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Court Of Chancery Applies M&F Worldwide To A Selling Controller

Posted In Fiduciary Duty

In Re Martha Stewart Living Omnimedia Inc. Stockholder Litigation, C.A. No. 11202-VCS (Del. Ch. Aug. 18, 2017)

Under M&F Worldwide, the business judgment rule standard of review applies to squeeze-out mergers with controlling stockholders if, from the outset of the negotiations, the controlling stockholder conditions the merger on both (i) negotiation and approval by a special committee of independent directors, free to select its advisors, empowered to say no, which fulfills its duty of care, and (ii) approval by an uncoerced, fully informed majority-of-the-minority vote. Compliance with M&F Worldwide limits plaintiffs to untenable waste claims. Significantly, this decision extends M&F Worldwide to circumstances where the controlling stockholder is a seller, rather than the buyer, and may have engaged in a conflicted transaction based on alleged side deals. The decision also holds that the dual protections of M&F Worldwide must apply from the start of the negotiations with the controller to be given effect.

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