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 Friday's opinion could prod Wall Street dealmakers to follow
Perelman's process for buying out the minority shareholders of M&F
Worldwide Corp, a company in which his holding company owned 43
percent of the stock.
"MFW will incentivize those who structure such transactions to make
sure they are done properly and replicate third-party deals. And
that's a good thing for stockholders," said Tariq Mundiya who argued
the case for the M&F's special committee.
The Supreme Court of Delaware, whose law governs most U.S.
companies, said in a 39-page opinion by Justice Randy Holland that
the M&F deal process created "a countervailing, offsetting
influence" against Perelman. As a result, the deal would not be
subject to a thorough court review.
Perelman premised his 2011 proposal to acquire all of M&F's
outstanding stock on approval by a special committee of independent
M&F directors and a majority vote by its minority shareholders.
Perelman initially offered $24 per share, although the committee
eventually agreed to $25, a premium of nearly 50 percent to the
pre-offer stock price. The deal was approved by 65 percent of M&F's
minority shareholders.
Mergers are reviewed by courts if a shareholder sues, which happens
on almost every deal. The M&F buyout was a particularly attractive
target for shareholder attorneys.
That's because Delaware law would normally put the burden on M&F's
board to prove the buyout process and price were both fair, a
demanding test known as entire fairness.
Perelman won early dismissal of the lawsuits last year by convincing
the lower Court of Chancery judge handling the case, Leo Strine, to
apply the "business judgment" standard to the buyout. That standard assumes the board acted properly and puts the burden
on shareholders to prove the special committee was not empowered to
say no to Perelman or that its directors were conflicted.
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"There is a whole business on the plaintiffs side looking for these
type of cases and suing, knowing there was settlement value," said
Brian Quinn, a professor a Boston College Law School. He said the
ruling "markedly" diminished settlement value of these cases.
Quinn said he still expected shareholders to review such buyouts and
look for signs that a controlling shareholder ran a sham process,
for example by stuffing a supposedly independent committee with
relatives or friends.
But Quinn added that the ruling was favorable for companies that
follow the procedures used by M&F. "It means those transactions will
go through and won't be held up by not very strong lawsuits," he
said.
Carl Stine, a Wolf Popper attorney who represented the investors,
did not immediately respond to a request for comment.
The case is Alan Kahn et al v M&F Worldwide Corp et al, Supreme
Court of Delaware, No. 334,2013.
(Reporting by Tom Hals in Wilmington,
Delaware; editing by Tom Brown)
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