Transfers of Control and the Quest for Efficiency: Can Delaware Law Encourage Efficient Transactions While Chilling Inefficient Ones

John C. Coffee, Columbia Law School

Abstract

This article begins with an evaluation of the inventory of legal doctrines that courts use to review and regulate control transactions, specifically whether or not these doctrines may be utilized to distinguish efficient from inefficient transactions. Next, the article examines the likelihood of inefficient control transfers, and considers the economic arguments both for and against a proportionate value standard of valuation. The article also addresses the problems of implementation of a proportionate value standard, and considers what proportionate value should mean when the potential for synergy leads insiders to seek to expel the public shareholders. In sum, this article does not seek to challenge the rule that a seller may receive a control premium, but it does seek to focus on whether the legitimacy of the control premium has any necessary corollary for the valuation of minority shares.