In mid-March, the Delaware Supreme Court issued what is being described as a landmark ruling in the case Kahn v. M&F Worldwide Corp., which involved a shareholder challenge to the buyout of M&F by its controlling shareholder — MacAndrews & Forbes Holdings, Inc., an investment vehicle owned by Ronald Perelman. The court affirmed then-Chancellor Leo Strine’s use of the more deferential “business judgment” standard of review in granting a motion for summary judgment filed by the controlling shareholder. Until this decision, Delaware courts had typically applied the more stringent “entire fairness” standard in such cases.
According to the trial court, the use of the “business judgment” standard of review was appropriate in this instance because, from the outset, the controlling shareholder had agreed to make approval of the transaction contingent upon the review and recommendation of a “capable” special committee of independent directors, and approval by a majority of the minority or non-controlling shareholders. In the trial court’s view, these mechanisms gave the buyout the characteristics of an arm’s-length transaction with an actual third-party purchaser and, thus, warranted the more deferential standard of review typically applied in such cases. The Delaware Supreme Court unanimously affirmed this approach. Specifically, the high court held that: