When a Minority Stockholder Has Truly “Outsized Influence,” Its Self-Interested Transaction May Be Subject to Entire Fairness Notwithstanding a Special Committee Process-- And Other Points from Controller Decisions Issued in 1Q 2018--<em>Rouse, Tesla, Oracle, NEA</em>

When a Minority Stockholder Has Truly “Outsized Influence,” Its Self-Interested Transaction May Be Subject to Entire Fairness Notwithstanding a Special Committee Process-- And Other Points from Controller Decisions Issued in 1Q 2018--Rouse, Tesla, Oracle, NEA


By: Andrew J. Colosimo, Warren S. de Wied, Steven Epstein, Christopher Ewan, Arthur Fleischer, Jr., Andrea Gede-Lange, David J. Greenwald, Randi Lally, Mark H. Lucas, Scott B. Luftglass, Brian T. Mangino, Brian Miner, Philip Richter, Robert C. Schwenkel, David L. Shaw, Peter L. Simmons, Matthew V. Soran, Steven J. Steinman, Gail Weinstein, Maxwell Yim

In four decisions issued in March 2018, the Court of Chancery addressed controller-related issues. In one case (Rouse), the court found that a minority (33%) stockholder was not a controller; in two cases (Tesla and Oracle), the court found that a minority stockholder (22% and 28%, respectively) likely was a controller—in Oracle, notwithstanding that there was a special committee process designed to separate the stockholder from the board's consideration of the transaction. Finally, in one case (NEA), the court reaffirmed that a controller cannot use its influence to cause the company to enter into a transaction that benefits the controller at the expense of the other stockholders (in NEA, a sale of the company to a third party buyer, allegedly at an unfairly low price in order to incentivize the buyer to acquire and invest in other portfolio companies of the VC firm-controller). In the attached Fried Frank M&A/PE Briefing, we discuss these decisions and the court's concept of a minority stockholder with “outsized control,” summarize general principles relating to controllers, and offer related practice points.

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