Court of Chancery Dismisses Suit Over Decision To Not Pursue A Merger
Gantler v. Stephens, C .A. No. 2392-VCP (February 14, 2008).
This decision illustrates the confusion that exists over the scope of review of a board's decision to not pursue a merger and largely eliminates the uncertainty. Briefly, the board here decided not to pursue a merger opportunity and the potential acquirer then withdrew its offer. The court held that the business judgment rule applied to the decision not to take the offer. In doing so, the court declined to apply the heightened scrutiny used under the Unocal decision as the board did not take any defensive steps to stop the suitor from going forward on its own.
Instead, the court held that to invoke a higher level of review, the plaintiff must show the board acted in bad faith or was not properly advised. Mere allegations that the board made the wrong decision are insufficient.The decision also has a good discussion of how to count the results of a stockholder vote. Generally, the votes of the board in favor of the vote are not counted either as votes in favor or as part of the total vote required to decide if a majority of the disinterested stockholders have ratified the transaction. All votes entitled to be cast are counted, however, and not just the votes actually cast.Share