Roger Cooper and Rishi Zutshi are partners and Vanessa Richardson is an associate at Cleary Gottlieb Steen & Hamilton LLP. This post is based on their Cleary memorandum and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders by Lucian Bebchuk and Assaf Hamdani (discussed on the Forum here); Adverse Selection and Gains to Controllers in Corporate Freezeouts by Lucian Bebchuk and Marcel Kahan; and The Effect of Delaware Doctrine on Freezeout Structure and Outcomes: Evidence on the Unified Approach by Fernan Restrepo and Guhan Subramanian (discussed on the Forum here).
The Delaware Supreme Court has clarified that controlling stockholder take-private transactions will be reviewed under the business judgment rule, rather than the less deferential entire fairness standard, if the controlling stockholder self-disables by committing to special committee and majority-of-the-minority approval before “economic negotiations” take place, even if the controlling stockholder fails to do so in its initial written offer. See Flood v. Synutra Int’l, Inc., No. 101, 2018 (Del. Oct. 9, 2018). [1]
The Delaware Supreme Court first announced in Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) that business judgment review applies to a merger proposed by a controlling stockholder conditioned “ab initio” on two procedural protections: (1) the approval of an independent, adequately empowered Special Committee that fulfills its duty of care; and (2) the uncoerced, informed vote of a majority of the minority stockholders. [2] Since then, several Delaware cases have involved questions about whether the MFW conditions were in place “ab initio.” [3] In Synutra, the Delaware Supreme Court provided further significant guidance on the meaning of the “ab initio” requirement.
Comment Letter in Advance of SEC Staff Roundtable on the Proxy Process
More from: Bernard Sharfman, Main Street Investors Coalition
Bernard S. Sharfman is the Chairman of the Main Street Investors Coalition Advisory Council. This post is based on a recent letter from Mr. Sharfman to the the U.S. Securities and Exchange Commission. The opinions expressed here are the author’s and do not represent the official position of the Coalition or any other organization that he is affiliated with.
This submission is in response to Chairman Clayton’s July 30 press release announcing a staff roundtable on the proxy process and calling for submissions from interested parties. It refers in particular to proxy advisory firms and is distinguished from my October 8, 2018 comment letter that focused on additional disclosures by investment advisers to mutual funds. Specifically, this submission requests the Securities and Exchange Commission (“SEC” or “Commission”) to modify its rules, policies and guidelines to the extent that:
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