A Restatement of Corporate Freezeouts

Abstract

Apparently overruling earlier decisions, the Supreme Court of\nDelaware has recently declared that a merger effected "for the sole\npurpose of freezing out minority stockholders ...is an abuse of the\ncorporate process ...[and a] violation of a fiduciary duty for which\nthe Court may grant.. . relief." In Singer v. Magnavox Co. a parent\ncorporation had merged with its eighty-four-percent-owned subsidiary.\nMinority stockholders of the subsidiary had received only cash for their\nshares and thus had been eliminated from participation in the combined\nenterprise. The court confirmed that the parent owed a fiduciary\nduty to the minority by reason of its status as majority stockholder, but\nthen-in what is generally viewed as a new development in Delaware\nlaw-the court held that this duty would not be met unless a corporate\npurpose for the merger, other than mere elimination of the minorityheld\nstock, were supported by the evidence.