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A determination of whether a transaction is entirely fair involves a two-pronged inquiry into the two aspects of fairness: fair dealing and fair price. A fair dealing analysis addresses how the transaction was timed, initiated, structured, negotiated, disclosed, and approved. A fair price inquiry focuses on the economic and financial considerations of the transaction, including all relevant factors such as assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock. The test of fairness, however, is not one that is bifurcated between fair dealing and fair price. The fairness issue must be examined as a whole in all its aspects, keeping in mind that the entire fairness standard does not lend itself to bright line precision or rigid doctrine.
One director and stockholder of a corporation proposed a merger of that corporation, which he then controlled, and a real estate corporation, which he then owned. The corporation had capital and was seeking to diversify its traditional business base of oil and gas activities. The real estate corporation had a plan to expand its business, but it lacked the capital to carry out that plan. Because the director controlled both entities, and because one of the other directors was his employee, it was determined that the issue of whether the corporation would pursue the merger proposal would be decided by the three non-affiliated directors who constituted the majority of the board. The plaintiff limited partnership, which was a minority stockholder, objected to the merger, after the approval by the stockholders. The plaintiff sued the defendant corporate directors for allegedly breaching their fiduciary duties to minority stockholders and approving a corporate merger that was unfair to the corporation's minority stockholders.
The trial court entered judgment against the limited partnership and in favor of all the directors on all of the limited partnership's claims. The court found that the three directors negotiated the merger terms in good faith, at arm's length, and in an adversarial manner, in reliance on the advice of their independent financial and legal advisors. Thus, the three directors did not breach their fiduciary duty to the minority stockholders. Finally, the merger was entirely fair to the corporation and its minority stockholders.