Reaffirmation That Stockholder Vote Will Cleanse Non-Conflicted Controller Transactions and Even Those Transactions Approved By Boards That Allegedly Were Not Independent and Disinterested—Merge Healthcare

By: Abigail Pickering Bomba, Warren S. de Wied, Steven Epstein, Arthur Fleischer, Jr., David J. Greenwald, Scott B. Luftglass, Philip Richter, Robert C. Schwenkel, Peter L. Simmons, Gail Weinstein

Merge Healthcare Inc. Stockholders Litigation (Jan. 30, 2017) is the most recent decision reflecting an expansive interpretation by the Court of Chancery of the Delaware Supreme Court's seminal 2015 Corwin decision. The opinion confirms again the power of Corwin in “cleansing” a transaction based on stockholder approval in a fully informed vote. The decision reaffirms that fully informed stockholder approval cleanses a transaction even if the target company has a controller, so long as the controller's interests are aligned with the other stockholders' interests. Further, this is now the fourth post-Corwin Court of Chancery decision indicating that fully informed stockholder approval cleanses a transaction even if the directors who approved the transaction are alleged to have not been independent and disinterested. Based on this and other recent Court of Chancery opinions, it appears that the only transactions excluded from cleansing under Corwin are controller transactions in which the controller (a) “stands on both sides of the transaction” (such as a going-private transaction) or (b) extracts a personal benefit not shared by the other stockholders (such as receiving disparate merger consideration). In the attached M&A Briefing, we discuss the case, the impact of “cleansing,” and the court's rejection of the plaintiffs' disclosure claims relating to the financial advisor's work.

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