Michael Klotz
Mergers & Acquisitions
Spring 2014
Prof. Alan Palmiter
April 11, 2014
How Best to Protect Minority Shareholders?: Weinberger v. UOP and the Fate of the
“Entire Fairness” Standard
Abstract: Weinberger v. UOP established the “entire fairness” standard of review to
ensure that cash-out mergers involve “fair dealing” and provide minority shareholders
with a “fair price.” In the recent decision of Kahn v. M&F Worldwide Corp., the
Delaware Supreme Court held that a merger will be reviewed under the business
judgment rule if the transaction was conditioned upon approval by both an independent
and disinterested special committee and an informed and un-coerced majority of the
minority shareholders. Although Kahn did not invalidate Weinberger, it stated that
majority shareholders can avoid “entire fairness” review if a merger transaction is
conditioned upon these strict procedural safeguards. The subsequent decision of In re
Orchard Shareholders Litigation indicates that when a majority shareholder in a squeezeout merger establishes a special committee and the transaction is approved by a majority
of minority shareholders, the “entire fairness” standard may still apply with the burden of
persuasion to demonstrate fairness on the defendant despite these procedural protections.
Thus, In re Orchard affirms the continuing importance of the “entire fairness” standard
and indicates that in order to receive business judgment rule review the playbook
established in Kahn must be strictly followed.
I. The Weinberger standard of “entire fairness”
In the landmark case of Weinberger v. UOP, decided by the Delaware Supreme
Court in 1983, the “entire fairness” standard of review was held to apply to cash-out
mergers to protect minority shareholders from the potentially coercive and unfair actions
of controlling shareholders. A “cash-out merger” is a merger in which shareholders of a
company are paid in cash rather than securities for their stake. The primary concern
regarding cash-out mergers is that they have the potential to be coercive: a minority
shareholder is bound by the decision of the majority, and the price paid may be
inadequate relative to what is relinquished. Thus, Weinberger created an important legal
protection for minority shareholders to protect them against abuse by the majority in the
context of a cash-out merger.
In Weinberger, The Signal Companies Inc. (“Signal”), a majority shareholder
(with 50.5% of the shares) of United Oil Products (“UOP”), sought to purchase the
remainder of UOP in a cash-out merger. Signal was on both sides of the transaction: six
of the thirteen members of the UOP board were employees or directors of Signal, and the
chief executive officer of UOP was a former long-time employee of Signal. Signal
conducted a feasibility study to determine whether UOP could be acquired at a favorable
price, and concluded that it would be a good investment up to $24 per share. Signal made
an offer to purchase UOP at $21 per share, and took several steps that compromised the
integrity of the transaction: the negotiation process was hurried, only cursory due
diligence was performed, the fairness opinion was given a perfunctory review, and
crucially the feasibility study was not disclosed to the UOP board or to the minority
shareholders of UOP. Although the merger was approved, the minority shareholders
subsequently filed suit alleging a breach of fiduciary duty and seeking rescissory
damages. The Delaware Supreme Court concluded that the lack of fair dealing by Signal
and its non-disclosure of pertinent information entitled the minority shareholders to relief.
The Weinberger decision established a powerful new protection for minority shareholders
in a cash-out merger.
Weinberger states that in a cash-out merger minority shareholders must receive a
“fair price” for their shares, and the transaction must involve “fair dealing.” Under the
first prong of the “entire fairness” test, minority shareholders must allege some basis for
invoking the fairness obligation such as acts of fraud, misrepresentation, or misconduct.
If the first prong is satisfied, then under the second prong the burden shifts to the majority
shareholders to demonstrate that the transaction was entirely fair. However, Weinberger
states that if a transaction is approved by an informed vote of a majority of the minority
shareholders then the burden shifts to the minority shareholders to demonstrate
unfairness. The Weinberger court proposed that to establish that a transaction will be
conducted fairly, the majority shareholders could create an independent Special
Committee to act on behalf of the minority shareholders to reduce the possibility of selfdealing or an inherent conflict in the negotiations. This proposal has been followed by
majority shareholders in many subsequent cash-out mergers.
Weinberger provided minority shareholders alleging a breach of fiduciary duty
with several procedural advantages because “entire fairness” is the standard of review as
opposed to the business judgment rule. First, under the business judgment rule a court is
“precluded from inquiring into the substantive fairness of the merger, and must dismiss
the challenge to the merger unless the merger’s terms were so disparate that no rational
person acting in good faith could have thought the merger was fair to the minority.” This
is an extremely difficult standard for plaintiffs to overcome. By contrast, “entire fairness”
entitles a heightened review for their claim as described above. Second, under “entire
fairness” minority shareholders can seek summary judgment on whether the burden of
persuasion has been shifted, and this can enable plaintiffs to gain leverage toward
settlement or to help them prevail at trial. By contrast, the business judgment rule is a
monolithic standard and plaintiffs cannot pursue summary judgment on specific aspects
of the claim. For these reasons, it is clearly to the advantage of minority shareholders to
have their claims for breach of fiduciary duty reviewed under the “entire fairness”
standard rather than the business judgment rule.
II. Does the “entire fairness” standard always apply?
Until recently the case law indicated that the Weinberger “entire fairness”
standard would always apply to a cash-out merger: it was impossible for majority
shareholders to get business judgment review. However, recent decisions by the Court of
Chancery and the Delaware Supreme Court have carved out an exception to “entire
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fairness.” While Weinberger remains good law, it is now possible for a majority
shareholder to circumvent the “entire fairness” standard of review.
In the bombshell decision of In Re MFW Shareholders Litigation (Del. Ch. 2013)
(“MFW”), the Court of Chancery held that the Weinberger “entire fairness” standard will
not apply if the majority shareholder conditions the transaction on the informed and uncoerced approval of both the majority of the minority shareholders and an independent
special committee counseled by advisors of its own choosing. It is worth briefly
reviewing the facts that lead to this surprising decision. In MFW, MacAndrews & Forbes
(“MacAndrews”), a holding company wholly owned by Ronald O. Perelman, already
controlled 43% of M&F Worldwide (“M&F”), and offered to purchase the rest of the
company for $24 a share. However, MacAndrews stipulated that this offer was predicated
upon the non-waivable condition that the offer was approved by both a majority of the
minority shareholders and an independent special committee.
No previous merger had been conditioned on these procedural protections. Thus,
the offer by MacAndrews constituted a test case: the Supreme Court of Delaware had
never ruled on whether these clear steps to ensure fairness to the minority shareholders
would be sufficient to change the standard of review. As was recommended by the court
in Weinberger, a special committee was formed, and it retained its own legal and
financial counsel. The special committee met eight times over three months, and
eventually agreed to accept a “best and final offer” from MacAndrews at $25 per share.
The special committee was insulated from the majority shareholders and there was no
evidence that it was compromised in any way. A clear majority (65%) of the minority
shareholders approved the transaction. There was no evidence that the minority
shareholders had been pressured to approve the transaction, or that they had been
deprived of any relevant financial or other information before voting. Thus, the record
clearly indicated that their vote was informed and uncoerced.
Despite the fact that MacAndrews had explicitly conditioned its offer on fair
dealing and informed approval, a group of minority shareholders filed suit alleging that a
breach of fiduciary duty. The defendant moved for summary judgment, and argued that
there was no genuine issue of material fact regarding the fairness of the transaction.
Because of the “two key procedural protections,” the defendant contended that the
business judgment rule should be the standard of review rather than “entire fairness.”
The argument by the defendants in MFW was essentially as follows: what else do
you want us to do here? This is a business transaction and we want money to change
hands and to move on with more deals. We do not want to waste time in court. We have
followed the Weinberger formula and established a special committee. We have avoided
any plausible suggestion that this committee is beholden to the majority shareholders. We
gave the minority shareholders all of the financial information that they could possibly
want to review. Not only are they un-coerced, but we conditioned the transaction on their
approval. It will not go forward unless they want it to. If this does not justify business
judgment review, then what can we possibly ever do to get it! All we want is to conduct
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business without the hassle of going to court to defend baseless claims that we breached a
fiduciary duty owed to minority shareholders!
One can imagine the reasoned analysis of the Court of Chancery. It is of
paramount importance to protect minority shareholders in a cash-out merger because of
the vulnerability of their position. However, it is clearly beneficial to the interests of all
future parties to these transactions to incentivize majority shareholders to take strong
precautions to protect minority shareholders at the time of the deal to avoid the likelihood
that they will be harmed. There are many additional benefits to creating an exception to
“entire fairness” standard, because this will reduce baseless lawsuits for breach of
fiduciary duty (already a serious problem), reduce the overflowing dockets of Delaware
courts by minimizing fiduciary breach claims, and limit the instances when a judicial
body is forced to decide close questions of fiduciary breach that hinge on complicated
financial analyses.
In MFW, Chancellor Strine held that the “cleansing devices” of fully-informed
approval by a majority of the minority shareholders, along with negotiations conducted
by a clearly independent special committee, make the business judgment rule the
appropriate standard of review. MFW reflects the belief that minority shareholders are
best protected when majority shareholders are incentivized to offer “this potent
combination of procedural protections.” Thus, under MFW majority shareholders have a
strong motivation to enact “cleansing devices” to protect minority shareholders since they
will benefit from a much more lenient standard of review.
Given the significance of MFW, the Delaware Supreme Court granted certiorari to
definitively state whether the carve out to “entire fairness” created by the Court of
Chancery was in fact the law of Delaware. In Kahn v. M&F Worldwide Corp. (Del.
2014), decided on March 14, 2014, the Delaware Supreme Court reviewed the holding of
the Court of Chancery in MFW. The Kahn court reaffirmed that Weinberger remains
good law: “entire fairness” is the standard of review in a transaction potentially involving
self-dealing by a majority shareholder. Yet the issue was whether the procedural
safeguards established by the majority shareholders in MFW—informed and un-coerced
approval of both the majority of the minority shareholders and an independent special
committee counseled by advisors of its own choosing—were sufficient to remove the
possibility that the transaction involved self-dealing.
In Kahn, the Delaware Supreme Court was faced with new arguments by the
plaintiffs as to why the transaction should be reviewed under the “entire fairness”
standard. In the lower court, plaintiffs had conceded that the procedural safeguards
required by the majority shareholders were “optimal” to protect minority shareholders.
On appeal, the plaintiffs changed course and argued that even these procedural
safeguards were subject to abuse that could harm minority shareholders. How so? Well,
the selection of an independent special committee might be undermined by the
“ineptitude” or “timidity” of directors, and as a consequence the special committee might
be incapable or compromised. The interests of the minority shareholders might not be
adequately represented by the special committee if this was the case. Further, the voting
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of minority shareholders could be unduly influenced by arbitrageurs with a financial
incentive to see the transaction completed. Even if majority shareholders did nothing
wrong is structuring the transaction, “entire fairness” might be the appropriate standard of
review to make sure that outside parties (including arbs) have not skewed a vote. From
this perspective, “entire fairness” is a better protection for minority shareholders than the
rubber stamp of the business judgment rule.
The plaintiffs in Kahn did not challenge the independence of the chairman of the
Special Committee, Paul Meister, but argued that three other members of the Special
Committee—Martha L. Byorum, Viet D. Dinh, and Carl B. Webb—were beholden to
Ronald O. Perelman because of prior financial, personal, and other dealings, and thus not
truly independent. Under Delaware law, the argument that there is a lack of independence
is subject to a materiality standard: the connection between the parties must be
“sufficiently substantial that he or she could not objectively discharge his or her fiduciary
duties.” Given the relatively small size of the financial world it would be hard to find
people who had no social connection whatsoever to majority shareholders: if having had
a cocktail with someone at a professional event were enough to compromise
independence, it would be difficult if not impossible to establish highly capable special
committees. The fact that a member of a special committee was friendly with, traveled in
the same social circles as, or had past dealings with a majority shareholder is insufficient
to satisfy this materiality standard. The Kahn court held that the plaintiffs did not offer
sufficient evidence to satisfy the materiality standard for a lack of independence of the
special committee.
Although the special committee was found to be independent, the plaintiffs
challenged the scope of the actions undertaken by the committee. Based upon financial
information provided by MFW, the financial advisor retained by the special committee—
Evercore Partners—produced a valuation. The offer to purchase MFW at $24 per share
fell squarely within this valuation. Nonetheless, the special committee directed Evercore
to perform additional analyses and consider whether alternative opportunities, including
asset divestitures or the purchase by another buyer, would generate a better price for
MFW than the MacAndrews offer. The plaintiffs challenged this action as outside of the
authority of the special committee, and claimed that the committee did not have the right
to consider alternative bids, check the market, or propose alternative transactions. The
Kahn court reviewed this allegation, and ultimately concluded that the investigation and
review by the special committee was allowable. In fact, these actions ultimately lead to a
higher price for MFW. The special committee countered Perelman’s offer at $24 per
share with the price of $30 per share, which it characterized as a “negotiating position.”
As mentioned above, the special committee eventually agreed to accept MacAndrews’
offer at $25 per share, which not only was a fair price based upon the valuation but
appeared even more attractive given that MFW’s business had faltered somewhat during
the course of the negotiations.
While the plaintiffs in Kahn argued that the approval of the transaction by the
majority of the minority shareholders was compromised because of the undue influence
of arbitrageurs, no evidence was presented of this beyond the bare assertion. The Kahn
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court did not give this argument significant weight. The minority stockholders were
provided with a proxy statement that did not contain false assertions or omit pertinent
information. The proxy statement disclosed the initial offer at $24 per share, as well as
the history of the special committee’s work, the source of financial projections for MFW,
and the valuation range for the company. Without any evidence of financial fraud or
improper conduct by arbitrageurs, the Kahn court affirmed the lower court holding that
the approval by the majority of minority shareholders was uncoerced.
Kahn thus held that a majority shareholder will receive business judgment rule
review if there has been informed and un-coerced approval by both the majority of the
minority shareholders and an independent Special Committee counseled by advisors of
its own choosing. The court conceived of this as a “dual protection” for minority
shareholders because either the vote of minority shareholders or the approval of the
special committee would be a sufficient safeguard: “each of these protections [is]
effective singly to warrant a burden shift.” Kahn limits business judgment review solely
to situations when majority shareholders have ensured precisely these procedural
protections. The business judgment rule applies “if and only if : (i) the controller
conditions the procession of the transaction on the approval of both a Special Committee
and a majority of the minority stockholders; (ii) the Special Committee is independent;
(iii) the Special Committee is empowered to freely select its own advisors and to say no
definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price;
(v) the vote of the minority is informed; and (vi) there is no coercion of the minority.”
Under the new six-part Kahn standard, a majority shareholder can avoid “entire
fairness” review by following these steps to ensure inherent fairness to minority
shareholders. After discovery, if there are triable issues of fact regarding any of these
procedural protections, then the case will proceed under the “entire fairness” standard of
review. In order to avoid summary judgment that the business judgment rule is the
standard of review, the plaintiff must plead a “reasonably conceivable set of facts” that
creates a genuine issue of material fact about whether one of these six procedural
protections existed at the time of the merger.
III. What further exceptions will be found to the “entire fairness” standard of review?
In re MFW Shareholders Litigation was decided by the Court of Chancery last
year, and the decision was affirmed by the Delaware Supreme Court only a few weeks
ago. So what further exceptions will be found to the “entire fairness” standard? The
answer is not entirely clear, and the full story will be written in the coming years. The
recent decision in In re Orchard Enterprises Inc. (Del. Ch. 2014), decided on February
28, 2014, suggests that Weinberger continues to have teeth and majority shareholders in
future transactions may not have as easy a path to avoiding “entire fairness” as they
might hope.
At issue in In re Orchard was the fairness of the dealing by majority shareholders
and the fairness of the price received by minority shareholders in a squeeze-out merger.
Dimensional Associates LLC (“Dimensional”), a private equity fund, was a majority
owner of The Orchard Enterprises Inc. (“Orchard”), an online and mobile device
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distributor of music and video. Dimensional held approximately 42% of Orchard’s
common stock, 99% of its Series A convertible preferred stock, and controlled
approximately 53.3% of the voting power of Orchard. Prior to the squeeze-out merger,
four of the seven board members of Orchard had been elected by Dimensional.
In September 2009, Dimensional sought to acquire the remainder of Orchard and
proposed to purchase the minority shares at a price of $1.68 per share, a 25% premium
above the current stock price of Orchard, which was listed on the NASDAQ.
Dimensional created a special committee with the exclusive power and authority to
negotiate the terms of a transaction with Dimensional, to terminate consideration of
Dimensional’s proposal, to solicit interest and respond to third parties, and to retain legal
and financial advisors of its own choosing. The members of the special committee were
Viet Dinh1, Michael Donahue, Nathan Peck, Joel Straka, and David Atschul. Except for
Atschul, the other special committee members had served on another special committee
several months earlier that explored the possibility of Dimensional selling Orchard or
taking it private.
Although Michael Donahue, the chair of the special committee, was nominally a
disinterested member, his connection with Joseph D. Samberg, the founder of JDS
Capital Management, LLC, which is the parent company of Dimensional, raised
eyebrows. Donahue had been a long time ally of the Samberg family, attending the
NCAA Final Four every year from 1999 to 2008 with Jeff Samberg, Joseph’s brother,
and maintaining a longtime friendship with Arthur Samberg, Joseph’s father. Beyond his
personal connections, Donahue had a financial interest in Dimensional: he had been a
paid consultant for the company in the past. Thus, the choice of Donahue as a member of
the special committee was unwise and perhaps Dimensional would not have made this
choice if it had the benefit of reading the Kahn opinion (i.e. if these event had happened
later in time).
Although the composition of the special committee created the possibility of
impropriety, the special committee took several important steps to retain its independence
and to receive appropriate legal and financial counsel. The law firm Patterson Belknap
Webb & Tyler was retained, and Fesnak & Associates were hired to provide financial
analysis. After a period of negotiation, the Special Committee ultimately approved an
offer from Dimensional at $2 per share, which included a go-shop period to allow
Orchard to solicit higher bids, and was conditioned upon approval by a majority of the
minority shareholders.
A majority of the minority shareholders (58%) approved the merger, and also
approved a Block Amendment that waived the liquidation preference regarding the Series
A stock. Despite this approval, there was a genuine question as to whether this vote was
sufficiently informed. The Series A stock contained a “change of control event” provision
which altered the liquidation preference depending on the holder of the stock. The proxy
1
Viet Dinh, a Georgetown University law professor and conservative ideologue, was also
a member of the special committee whose independence was central to the litigation in
Kahn.
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statement provided to minority shareholders included several crucial inaccuracies
regarding whether the merger itself would trigger the liquidation preference for Series A
Orchard stock.
Following the consummation of the merger, Orchard stockholders sought
appraisal. In 2012, Chief Justice Strine ruled that at the time of the merger Orchard’s
common stock was worth $4.67 per share. This appraisal value is more than twice what
the minority shareholders received ($2 per share). The plaintiffs then filed a lawsuit
alleging a breach of fiduciary duty.
Of course, a key issue was the applicable standard of review. The plaintiffs in In
re Orchard moved for summary judgment that the Weinberger “entire fairness” standard
applied to the contested transaction. The defendants argued that the applicable standard
of review should be the business judgment rule, because the transaction did not involve
self-dealing: the procedural safeguards ensured that Dimensional did not stand on both
sides of the transaction. The court cited the recent Court of Chancery precedent of In re
MFW Shareholders Litigation, and the safe harbor that it provides when a transaction is
conditioned upon proper approval by the special committee and an informed vote by the
majority of minority shareholders. In order to change the standard of review from “entire
fairness,” the In re Orchard court stated clearly that the controller must have “disabled
itself sufficiently” to make review under the business judgment rule appropriate.
Because Dimensional did not structure the transaction so that it would be within
the MFW safe harbor (it did not have the benefit of this opinion, given that the transaction
took place before the decision was rendered), In re Orchard presented an opportunity for
the Court of Chancery to clarify the post-MFW application of the “entire fairness”
standard of review. Dimensional argued that because the majority of the minority
shareholders had approved the transaction through an informed vote, the burden of proof
shifted to the plaintiffs to demonstrate a lack of fairness. The In re Orchard court rejected
this argument, holding that it had not been established as a matter of law that the vote was
informed. As mentioned above, the proxy statements presented to minority shareholders
of Orchard included misstatements regarding the liquidity preference of stock under the
merger. Under Delaware law, a disclosure is materially false or misleading if “there is a
substantial likelihood that a reasonable shareholder would consider it important in
deciding how to vote.” Because the liquidation preference affected the payment rights of
common stockholders and their right to be paid in relation to Series A stockholders, the
In re Orchard court held that these misstatements were material as a matter of law. Thus,
the court concluded that burden had not automatically shifted to the plaintiffs to
demonstrate unfairness despite the fact that a majority of the minority shareholders
approved the merger.
Dimensional raised another argument that the burden should shift to plaintiffs to
demonstrate fairness: a special committee had been established to negotiate the terms of
the merger. In Weinberger, the Delaware Supreme Court indicated that the inherent selfdealing of cash-out merger negotiations can be countered by establishing “an independent
negotiating committee” to deal with the majority shareholders “at arm’s length.” In order
to shift the burden to plaintiffs, the first question is whether the special committee is
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disinterested and independent. In In re Orchard, the plaintiffs argued that the burden
should not shift to them to demonstrate unfairness because at a minimum there was a
genuine issue of material fact regarding whether the Special Committee was disinterested
and independent. The court agreed. It held that there was no genuine issue of material
fact regarding the independence or disinterestedness of Altschul, Dinh, Peck, or Straka.
However, the facts presented in discovery involving Donahue, the chair of the special
committee, raised issues regarding his independence and disinterestedness. The court
found that Donahue’s longstanding connection to the Samberg family, and his consulting
work for Dimensional, weighed against summary judgment. Given that all the special
committee members were not found to be independent and disinterested as a matter of
law, the court found that burden-shifting to the plaintiffs was not warranted. Further
evidence was presented that Dimensional misled the special committee about its
willingness to sell Orchard to a third party. This is a material term of the transaction that
must be disclosed by the majority shareholder to the special committee. Finally, the
special committee valued the Series A stock in a manner that favored Dimensional,
despite the fact that the CFO of Dimensional and Fesnak & Associates, their financial
expert, based their calculations on different assumptions. For these reasons, the court
found that it was not clear as a matter of law that the negotiation process had been fairly
conducted.
Thus, the court concluded that the burden of persuasion would not shift to the
plaintiffs despite the fact that Dimensional created a special committee to consider the
offer and the majority of the minority shareholders voted in favor of the transaction. The
result in In re Orchard is so clearly on the side of the plaintiffs alleging a breach of
fiduciary duty that the court takes the time to say that despite the fact that the burden of
persuasion remains with the defendants, future parties in this position should expect to
get some benefit from establishing these procedural protections. The use of a special
committee and the conditioning of a merger on the approval of a majority of the minority
shareholders is not “irrelevant,” and will be “pertinent” to a court’s determination of
whether the “entire fairness” standard was satisfied. If both of these procedural devices
are found to be effective this will “significantly influence” the determination of the
fairness of the transaction and the appropriate remedy.
IV. The Response to In re Orchard
While Kahn was a clear victory for majority shareholders—providing a playbook
for how to proceed to ensure that the business judgment rule will be the standard of
review—In re Orchard affirms the continuing importance of Weinberger when these
procedural protections are not enacted. The most common response to In re Orchard has
been to take the decision as a warning: it is “critically important” to follow the proper
procedural safeguards that under MFW will result in business judgment rule review, or a
majority shareholder can expect to feel the full force of the “entire fairness” standard. In
order to shift the burden of persuasion to minority shareholders to establish that a
transaction is not entirely fair, it is not enough to erect procedures to safeguard the
integrity of the transaction: it is necessary also to “establish the effectiveness of those
procedures” (ex. that all disclosures to the minority shareholders in the proxy statement
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are materially accurate, and the members of the special committee are disinterested and
independent as a matter of law).
Although In re Orchard strictly applies the “entire fairness” standard, the decision
is not completely favorable for minority shareholders. Because In re Orchard indicates
that it is quite difficult to use procedural protections to shift the burden of persuasion
under the “entire fairness” standard of review, majority shareholders may have a
“reduce[d]…incentive to employ any burden-shifting mechanism in the first place.” If a
majority shareholder is not going to receive a procedural advantage in defending a claim
of breach of fiduciary duty, then why invest the time and spend the money to establish a
special committee and to ensure an informed vote?
It is unclear how these decisions will affect the structure of future cash-out merger
deals. One possibility is that Kahn and its progeny will produce a bimodal approach to
merger protection. Majority shareholders will either condition the transaction on both the
informed approval of an independent special committee free to select its own advisors
and the informed approval of a majority of minority shareholders (following the Kahn
formula), or they will take relatively minimal steps to safeguard the integrity of the
transaction because they recognize that if there are flaws in the precautions that they take
(for instance, members of the special committee are of questionable independence, or the
proxy statement includes errors) then they may be stuck with the burden of persuasion
under “entire fairness” anyway. It is clear that by following Kahn to the letter, a majority
shareholder can ensure that a deal is effectively insulated by the business judgment rule.
When these procedural protections are not followed to the “t” it is reasonable to expect
any subsequent litigation will be reviewed under the “entire fairness” standard without
much leniency in shifting the burden of persuasion.
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