The Geography of MFW-Land
38 Pages Posted: 13 Oct 2016
Date Written: October 11, 2016
In a highly celebrated decision, the Delaware Supreme Court concluded that positive approval by both a special board committee of disinterested directors and an informed and uncoerced majority of minority stockholders justifies de-escalation of the standard of review for going private mergers with a controlling stockholder. Prior to the MFW decision, Delaware case law declined to provide a ratification avenue that results in a deferential standard of review for these types of transactions.
While helpful, the decision lacks any reference to the multitude of other factual situations that compel heightened judicial review. Thus, business planners are left pondering whether MFW created a ratification procedure that encompasses all manner of controlling stockholder transactions. Into this void, a Chancery Court decision recently opined that the MFW framework applies to all controlling stockholder transactions.
This article argues that the intuitive application of the MFW framework to all controlling stockholder transactions is misguided. Neither the text of the Supreme Court's decision nor its context justify an expansive reading of MFW's holding. A critical look at the policy arguments espoused by the Supreme Court exposes their limitations when applied to other types of transactions. The unavoidable conclusion is that the borders of "MFW-Land" are much narrower than they appear.
Keywords: shareholder approval, standards of review, corporate ratification, corporate law, Delaware corporate law
JEL Classification: K22, K41, K42
Suggested Citation: Suggested Citation