| March 14
March 14 Ronald Perelman's buyout of a company
he controlled was not subject to heightened court review because
the billionaire acted as if he were an outside buyer, according
to a Delaware Supreme Court ruling that could affect future
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
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
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
"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.