Kahn v. M&F Worldwide Corp.
Citation: 88 A.3d 635 (Del. 2014)
Facts
MacAndrews & Forbes (Revlon’s holding company), which owned 43% of M&F Worldwide, proposed a going-private transaction to buy out the minority shareholders. From the outset, MacAndrews conditioned its offer on approval by (1) a special committee of independent directors with full negotiating power, and (2) a majority vote of the disinterested shareholders. Both conditions were satisfied. Minority shareholders challenged the transaction under the entire fairness standard.
Issue
When a controlling shareholder conditions a squeeze-out merger proposal on both a special committee of independent directors and a majority-of-the-minority shareholder vote from the outset, does the transaction receive business judgment rule review?
Holding
Yes. When both procedural protections are established as conditions from the outset — before any economic negotiations — and both are satisfied, the standard of review is the business judgment rule, not entire fairness.
Rule
MFW standard: A controlling-shareholder merger receives business judgment review (rather than entire fairness) if:
- The controller conditions the transaction ab initio (from the outset, before any economic negotiations) on both:
- Approval by a special committee of independent directors with full negotiating authority and power to freely reject, AND
- Approval by a majority-of-the-minority shareholder vote (disinterested shareholders)
- Both conditions are actually satisfied
If either condition is absent or compromised, the standard reverts to entire fairness with the burden on the defendant.
Significance
- Most important Delaware M&A case in the 2010s
- Creates a safe harbor for controlling-shareholder mergers that replicates arm’s-length bargaining protections
- Incentivizes controllers to use these procedural protections
- Plaintiff bears the burden if MFW conditions are met; defendant bears burden otherwise (Lynch standard)
- If MFW standard is met, only bad faith can defeat BJR protection