Freezeouts in Delaware: An Exploration of the Appropriate Standard of Review

Abstract

In the last decade, there has been a general increase in the number of transactions taking corporations private, and
consequently an increase in the amount of litigation over the fair treatment of minority shareholders in such deals. Courts, particularly those in Delaware, are in the process of developing a framework for analyzing fairness in these cases, but have repeatedly confronted the issue of the appropriate standard of review. As different forms of going private
transactions have developed, the case law has adapted to review the two primary forms—the negotiated merger freezeout and the tender offer freezeout—differently based on each transaction’s specific structure.

Most recently, the Delaware Court of Chancery has advocated a new rule in which both types of freezeouts would be subject to the same unified standard of review, despite their different technical forms. This Note argues that the proposed unified standard may not be the best solution to the perceived discrepancy in the treatment of negotiated merger freezeouts versus tender offer freezeouts. The two forms of freezeouts involve different relationships between parties and require different levels of oversight from courts in order to ensure fair treatment. The current dual standard may not be perfect, but the CNX Gas solution, in its current form, should not be adopted either.