Wednesday, August 22, 2012
Last week Chancellor Strine handed down In re Synthes S'holder Litig last week. It's an interesting opinion that's getting some attention from Prof. Bainbridge and Larry Hamermesh among others. Prof. Bainbridge looks at the opinion from the perspective of Revlon. Prof. Hamermesh makes important points about the pleadings.
In Sythnes, the controlling shareholder sought to liquidate his position through a sale. His choices were between J&J (for 65% stock and 35% cash) and a PE buyer for cash. The PE buyer required that the controller (and no one else) roll over a portion of his equity into the continuing corporation. Not interested in hanging around longer than necessary, the controller opted to pursue the transaction with J&J. The plaintiff's theory was the in pursuing a transaction with J&J that did not require the controller to participate in the firm post-closing rather than a competing transaction with a PE buyer, which could have brought more for minority shareholders, that the controller violated his fidcuiary duties to the minority. Chancellor Strine ruled that controllers have no fiduciary obligation to pursue transactions that benefit minority shareholders at the expense of the controller and that in accepting an offer that gave the same pro rata consideration to all shareholders the controller had not violated his fiduciary duties to shareholders.
Also, Chancellor Strine observed that a deal in which consideration included 65% stock did not invoke Revlon obligations.