Transfers of Control and the Quest for Efficiency: Can Delaware Law Encourage Efficient Transactions While Chilling Inefficient Ones?
The appropriate standard to be awarded in buyout and appraisal cases where a controlling shareholder wishes to squeeze-out the minority has occasioned a voluminous debate. In brief, economists have argued against any obligation on the part of the majority group to share prospective synergy gains with the minority on the grounds that this would frustrate efficiency-promoting transactions. Yet, courts in Delaware, New York and elsewhere continue to require such an allocation. This paper focuses on the latest Delaware case law dealing with the rights and obligations of controlling shareholders in the transfer of control context. Although it agrees that an equal opportunity rule would be unwise, it recommends a generalized proportionate value standard coupled with a sharing of synergy gains in the special circumstances where the control buyer had access to asymmetric information.