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July 1 — Volcano Corp. directors won't have to face investor claims that they breached their fiduciary duties in approving the company's $1.2 billion merger with Royal Philips NV, the Delaware Chancery Court ruled June 30 ( In re Volcano Corp. Stockholder Litig., 2016 BL 211042, Del. Ch., No. 10485-VCMR, 6/30/16 ).
Vice Chancellor Tamika Montgomery-Reeves held that the business judgment standard of review applies to the plaintiffs' claims because Volcano's fully informed and disinterested stockholders approved the merger by tendering a majority of the company's shares.
Montgomery-Reeves said that acceptance of a tender offer by stockholders under Delaware's two-step merger statute—General Corporation Law Section 251(h)—has the same cleansing effect as a stockholder vote in favor of the transaction.
In Delaware, a “two-step merger” is one in which the target company becomes a wholly owned subsidiary of the purchaser through a tender offer.
The chancery court's ruling expands on two recent Delaware Supreme Court decisions— Corwin v. KKR Fin. Holdings LLC, 2015 BL 32354 (41 CARE, 10/6/15) and Singh v. Attenborough, 2016 BL 145197 (89 CARE, 5/9/16).
The high court decisions confirmed that when a merger is approved by a fully informed, statutorily required vote of a majority of disinterested stockholders, the business judgment standard of review cannot be rebutted and must be applied so that the transaction can only be challenged on the basis of waste.
In their complaint, the plaintiffs alleged that Volcano directors were uninformed in approving the transaction and were motivated by certain benefits that they stood to receive from the merger.
The court also determined that the merger didn't constitute a waste of corporate assets and that investors didn't bring valid aiding and abetting claims against the board's financial adviser Goldman, Sachs & Co.
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