Fair Shares in Corporate Mergers and Takeovers

Abstract

Professors Brudney and Chirelstein urge a new approach to judicialsupervision of mergers between parent and subsidiary corporations.They argue that a fair merger requires that gains generatedby the combination should be shared by the two corporations ratherthan wholly absorbed by either, and they posit a sharing formula toprovide fair treatment to all parties to the merger. Rather than attemptingto intuit or deduce the result of an arm's-length bargainthat does not and cannot exist in the parent-subsidiary context, theauthors emphasize the joint obligation of management to the publicstockholders of both companies. The sharing formula for mergersmay be used to determine the fairness of other decisions made bythe parent during the period of affiliation. Finally, the authors suggesta somewhat different sharing formula for mergers which are thecontemplated second step following an acquisition of control.