Opinion ID: 1952521
Heading Depth: 1
Heading Rank: 4

Heading: Independent Committees Interested Merger Transactions

Text: It is a now well-established principle of Delaware corporate law that in an interested merger, the controlling or dominating shareholder proponent of the transaction bears the burden of proving its entire fairness. Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701, 710-11 (1983). It is equally well-established in such contexts that any shifting of the burden of proof on the issue of entire fairness must be predicated upon this Court's decisions in Rosenblatt v. Getty Oil Co., Del.Supr., 493 A.2d 929 (1985) and Weinberger v. UOP, Inc., Del.Supr., 457 A.2d 701 (1983). In Weinberger, this Court noted that [p]articularly in a parent-subsidiary context, a showing that the action taken was as though each of the contending parties had in fact exerted its bargaining power against the other at arm's length is strong evidence that the transaction meets the test of fairness. 457 A.2d at 709-10 n. 7 (emphasis added). Accord Rosenblatt v. Getty Oil Co., 493 A.2d at 937-38 & n. 7. In Rosenblatt, this Court pointed out that [an] independent bargaining structure, while not conclusive, is strong evidence of the fairness of a merger transaction. Rosenblatt v. Getty Oil Co., 493 A.2d at 938 n. 7. The same policy rationale which requires judicial review of interested cash-out mergers exclusively for entire fairness also mandates careful judicial scrutiny of a special committee's real bargaining power before shifting the burden of proof on the issue of entire fairness. A recent decision from the Court of Chancery articulated a two-part test for determining whether burden shifting is appropriate in an interested merger transaction. Rabkin v. Olin Corp., Del.Ch., C.A. No. 7547 (Consolidated), Chandler, V.C., 1990 WL 47648, slip op. at 14-15 (Apr. 17, 1990), reprinted in 16 Del.J.Corp.L. 851, 861-62 (1991), aff'd, Del.Supr., 586 A.2d 1202 (1990). In Olin, the Court of Chancery stated: The mere existence of an independent special committee ... does not itself shift the burden. At least two factors are required. First, the majority shareholder must not dictate the terms of the merger. Rosenblatt v. Getty Oil Co., Del.Ch., 493 A.2d 929, 937 (1985). Second, the special committee must have real bargaining power that it can exercise with the majority shareholder on an arms length basis. Id., slip op. at 14-15, 16 Del.J.Corp.L. at 861-62. [6] This Court expressed its agreement with that statement by affirming the Court of Chancery decision in Olin on appeal.