Tuesday, December 30, 2008
Santa Fe Industries owned 95% of the stock of the Kirby Lumber Corp. This put Santa Fe over the relevant threshold under Delaware law and thus permitted Santa Fe to avail itself of Delaware's short-form merger statute. Santa Fe offered $125/share to Kirby's minority shareholders. Plaintiffs were Kirby shareholders who thought $125 was a bad deal and that their shares were really worth about five times as much. The only issue before the U.S. Supreme Court was whether plaintiffs could challenge the transaction as a form of securities fraud actionable under SEC Rule 10b-5. The Supreme Court held that it was not.
The Court found that state remedies for breach of fiduciary duty, coupled with the appraisal remedy for shareholders dissatisfied with the offering price in a short-form merger, are adequate. Plaintiffs had alleged only that Santa Fe had breached its fiduciary duties as a majority shareholder by offering an absurdly low price. But Santa Fe had disclosed its methodology for fixing $125 as the share price. Dissatisfied shareholders could pursue appraisal. In short, without allegations of misrepresentations, the Court found no basis for a 10b-5 claim.
Can this case be reconciled with the Court's endorsement of the SEC's misappropriation theory in the insider trading context? The answer to that question and more will have to await a later Limerick, but this Stephen Bainbridge article suggests that the answer is no.
Santa Fe Industries v. Green
Should the federal courts intervene
When a short-form merger's obscene?
No, state law governs here;
Let the state courts declare
What the shareholders take from the scheme.