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In a sign that Delaware's approach to going-private transactions has some legs, an appellate court in NY recently applied the principles of Kahn v. M&F Worldwide Corp. (MFW) to a going private transaction, thereby aligning New York's law in this area with Delaware's [an enhanced version of this opinion is available to lexis.com subscribers]. According to the National Law Review:
The New York Appellate Division, First Department, ruled yesterday that the business-judgment rule – not the entire-fairness standard of review – can apply to a going-private transaction with the majority shareholder where the majority shareholder did not participate in the board’s vote on the merger, the remaining directors were not alleged to be self-interested, and the merger required the approval of the majority of the minority shareholders. In re Kenneth Cole Productions, Inc. Shareholder Litigation, Index No. 650571/12 (N.Y. App. Div. 1st Dep’t Nov. 20, 2014) [enhanced version].
These kinds of transactions have been litigation magnets for years. MFW goes a long way to reducing some of the litigation flotsam that has accompanied announcement of freezeout deals with a controller. In the independent directors and unaffiliated stockholders are in fact independent and have the ability to mimic an arm's length transaction, then MFW is the best result. Interesting to see the principle being adopted outside of Delaware as well.
Visit the M&A Law Prof Blog, hosted by Brian JM Quinn, for blogs on legal developments in corporate governance and mergers & acquisitions.
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