The Delaware Supreme Court recently held that the Business Judgment Rule, rather than the more demanding Revlon standard, applied to a board of directors' decision to approve a merger when a majority of the shareholders of the company being acquired voluntarily tendered their shares in a tender offer by the acquiring company.
In In re Volcano Corporation Stockholder Litigation, a company's board recommended that its shareholders participate in a tender offer without first holding a shareholder vote. By the time the tender offer closed, 89.1 percent of shareholders had sold their shares to the acquiring company. However, multiple shareholders filed suit against the board, alleging that it acted in an uninformed manner when it approved of the merger and that it was motivated by personal benefits stemming from the merger. Seeking dismissal of the claims, the board argued that the Business Judgment Rule applied because the "fully informed, uncoerced, disinterested stockholders approved the Merger by tendering a majority of the Company's outstanding shares in the Tender Offer."
The Delaware Supreme Court held that the Business Judgment Rule applied. Affirming the Chancery Court, the Supreme Court held that a vote of a majority of the shareholders to approve the merger renders the Business Judgment Rule the applicable standard of review, and that a majority of the shareholders participating in a tender offer has the same effect as a vote approving the merger.
This case follows on the heels of two important New York Court decisions (one applying Delaware law) which held that the business judgment rule applied where defendants had taken steps to ensure that the transaction would be fair to minority stockholders. Arnold & Porter Kaye Scholer attorneys represented Baltic Trading Limited and four former independent directors in In re Baltic Trading Stockholder Litigation and Kenneth Cole, Inc. in In re Kenneth Cole Productions Inc. Shareholder Litigation.
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