Corwin et. al. v. KKR Financial Holdings LLC Consol., C.A. No. 9210-CB (October 2, 2015)
The Delaware Supreme Court recently clarified several points of Delaware law when it affirmed the dismissal of a lawsuit challenging the entire fairness of an acquisition. The court found that:
- A stockholder cannot be deemed to have “effective control” of the company if (a) the stockholder owns less than 1% of a corporation’s shares of stock and (b) has limited contractual control over the management of the corporation.
- When a transaction is not subject to the entire fairness standard and is approved by a fully informed, uncoerced vote of the disinterested shareholders, the business judgment rule applies.
- In a post-closing money damages claim, it is the Court’s analysis of the informed and uncoerced shareholder vote that controls, regardless of whether or not Revlon applied to the transaction.
- Delaware courts will not presume the validity of a shareholder vote, but will perform a thorough analysis to determine the vote was informed and uncoerced.
Bottom Line: When a closed transaction is challenged, the business judgment standard of review will apply unless the shareholder vote was tainted by coercion or the shareholders were uninformed.