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Weinberger v. Uop - 457 A.2d 701 (Del. 1983)

Rule:

The concept of fairness has two basic aspects: fair dealing and fair price. The former embraces questions of when a merger 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. The latter aspect of fairness relates to 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. Del. Code Ann. tit. 8, § 262(h). However, the test for fairness is not a bifurcated one as between fair dealing and price. All aspects of the issue must be examined as a whole because the question is one of entire fairness. 

Facts:

Signal is a diversified, technically based company operating through various subsidiaries. Its stock is publicly traded on the New York, Philadelphia and Pacific Stock Exchanges. UOP, formerly known as Universal Oil Products Company, was a diversified industrial company engaged in various lines of business, including petroleum and petro-chemical services and related products, construction, fabricated metal products, transportation equipment products, chemicals and plastics, and other products and services including land development, lumber products and waste disposal. Its stock was publicly held and listed on the New York Stock Exchange. In 1974 Signal sold one of its wholly-owned subsidiaries for $420,000,000 in cash. While looking to invest this cash surplus, Signal became interested in UOP as a possible acquisition. Friendly negotiations ensued, and Signal proposed to acquire a controlling interest in UOP at a price of $19 per share. UOP's representatives sought $25 per share. In the arm's length bargaining that followed, an understanding was reached whereby Signal agreed to purchase from UOP 1,500,000 shares of UOP's authorized but unissued stock at $21 per share. Action was brought by plaintiff class challenging the elimination of defendant corporation's minority shareholders by a cash-out merger between UOP and its majority owner. The lower court held that the terms of the merger were fair to plaintiff and the other minority shareholders of UOP. 

Issue:

Were the terms of the merger fair to plaintiff and the other minority shareholders of UOP corporation?

Answer:

No.

Conclusion:

The court held that the record did not establish that the transaction satisfied any reasonable concept of fair dealing, as the matter of disclosure to the defendant's directors was wholly flawed by conflicts of interest raised in feasibility study, and the minority shareholders were denied critical information. Thus, the vote of the minority shareholders was not an informed one. The court further held that the standard "Delaware block" or weighted average method of valuation, should not control. Rather, the court endorsed a more liberal approach requiring consideration of all relevant factors pursuant to Del. Code Ann. tit. 8, § 262(h).

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