Ron Perelman Case Sets Standard for Review for Controlling Stockholder Buyouts in Delaware


Noted billionaire, philanthropist and takeover artist Ron Perelman, is again involved in a precedent setting legal case. On March 14, 2014, the Delaware Supreme Court issued its opinion in the Kahn v. M&F Worldwide Corp. (M&F Worldwide was 43% owned by MacAndrews & Forbes Holdings, Inc., an entity entirely owned by Mr. Perelman, prior to the transaction at issue in the case) where it applied the business judgment rule to a buyout by a controlling stockholder where the merger transaction was conditioned on the approval of both an independent and empowered Board special committee and a nonwaivable “uncoerced, informed vote of the majority of the minority stockholders.”

The Delaware Supreme Court held:

We hold that business judgment is the standard of review that should govern mergers between a controlling stockholder and its corporate subsidiary, where the merger is conditioned ab initio upon both the approval of an independent, adequately-empowered Special Committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of the minority stockholders.

To summarize our holding, in controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority.

For the record, the merger has been approved by 65.4% of M&F’s minority stockholders and closed in December 2011. This case offers guidelines for structuring “going private” transactions and the application of the management favorable business judgment standard (as opposed to the entire fairness standard) provides almost total protection to a transaction meeting the opinion’s requirements.


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