In re MFW Shareholders Litigation.
The switch of the standard of review from entire fairness to the business judgment rule probably harms shareholders by eliminating the benefits that flow from judicial review of the substantive terms of the transaction.
Nonetheless, shareholders, on balance, probably benefit from the change. This is primarily because the benefits of judicial review are marginalized by the management friendly nature of the courts. Rather than challenge unfair offers legally, something that, for the most part, would not stop the acquisition but more likely involve a modest or small recovery (but see Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del 2012) (awarding $2 billion in damages), the decision potentially gives shareholders the right to veto a transaction. As the court noted: "If, despite these incentives, the special committee approves a transaction that the minority investors do not like, the minority investors get to vote it down, on a full information base and without coercion."
But that depends upon the judicial willingness to limit the shift in the standard of review to circumstances where the controlling shareholder agrees not to go forward upon the occurrence of an adverse vote. As we shall discuss, this "veto" is unlikely to remain a required part of the analysis.
Primary materials in this case can be found at the DU Corporate Governance web site.