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Court of Chancery Reaffirms High Bar for a Minority Stockholder to be Deemed a Controller– Essendant

Client memorandum | January 29, 2020

In In re Essendant Inc. Stockholder Litigation (Dec. 30, 2019), the plaintiff-stockholders of Essendant, Inc. (the “Company”) brought claims against the Company’s directors for their decision to terminate an agreement for a stock-for-stock merger with Genuine Parts Company (“GPC”) in order to enter into an all-cash deal offered by Staples, Inc. and its private equity firm parent, Sycamore Partners. The Delaware Court of Chancery, at the pleading stage of the litigation, rejected the plaintiffs’ contention that Sycamore, although a minority stockholder, was a controlling stockholder of the Company. In so ruling, Vice Chancellor Slights dismissed the plaintiffs’ claims that (i) Sycamore had a fiduciary duty to the other stockholders and breached it by pressuring the Essendant board to accept its “inadequate” offer for the Company; and (ii) the Essendant board, by accepting Sycamore’s offer, breached its duty of loyalty to the stockholders by “caving to the will of [a] controller” rather than seeking to obtain the maximum value reasonably obtainable for the stockholders.
 

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