Court of Chancery Explains MFW Requirements
Transactions between a Delaware company and its controlling stockholder usually are subject to rigorous entire fairness review. But, under the MFW decision, even a merger with a controller may gain the benefit of deferential business judgment review. The MFW requirements include that the controller must condition the procession of the transaction ab initio on approval by a special committee.
This Court of Chancery decision addresses, among other things, the critical issue of timing—when must the committee device be deployed to be effective under MFW. The Court answers that question by distinguishing preliminary discussions from actual negotiations. For purposes of the MFW analysis, “negotiations” usually begin when a proposal is made by one party which, if accepted by the counter-party, would constitute an agreement regarding the contemplated transaction. Discussions may be fairly substantial before that point, but that does not mean the parties necessarily have taken themselves outside MFW.