S. Muoio & Co. LLC v. Hallmark Entm't Invs. Co. - Civil Action No. 4729-CC, 2011 Del. Ch. LEXIS 43 (Del. Ch. Mar. 9, 2011)

Rule:

The entire fairness standard has two components: fair dealing and fair price. These prongs are not independent and the court does not focus on each of them individually. Rather, the court determines entire fairness based on all aspects of the entire transaction. Fair dealing involves questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained. Fair price involves questions of the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock.

Facts:

In the recapitalization, the defendant controlling stockholder exchanged the corporation's debt that it held for an increased percentage of the corporation's class A common stock, new preferred stock, and a new and far smaller amount of debt with longer maturities, thereby permitting the corporation to avoid a debt default and bankruptcy. The corporation's board created a special committee to consider the proposed recapitalization. Plaintiff stockholder challenged the fairness of the recapitalization.

Issue:

Was the recapitalization fair?

Answer:

Yes.

Conclusion:

The fairness of a recapitalization of the corporation was upheld. The evidence demonstrated that the corporation's special committee was independent, fully informed, and that it had negotiated with the controlling stockholder at arm's length.