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DE Court Applies Business Judgment Rule in Reviewing LBO

By ALM Staff | Law Journal Newsletters |
September 27, 2013

M&A transactions involving publicly traded companies with controlling stockholders often present thorny issues for dealmakers and their legal counsel. Even in the case of a purchase by an unaffiliated third party, controlling stockholders understandably may seek to leverage their control positions to achieve results that best suit them. Further, private equity buyers in particular often require controlling stockholders to “roll over” a portion of their stock into equity of the continuing corporation and/or enter into other arrangements to facilitate the transaction.

As a result, litigation challenging the fairness of these transactions to the public stockholders is a staple of M&A practice. In an effort to assure a degree of fairness to the public stockholders, the Delaware courts traditionally have imposed more intrusive standards of review than are customarily employed in buyouts of companies without controlling stockholders.

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