United States: Landmark Case - In re MFW Shareholders Litigation - To Be Appealed

Last Updated: July 19 2013
Article by Jeffrey A. Schumacher and Herbert F. Kozlov

Most Read Contributor in United States, October 2017

On May 29, 2013, Chancellor Leo E. Strine, Jr. of the Delaware Court of Chancery issued a decision that could potentially impact the structure of future going-private mergers by controlling stockholders. Ruling on a case of first impression, Chancellor Strine held that the business judgment rule—rather than the more arduous entire fairness standard—applies in cases where a going-private merger involving a controlling stockholder has been conditioned on the approval of both a "properly empowered, independent committee" and an "informed and uncoerced" majority-of-the-minority stockholder vote. In re MFW Shareholders Litigation, No. 6566-CS, 2013 WL 2326879, at *1 (Del. Ch. May 29, 2013). On June 25, 2013, the decision was appealed to the Delaware Supreme Court.

Factual and Procedural Background

In June 2011, MacAndrews & Forbes—a holding company owning 43 percent of M&F Worldwide ("MFW")—made a public offer to purchase the remaining shares of MFW's equity in a going-private merger. MacAndrews & Forbes proposed to acquire MFW for $24 per share, but made this offer contingent on the approval of an independent special committee and the affirmative vote of a majority of the minority stockholders.

In response to MacAndrews & Forbes' offer, the MFW board formed a special committee. The special committee employed its own legal and financial advisors, and had the ability to negotiate the merger and definitively accept or reject MacAndrews & Forbes' proposal. The special committee met eight times during the course of three months to negotiate with MacAndrews & Forbes. Eventually, MacAndrews & Forbes raised its price by $1 per share, to $25 per share.

After the special committee approved the $25 per-share price, the minority stockholders voted on the merger, with 65 percent of that minority approving the transaction. Certain MFW stockholders challenged the merger, however, suing MacAndrews & Forbes and the MFW directors. The plaintiffs initially sought a preliminary injunction, but later dropped their injunction request in favor of a post-closing-damages remedy for breach of fiduciary duty. The defendants moved for summary judgment, arguing that the business judgment rule should apply.

The Court's Holding and Analysis

In its decision, the Delaware Court of Chancery noted that since 1994 it has been well established that the entire fairness standard applies even where the approval of a going-private merger involving a controlling stockholder is provided by either a special committee, or the majority of the minority stockholders. However, when one of these two constituencies approves the transaction, the burden of proof shifts from the defendant to the plaintiff to show "fair dealing" and a "fair price." Weinberger v. UOP, Inc., 457 A.2d 701 (1983).

However, the question of what the correct standard of review should be when there is approval by both an independent committee and an informed majority-of-the-minority vote had not been resolved. To make this determination, the court considered whether minority stockholders would be better protected by the application of the entire fairness standard in all cases, or by encouraging controlling stockholders to use both a special committee and a majority-of-the-minority vote.

In discussing special committees and minority stockholder voting, Chancellor Strine emphasized that "a special committee alone ensures only that there is a bargaining agent who can negotiate price and address the collective action problem facing stockholders...and it does not provide stockholders any chance to protect themselves." Chancellor Strine added, "a majority-of-the-minority vote provides stockholders a chance to vote on a merger proposed...but with no chance to have an independent bargaining agent work on their behalf to negotiate the merger price, and determine whether it is a favorable one...." The court concluded that each of these two protections is "incomplete and not substitutes, but are complementary and effective in tandem."

The court further explained that when both protections are launched from the merger's inception, the controlling stockholder knows that it cannot bypass the special committee's ability to reject the proposal, and it "cannot dangle a majority-of-the-minority vote before the special committee late in the process as a deal closer" in an effort to avoid paying a higher price. Consequently, the court reasoned that the special committee will be incentivized to negotiate more stridently on behalf of the minority stockholders since these stockholders will vote on any deal approved by the special committee, and can express whether they think the special committee did a sufficient job.

Overall, the court reasoned that "[b]y giving controlling stockholders the opportunity to have a going private transaction reviewed under the business judgment rule, a strong incentive is created to give minority stockholders much broader access to the transactional structure that is most likely to effectively protect their interests." Thus, the Delaware Court of Chancery held that the business judgment rule will apply "when a controlling stockholder merger has, from the time of the controller's first overture, been subject to (i) negotiation and approval by a special committee of independent directors fully empowered to say no, and (ii) approval by an uncoerced, fully informed vote of a majority-of-the-minority investors."

The court stressed, however, that the presumptions of the business judgment rule are only available if each of the following conditions is met:

  • The controlling stockholder from the outset makes the merger contingent on the approval of both a special committee and a majority-of-the-minority stockholder vote
  • The special committee is comprised of independent directors
  • The special committee is empowered to definitively reject the proposal, and to freely employ its own legal and financial advisors
  • The special committee meets its duty of care, and
  • The minority is fully informed and uncoerced

Failure to satisfy any one of these conditions would subject the transaction to an entire fairness standard.

Although the Court of Chancery's decision was recently appealed, if In re MFW Shareholders Litigation is upheld, the case will be a guide to obtaining the more advantageous business judgment standard.

This article is presented for informational purposes only and is not intended to constitute legal advice.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.