Corporate Governance

Practical Implications of CNX Gas on Controlling Shareholder Acquisitions

By Harvard Law School Program on Corporate Governance

The recent decision by Delaware Vice Chancellor Laster, In re CNX Gas Corporation Shareholders Litigation, [1] develops the ?unified standard? for reviewing controlling shareholder freeze-out transactions. The unified standard provides that business judgment rule review is available for freeze-outs that are both: (1) negotiated and recommended by a special committee, and (2) ?approved? by a majority of the minority shareholders. Delaware courts historically have applied different standards of review depending on whether the controlling shareholder freeze-out is structured as a negotiated merger or a unilateral tender offer. Negotiated mergers have been reviewed under an entire fairness doctrine. In contrast, unilateral tender offers have been able to obtain the benefits of the business judgment rule, albeit under an evolving set of procedures. If adopted by the Delaware Chancery Court for negotiated merger transactions and ultimately sanctioned by the Delaware Supreme Court, the unified standard would eliminate the dichotomy between controlling shareholder freeze-out deal structures and, if properly construed and applied, provide additional flexibility for transaction parties to obtain the benefits of business judgment rule review. CNX Gas marks another interesting and potentially important decision by Vice Chancellor Laster, currently in his first year on the bench, and suggests he is likely to continue to seek to shape Delaware corporate law in the future.

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Full post as published by The Harvard Law School Corporate Governance Blog on July 13, 2010 (boomark / email).