PARTNERSHIPS, CORPORATIONS AND THE VARIANTS PROF. BRUCE MCCANN SPRING SEMESTER LECTURE 2 SALE OF CONTROL Business Organizations Lectures

Duty of Majority in Sale of Controlling Interest Lec. 3 Sem 2, pp Corps Prof. McCann Feldmann  Where majority shareholder received premium for controlling interest in steel operation during period of market shortage, held liable to minority shareholders, individually, for premium received.  Burden on defendant majority s/h to demonstrate acted in best interest of corporation (and minority)  Extra value derived from market conditions equivalent to business opportunity belonging to the corporation generally  Dissent: Majority always carries power of control of directors and there is no fiduciary duty not to sell your stock Modern trend

ALI Standard Lec. 3 Sem 2, pp Corps Prof. McCann So long as sale of control does not generate premium to the seller because buyer intends to exploit its power over minority shareholders, sale is not breach of any fiduciary duty.

Dual Directors Lec. 3 Sem 2, pp Corps Prof. McCann Director serving on boards of both selling and buying corporations owes identical duty of loyalty to each corporation and must act with utmost good faith and candor

Statutory “Short Form” Mergers Lec. 3 Sem 2, pp Corps Prof. McCann Expedited process whereby corporation can retire minority interests for cash. Issue: Must transaction pass “fairness” test beyond fair price? Held: No, to so require would frustrate purpose of statutes. Exclusive remedy of minority is appraisal.  BUT duty of full disclosure of all facts relevant to price remains

Fairness Lec. 3 Sem 2, pp Corps Prof. McCann Analysis involves both  Fairness of the process (fair dealing)  Includes duty of candor  Includes transparency as to access to corporate information  Fairness of the price  Considering all relevant factors- including future value likely

Burden of Proof Lec. 3 Sem 2, pp Corps Prof. McCann Initially, proponents of transaction have burden to establish “entire fairness” Where an independent committee is empanelled to evaluate and negotiate the transaction, burden shifts to opponents  PROVIDED committee exercises true bargaining power independent of majority shareholder(s)