Journal of Business & Technology Law

Case	In re Synthes Shareholders Litigation
Court, State	Court of Chancery, Delaware
Date of Decision, Type of Case	8/17/2012, Conflict of Interest and Mergers
Case Number	No. 6452
Citation	In re Synthes Shareholders Litigation, 2012 WL 3641014 (Aug. 17, 2012).

Facts Of Case	The minority stockholders of Synthes claimed that an acquisition offer would have cashed out all the minority stockholders, but that instead the board ultimately accepted a bid for 65% stock and 35% cash, and consummated a merger on those terms. The controlling shareholder received the same treatment in the merger as the other stockholders. The minority shareholders sought termination of the transaction on the grounds that a conflict of interest between their interests and the interest of the controlling shareholder caused the board to breach its fiduciary duty.

Holding	The court held that, when a complaint attacks a cash-out merger or a sale-of-control transaction, mere allegations that a controlling shareholder was a proponent of the transaction is not enough to trigger entire fairness scrutiny or intermediate Revlon-level scrutiny, in the absence of an allegation that a genuine conflict of interest existed. The Court dismissed the complaint of Synthes’ minority shareholders after holding that the allegation that the controlling shareholder elected to agree to a transaction where all shareholders would be treated the same, as opposed to a transaction that would have benefited minority shareholders more at the expense of the controlling shareholder, was not enough to allege that there was a genuine conflict of interest.

Court Reasoning	The Court began by noting that a corporation’s board of directors are presumed to have acted "independently, with due care, in good faith and in the honest belief that [their] actions were in the stockholders' best interests. " Moving on, the Court stated that the question is whether the controlling shareholder had any conflicting interest in the Merger that would justify depriving the Board of the protections of the business judgment rule and instead subjecting its decision to approve the Merger to entire fairness review . The Court reasoned that, in general, a fiduciary's financial interest in a transaction as a stockholder does not establish a disabling conflict of interest when the transaction treats all stockholders equally, as does the Merger. Moreover, this was not a situation where the controlling shareholder, in order to satisfy an exigent need (such as a default in a larger investment) agreed to a sale of the corporation without any effort to make logical buyers aware of the chance to sell, and to raise the financing necessary to make a bid that would reflect the genuine fair market value of the corporation. Thus, the claims are subject to the business judgment rule.

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