The opinion said if the business judgment rule applies, claims challenging a deal must be dismissed “unless no rational person could have believed that the merger was favorable to [the controlled company’s] minority stockholders.”
Friday’s Supreme Court decision affirmed a decision from last year of the lower court that came to a similar conclusion….
In the lower court case, the Chancery set out six prerequisites to obtaining business judgment rule treatment, and the Supreme Court quotes them. But then later in the opinion, the Supreme Court restates those same six prerequisites under the heading “The New Standard Summarized” with a few wording changes, one of which appears to me to be significant….
Chancellor Strine had characterized the sixth criteria as requiring that: “the Special Committee acts with care.” In its summary, the Supreme Court required that “the Special Committee meets its duty of care in negotiating a fair price.” The word “fair” suddenly appears. Plus the committee doesn’t just have to act with care. It must meet its “duty of care,” which isn’t defined in the Supreme Court opinion.
By expanding Chancellor Strine’s criteria to referring to a “duty of care in negotiating a fair price,” it looks like the Supreme Court is giving a new avenue to plaintiffs’ lawyers to attack a going private transaction.