Cleary Gottlieb represented the special committee of Synutra International Inc. (Synutra) in obtaining dismissal of a case challenging a controlling shareholder’s take-private transaction, and successfully arguing the appeal before the Delaware Supreme Court.
On October 9, 2018, the Delaware Supreme Court held that controlling stockholder take-private transactions will be reviewed under the business judgment rule, rather than the less deferential entire fairness standard, if the controlling stockholder self-disables by committing to special committee and majority-of-the-minority approval before “economic negotiations” take place, even if the controlling stockholder fails to do so in its initial written offer.
Writing for a majority of the court, Chief Justice Leo E. Strine explained that “what is critical for the application of the business judgment rule is that the controller accept that no transaction goes forward without special committee and disinterested stockholder approval early in the process and before there has been any economic horse trading.” He noted that even if those protections are not included in the “first offer,” the key concern in the Court’s prior decision in MFW—“ensuring that controllers could not use the conditions as bargaining chips during economic negotiations”—would still be addressed if the protections were in place before any economic negotiations commenced. Justice Karen L. Valihura dissented, arguing in favor of a bright-line rule requiring that the protections be included in the first written offer.
Synutra, a Delaware corporation, is one of the leading infant formula companies in China.