Court of Chancery’s Post-‘Olenik‘ Interpretation of the ‘Ab Initio‘ Requirement

August 19, 2020

Publication| Corporate Governance| Corporate Transactions| Mergers & Acquisitions

In Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014), and its progeny, Delaware courts established that transactions subject to the entire fairness standard of review due to the presence of a conflicted controlling stockholder will nonetheless receive business judgment rule deference if the deal in question is conditioned ab initio on two well-known procedural protections: approval by a fully empowered special committee of disinterested directors, and a fully informed, uncoerced vote of a majority of disinterested stockholders. The Delaware Supreme Court’s most recent definitive explanation of what MFW’s ab initio element requires arrived just over a year ago in Olenik v. Lodzinski, 208 A.3d 704 (Del. 2019), where the high court explained that “ab initio” means “early and before substantive economic negotiation [takes] place.” Since Olenik, however, each of the three published Court of Chancery opinions substantively addressing whether transacting parties met the ab initio requirement held that the parties failed. This article elucidates the contours of the ab initio requirement by mining fact-based guideposts from those three cases.

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