In re CNX Gas Corp. S'holders Litig. - 4 A.3d 397 (Del. Ch. 2010)

Rule:

If a first-step tender offer is both: (i) negotiated and recommended by a special committee of independent directors; and (ii) conditioned on the affirmative tender of a majority of the minority shares; then the business judgment standard of review presumptively applies to the freeze-out transaction. As with a merger, if both requirements are not met, then the transaction is reviewed for entire fairness.

Facts:

The defendant-controlling stockholder revamped the corporate governance structure of the corporation. It sought to acquire an institutional investor's shares of the corporation in connection with the freeze-out transaction, and those parties entered into a tender agreement. The defendant commenced its first-step tender offer to acquire the outstanding public corporate shares, with a commitment to effect a short-form merger promptly after the successful consummation of the tender offer. The consummation was subject to a non-waivable condition that a majority of the outstanding minority shares be tendered. The corporation formed a special committee to evaluate the tender offer. The putative class of minority stockholders sought a preliminary injunction.

Issue:

Should the court grant the minority stockholders’ motion for preliminary injunction?

Answer:

No.

Conclusion:

The court determined that the unified standard was applicable to review the freeze-out. The putative class of minority stockholders showed that the special committee lacked authority to bargain with the defendant on an arms' length basis. Further, they established a reasonable basis to question the effectiveness of the majority-of-the-minority tender condition due to the institutional investor's interests. However, the court concluded that any harm to the minority stockholders could be remedied through a post-closing damage action. Accordingly, as there was no threat of irreparable harm, there was no basis to issue the preliminary injunction.