On April 4, 2024, the Delaware Supreme Court held in In re Match Group Inc., Derivative Litigation that the entire fairness standard of review applies to all controlling stockholder transactions in which a controller receives a non-ratable benefit, unless all of the factors contemplated by Kahn v. M&F Worldwide Corp. (“MFW”) are satisfied. The Court also held that all members of the special committee must be independent to obtain business judgment review under MFW.
In Match, minority stockholders of Match Group, Inc. (“Match Group”) brought suit challenging the fairness of IAC/InterActiveCorp’s (“IAC”) separation from its controlled subsidiary, Match Group. The reverse-spinoff was approved by a separation committee of Match Group and a majority of the minority stockholders. However, despite such approval, the Plaintiffs sued claiming that the transaction was unfair because it left the spun-off company with lesser quality assets than the controller.
On appeal, the Court held that entire fairness standard of review remains the presumptive standard of review in any action challenging a transaction where the controller stands on both sides and receives a non-ratable benefit, and in order for the business judgment review to apply, the defendants will have to satisfy both MFW prongs (the transaction is [1] negotiated by a special independent committee and [2] approved by a fully informed vote of the majority of minority stockholders). However, the Court confirmed that using only one prong of the MFW factors will shift the burden of proving entire fairness to the Plaintiff, but will not alter the standard of review. Finally, the Court confirmed that the MFW framework requires a special committee of a board of directors that consists entirely of independent directors.
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