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The approval of the disinterested stockholders in a fully informed, uncoerced vote that is required to consummate a transaction has the effect of invoking the business judgment rule. In addition, numerous other Delaware decisions have equated stockholder acceptance of a tender offer with a stockholder vote in favor of a merger, especially where the first-step tender offer in a two-step transaction is conditioned on tenders of a majority of the outstanding shares. As such, it seems that the Supreme Court did not intend that its holding in Corwin be limited to stockholder votes only.
Plaintiffs Melvin Lax, Melissa Gordon, and Mohammed Munawar were former public stockholders of Volcano Corporation that was acquired for $18 per share in an all-cash merger. Just five months prior, Volcano Corporation had declined an offer of $24 per share from the same acquiror. After the companies announced the merger, the plaintiffs brought the present action against Volcano Corporation’s board of directors and its financial advisor, alleging that the board breached its fiduciary duties in approving the merger, and the financial advisor, motivated by its own conflicts of interest, aided and abetted those breaches. Both the board and the financial advisor moved to dismiss the complaint under Court of Chancery Rule 12(b)(6). According to the defendants, the stockholders representing a majority of Volcano Corporation’s outstanding shares expressed their fully informed, uncoerced, disinterested approval of the merger. As such, according to the defendants, the business judgment rule standard of review irrebuttably applied to the plaintiffs' allegations and insulated the merger from a challenge on any ground other than waste, which the plaintiffs failed to allege.
Did the business judgment rule apply in the instant case, thereby warranting the grant of defendants’ motion to dismiss?
The court noted that the majority of the stockholders had tendered the company’s outstanding shares in a tender offer; thus, pursuant to case law, the approval of the merger by the majority of the stockholders had the same cleansing effect as if they had voted for the merger. Moreover, the Court held that the business judgment rule applied and irrebuttably protected the directors because a majority stockholder had approved the merger pursuant to Del. Code Ann. tit. 8, § 251(h), they were fully informed, uncoerced, and disinterested, and waste was not alleged. Claims against the financial advisor also failed because the alleged financial misconduct was not sufficient for the requisite scienter.