Delaware Resolves Ambiguity Involving Take-Private Transactions

In its recent decision in Arthur Flood v. Synutra International, Inc., et al., No. 101, 2018 opinion (Del. Oct. 9, 2018), the Delaware Supreme Court clarified when an acquisition of a company by a controlling stockholder will be subject to business judgment rule review, as opposed to the more stringent entire fairness standard. Business judgment rule review applies if, prior to the start of substantive economic negotiations, the controlling stockholder conditions its buyout offer on both approval by an independent special committee and the vote of a majority of the minority stockholders.

BACKGROUND

The Delaware Supreme Court first established in Kahn v. M&F World Wide Corp., 88 A.3d 635 (Del. 2014) that a buyout by a controlling shareholder conditioned ab initio (i.e., "from the beginning") on approval by an independent, adequately empowered special committee and the uncoerced, informed vote of a majority of the minority shareholders would receive the benefit of