William Prickett (argued), John H. Small, and George H. Seitz, III, of Prickett, Jones, Elliott, Kristol & Schnee, Wilmington, for plaintiff.

A. Gilchrist Sparks, III, of Morris, Nichols, Arsht & Tunnell, Wilmington, for defendant UOP, Inc.

Robert K. Payson and Peter M. Sieglaff, of Potter, Anderson & Corroon, Wilmington, and Alan N. Halkett (argued) of Latham & Watkins, Los Angeles, Cal., for defendant The Signal Companies, Inc.

Before HERRMANN, C.J., McNEILLY, QUILLEN, HORSEY and MOORE, JJ., constituting the Court en Banc.

[702] MOORE, Justice:

This post-trial appeal was reheard en banc from a decision of the Court of Chancery.^[1] [703] It was brought by the class action plaintiff below, a former shareholder of UOP, Inc., who challenged the elimination of UOP's minority shareholders by a cash-out merger between UOP and its majority owner, The Signal Companies, Inc.^[2] Originally, the defendants in this action were Signal, UOP, certain officers and directors of those companies, and UOP's investment banker, Lehman Brothers Kuhn Loeb, Inc.^[3] The present Chancellor held that the terms of the merger were fair to the plaintiff and the other minority shareholders of UOP. Accordingly, he entered judgment in favor of the defendants.

Numerous points were raised by the parties, but we address only the following questions presented by the trial court's opinion:

1) The plaintiff's duty to plead sufficient facts demonstrating the unfairness of the challenged merger;

2) The burden of proof upon the parties where the merger has been approved by the purportedly informed vote of a majority of the minority shareholders;

3) The fairness of the merger in terms of adequacy of the defendants' disclosures to the minority shareholders;

4) The fairness of the merger in terms of adequacy of the price paid for the minority shares and the remedy appropriate to that issue; and

5) The continued force and effect of Singer v. Magnavox Co., Del.Supr., 380 A.2d 969, 980 (1977), and its progeny.

In ruling for the defendants, the Chancellor re-stated his earlier conclusion that the plaintiff in a suit challenging a cash-out merger must allege specific acts of fraud, misrepresentation, or other items of misconduct to demonstrate the unfairness of the merger terms to the minority.^[4] We approve this rule and affirm it.

The Chancellor also held that even though the ultimate burden of proof is on the majority shareholder to show by a preponderance of the evidence that the transaction is fair, it is first the burden of the plaintiff attacking the merger to demonstrate some basis for invoking the fairness obligation. We agree with that principle. However, where corporate action has been approved by an informed vote of a majority of the minority shareholders, we conclude that the burden entirely shifts to the plaintiff to show that the transaction was unfair to the minority. See, e.g., Michelson v. Duncan, Del.Supr., 407 A.2d 211, 224 (1979). But in all this, the burden clearly remains on those relying on the vote to show that they completely disclosed all material facts relevant to the transaction.

Here, the record does not support a conclusion that the minority stockholder vote was an informed one. Material information, necessary to acquaint those shareholders with the bargaining positions of Signal and UOP, was withheld under circumstances amounting to a breach of fiduciary duty. We therefore conclude that this merger does not meet the test of fairness, at least as we address that concept, and no burden thus shifted to the plaintiff by reason of the minority shareholder vote. Accordingly, we reverse and remand for further proceedings consistent herewith.

In considering the nature of the remedy available under our law to minority shareholders in a cash-out merger, we believe that it is, and hereafter should be, an appraisal under 8 Del.C. § 262 as hereinafter construed. We therefore overrule Lynch v. Vickers Energy Corp., Del.Supr., [704] 429 A.2d 497 (1981) (Lynch II) to the extent that it purports to limit a stockholder's monetary relief to a specific damage formula. See Lynch II, 429 A.2d at 507-08 (McNeilly & Quillen, JJ., dissenting). But to give full effect to section 262 within the framework of the General Corporation Law we adopt a more liberal, less rigid and stylized, approach to the valuation process than has heretofore been permitted by our courts. While the present state of these proceedings does not admit the plaintiff to the appraisal remedy per se, the practical effect of the remedy we do grant him will be co-extensive with the liberalized valuation and appraisal methods we herein approve for cases coming after this decision.

Our treatment of these matters has necessarily led us to a reconsideration of the business purpose rule announced in the trilogy of Singer v. Magnavox Co., supra; Tanzer v. International General Industries, Inc., Del.Supr., 379 A.2d 1121 (1977); and Roland International Corp. v. Najjar, Del.Supr., 407 A.2d 1032 (1979). For the reasons hereafter set forth we consider that the business purpose requirement of these cases is no longer the law of Delaware.

I.

The facts found by the trial court, pertinent to the issues before us, are supported by the record, and we draw from them as set out in the Chancellor's opinion.^[5]

Signal is a diversified, technically based company operating through various subsidiaries. Its stock is publicly traded on the New York, Philadelphia and Pacific Stock Exchanges. UOP, formerly known as Universal Oil Products Company, was a diversified industrial company engaged in various lines of business, including petroleum and petro-chemical services and related products, construction, fabricated metal products, transportation equipment products, chemicals and plastics, and other products and services including land development, lumber products and waste disposal. Its stock was publicly held and listed on the New York Stock Exchange.

In 1974 Signal sold one of its wholly-owned subsidiaries for $420,000,000 in cash. See Gimbel v. Signal Companies, Inc., Del. Ch., 316 A.2d 599, aff'd, Del.Supr., 316 A.2d 619 (1974). While looking to invest this cash surplus, Signal became interested in UOP as a possible acquisition. Friendly negotiations ensued, and Signal proposed to acquire a controlling interest in UOP at a price of $19 per share. UOP's representatives sought $25 per share. In the arm's length bargaining that followed, an understanding was reached whereby Signal agreed to purchase from UOP 1,500,000 shares of UOP's authorized but unissued stock at $21 per share.

This purchase was contingent upon Signal making a successful cash tender offer for 4,300,000 publicly held shares of UOP, also at a price of $21 per share. This combined method of acquisition permitted Signal to acquire 5,800,000 shares of stock, representing 50.5% of UOP's outstanding shares. The UOP board of directors advised the company's shareholders that it had no objection to Signal's tender offer at that price. Immediately before the announcement of the tender offer, UOP's common stock had been trading on the New York Stock Exchange at a fraction under $14 per share.

The negotiations between Signal and UOP occurred during April 1975, and the resulting tender offer was greatly oversubscribed. However, Signal limited its total purchase of the tendered shares so that, when coupled with the stock bought from UOP, it had achieved its goal of becoming a 50.5% shareholder of UOP.

Although UOP's board consisted of thirteen directors, Signal nominated and elected only six. Of these, five were either directors or employees of Signal. The sixth, a partner in the banking firm of Lazard Freres & Co., had been one of Signal's representatives in the negotiations and bargaining with UOP concerning the tender offer and purchase price of the UOP shares.

[705] However, the president and chief executive officer of UOP retired during 1975, and Signal caused him to be replaced by James V. Crawford, a long-time employee and senior executive vice president of one of Signal's wholly-owned subsidiaries. Crawford succeeded his predecessor on UOP's board of directors and also was made a director of Signal.

By the end of 1977 Signal basically was unsuccessful in finding other suitable investment candidates for its excess cash, and by February 1978 considered that it had no other realistic acquisitions available to it on a friendly basis. Once again its attention turned to UOP.

The trial court found that at the instigation of certain Signal management personnel, including William W. Walkup, its board chairman, and Forrest N. Shumway, its president, a feasibility study was made concerning the possible acquisition of the balance of UOP's outstanding shares. This study was performed by two Signal officers, Charles S. Arledge, vice president (director of planning), and Andrew J. Chitiea, senior vice president (chief financial officer). Messrs. Walkup, Shumway, Arledge and Chitiea were all directors of UOP in addition to their membership on the Signal board.

Arledge and Chitiea concluded that it would be a good investment for Signal to acquire the remaining 49.5% of UOP shares at any price up to $24 each. Their report was discussed between Walkup and Shumway who, along with Arledge, Chitiea and Brewster L. Arms, internal counsel for Signal, constituted Signal's senior management. In particular, they talked about the proper price to be paid if the acquisition was pursued, purportedly keeping in mind that as UOP's majority shareholder, Signal owed a fiduciary responsibility to both its own stockholders as well as to UOP's minority. It was ultimately agreed that a meeting of Signal's executive committee would be called to propose that Signal acquire the remaining outstanding stock of UOP through a cash-out merger in the range of $20 to $21 per share.

The executive committee meeting was set for February 28, 1978. As a courtesy, UOP's president, Crawford, was invited to attend, although he was not a member of Signal's executive committee. On his arrival, and prior to the meeting, Crawford was asked to meet privately with Walkup and Shumway. He was then told of Signal's plan to acquire full ownership of UOP and was asked for his reaction to the proposed price range of $20 to $21 per share. Crawford said he thought such a price would be "generous", and that it was certainly one which should be submitted to UOP's minority shareholders for their ultimate consideration. He stated, however, that Signal's 100% ownership could cause internal problems at UOP. He believed that employees would have to be given some assurance of their future place in a fully-owned Signal subsidiary. Otherwise, he feared the departure of essential personnel. Also, many of UOP's key employees had stock option incentive programs which would be wiped out by a merger. Crawford therefore urged that some adjustment would have to be made, such as providing a comparable incentive in Signal's shares, if after the merger he was to maintain his quality of personnel and efficiency at UOP.

Thus, Crawford voiced no objection to the $20 to $21 price range, nor did he suggest that Signal should consider paying more than $21 per share for the minority interests. Later, at the executive committee meeting the same factors were discussed, with Crawford repeating the position he earlier took with Walkup and Shumway. Also considered was the 1975 tender offer and the fact that it had been greatly oversubscribed at $21 per share. For many reasons, Signal's management concluded that the acquisition of UOP's minority shares provided the solution to a number of its business problems.

Thus, it was the consensus that a price of $20 to $21 per share would be fair to both Signal and the minority shareholders of UOP. Signal's executive committee authorized [706] its management "to negotiate" with UOP "for a cash acquisition of the minority ownership in UOP, Inc., with the intention of presenting a proposal to [Signal's] board of directors ... on March 6, 1978". Immediately after this February 28, 1978 meeting, Signal issued a press release stating:

The Signal Companies, Inc. and UOP, Inc. are conducting negotiations for the acquisition for cash by Signal of the 49.5 per cent of UOP which it does not presently own, announced Forrest N. Shumway, president and chief executive officer of Signal, and James V. Crawford, UOP president.

Price and other terms of the proposed transaction have not yet been finalized and would be subject to approval of the boards of directors of Signal and UOP, scheduled to meet early next week, the stockholders of UOP and certain federal agencies.

The announcement also referred to the fact that the closing price of UOP's common stock on that day was $14.50 per share.

Two days later, on March 2, 1978, Signal issued a second press release stating that its management would recommend a price in the range of $20 to $21 per share for UOP's 49.5% minority interest. This announcement referred to Signal's earlier statement that "negotiations" were being conducted for the acquisition of the minority shares.

Between Tuesday, February 28, 1978 and Monday, March 6, 1978, a total of four business days, Crawford spoke by telephone with all of UOP's non-Signal, i.e., outside, directors. Also during that period, Crawford retained Lehman Brothers to render a fairness opinion as to the price offered the minority for its stock. He gave two reasons for this choice. First, the time schedule between the announcement and the board meetings was short (by then only three business days) and since Lehman Brothers had been acting as UOP's investment banker for many years, Crawford felt that it would be in the best position to respond on such brief notice. Second, James W. Glanville, a long-time director of UOP and a partner in Lehman Brothers, had acted as a financial advisor to UOP for many years. Crawford believed that Glanville's familiarity with UOP, as a member of its board, would also be of assistance in enabling Lehman Brothers to render a fairness opinion within the existing time constraints.

Crawford telephoned Glanville, who gave his assurance that Lehman Brothers had no conflicts that would prevent it from accepting the task. Glanville's immediate personal reaction was that a price of $20 to $21 would certainly be fair, since it represented almost a 50% premium over UOP's market price. Glanville sought a $250,000 fee for Lehman Brothers' services, but Crawford thought this too much. After further discussions Glanville finally agreed that Lehman Brothers would render its fairness opinion for $150,000.

During this period Crawford also had several telephone contacts with Signal officials. In only one of them, however, was the price of the shares discussed. In a conversation with Walkup, Crawford advised that as a result of his communications with UOP's non-Signal directors, it was his feeling that the price would have to be the top of the proposed range, or $21 per share, if the approval of UOP's outside directors was to be obtained. But again, he did not seek any price higher than $21.

Glanville assembled a three-man Lehman Brothers team to do the work on the fairness opinion. These persons examined relevant documents and information concerning UOP, including its annual reports and its Securities and Exchange Commission filings from 1973 through 1976, as well as its audited financial statements for 1977, its interim reports to shareholders, and its recent and historical market prices and trading volumes. In addition, on Friday, March 3, 1978, two members of the Lehman Brothers team flew to UOP's headquarters in Des Plaines, Illinois, to perform a "due diligence" visit, during the course of which they interviewed Crawford as well as UOP's general counsel, its chief financial officer, and other key executives and personnel.

[707] As a result, the Lehman Brothers team concluded that "the price of either $20 or $21 would be a fair price for the remaining shares of UOP". They telephoned this impression to Glanville, who was spending the weekend in Vermont.

On Monday morning, March 6, 1978, Glanville and the senior member of the Lehman Brothers team flew to Des Plaines to attend the scheduled UOP directors meeting. Glanville looked over the assembled information during the flight. The two had with them the draft of a "fairness opinion letter" in which the price had been left blank. Either during or immediately prior to the directors' meeting, the two-page "fairness opinion letter" was typed in final form and the price of $21 per share was inserted.

On March 6, 1978, both the Signal and UOP boards were convened to consider the proposed merger. Telephone communications were maintained between the two meetings. Walkup, Signal's board chairman, and also a UOP director, attended UOP's meeting with Crawford in order to present Signal's position and answer any questions that UOP's non-Signal directors might have. Arledge and Chitiea, along with Signal's other designees on UOP's board, participated by conference telephone. All of UOP's outside directors attended the meeting either in person or by conference telephone.

First, Signal's board unanimously adopted a resolution authorizing Signal to propose to UOP a cash merger of $21 per share as outlined in a certain merger agreement and other supporting documents. This proposal required that the merger be approved by a majority of UOP's outstanding minority shares voting at the stockholders meeting at which the merger would be considered, and that the minority shares voting in favor of the merger, when coupled with Signal's 50.5% interest would have to comprise at least two-thirds of all UOP shares. Otherwise the proposed merger would be deemed disapproved.

UOP's board then considered the proposal. Copies of the agreement were delivered to the directors in attendance, and other copies had been forwarded earlier to the directors participating by telephone. They also had before them UOP financial data for 1974-1977, UOP's most recent financial statements, market price information, and budget projections for 1978. In addition they had Lehman Brothers' hurriedly prepared fairness opinion letter finding the price of $21 to be fair. Glanville, the Lehman Brothers partner, and UOP director, commented on the information that had gone into preparation of the letter.

Signal also suggests that the Arledge-Chitiea feasibility study, indicating that a price of up to $24 per share would be a "good investment" for Signal, was discussed at the UOP directors' meeting. The Chancellor made no such finding, and our independent review of the record, detailed infra, satisfies us by a preponderance of the evidence that there was no discussion of this document at UOP's board meeting. Furthermore, it is clear beyond peradventure that nothing in that report was ever disclosed to UOP's minority shareholders prior to their approval of the merger.

After consideration of Signal's proposal, Walkup and Crawford left the meeting to permit a free and uninhibited exchange between UOP's non-Signal directors. Upon their return a resolution to accept Signal's offer was then proposed and adopted. While Signal's men on UOP's board participated in various aspects of the meeting, they abstained from voting. However, the minutes show that each of them "if voting would have voted yes".

On March 7, 1978, UOP sent a letter to its shareholders advising them of the action taken by UOP's board with respect to Signal's offer. This document pointed out, among other things, that on February 28, 1978 "both companies had announced negotiations were being conducted".

Despite the swift board action of the two companies, the merger was not submitted to UOP's shareholders until their annual [708] meeting on May 26, 1978. In the notice of that meeting and proxy statement sent to shareholders in May, UOP's management and board urged that the merger be approved. The proxy statement also advised:

The price was determined after discussions between James V. Crawford, a director of Signal and Chief Executive Officer of UOP, and officers of Signal which took place during meetings on February 28, 1978, and in the course of several subsequent telephone conversations. (Emphasis added.)

In the original draft of the proxy statement the word "negotiations" had been used rather than "discussions". However, when the Securities and Exchange Commission sought details of the "negotiations" as part of its review of these materials, the term was deleted and the word "discussions" was substituted. The proxy statement indicated that the vote of UOP's board in approving the merger had been unanimous. It also advised the shareholders that Lehman Brothers had given its opinion that the merger price of $21 per share was fair to UOP's minority. However, it did not disclose the hurried method by which this conclusion was reached.

As of the record date of UOP's annual meeting, there were 11,488,302 shares of UOP common stock outstanding, 5,688,302 of which were owned by the minority. At the meeting only 56%, or 3,208,652, of the minority shares were voted. Of these, 2,953,812, or 51.9% of the total minority, voted for the merger, and 254,840 voted against it. When Signal's stock was added to the minority shares voting in favor, a total of 76.2% of UOP's outstanding shares approved the merger while only 2.2% opposed it.

By its terms the merger became effective on May 26, 1978, and each share of UOP's stock held by the minority was automatically converted into a right to receive $21 cash.

II.

A.

A primary issue mandating reversal is the preparation by two UOP directors, Arledge and Chitiea, of their feasibility study for the exclusive use and benefit of Signal. This document was of obvious significance to both Signal and UOP. Using UOP data, it described the advantages to Signal of ousting the minority at a price range of $21-$24 per share. Mr. Arledge, one of the authors, outlined the benefits to Signal:^[6]

Purpose Of The Merger

1) Provides an outstanding investment opportunity for Signal — (Better than any recent acquisition we have seen.)

2) Increases Signal's earnings.

3) Facilitates the flow of resources between Signal and its subsidiaries — (Big factor — works both ways.)

4) Provides cost savings potential for Signal and UOP.

5) Improves the percentage of Signal's `operating earnings' as opposed to `holding company earnings'.

6) Simplifies the understanding of Signal.

7) Facilitates technological exchange among Signal's subsidiaries.

8) Eliminates potential conflicts of interest.

Having written those words, solely for the use of Signal, it is clear from the record that neither Arledge nor Chitiea shared this report with their fellow directors of UOP. We are satisfied that no one else did either. This conduct hardly meets the fiduciary standards applicable to such a transaction. While Mr. Walkup, Signal's chairman of the board and a UOP director, attended the March 6, 1978 UOP board meeting and testified at trial that he had discussed the Arledge-Chitiea report with the UOP directors at this meeting, the record does not support this assertion. Perhaps it is the result of some confusion on Mr. Walkup's [709] part. In any event Mr. Shumway, Signal's president, testified that he made sure the Signal outside directors had this report prior to the March 6, 1978 Signal board meeting, but he did not testify that the Arledge-Chitiea report was also sent to UOP's outside directors.

Mr. Crawford, UOP's president, could not recall that any documents, other than a draft of the merger agreement, were sent to UOP's directors before the March 6, 1978 UOP meeting. Mr. Chitiea, an author of the report, testified that it was made available to Signal's directors, but to his knowledge it was not circulated to the outside directors of UOP. He specifically testified that he "didn't share" that information with the outside directors of UOP with whom he served.

None of UOP's outside directors who testified stated that they had seen this document. The minutes of the UOP board meeting do not identify the Arledge-Chitiea report as having been delivered to UOP's outside directors. This is particularly significant since the minutes describe in considerable detail the materials that actually were distributed. While these minutes recite Mr. Walkup's presentation of the Signal offer, they do not mention the Arledge-Chitiea report or any disclosure that Signal considered a price of up to $24 to be a good investment. If Mr. Walkup had in fact provided such important information to UOP's outside directors, it is logical to assume that these carefully drafted minutes would disclose it. The post-trial briefs of Signal and UOP contain a thorough description of the documents purportedly available to their boards at the March 6, 1978, meetings. Although the Arledge-Chitiea report is specifically identified as being available to the Signal directors, there is no mention of it being among the documents submitted to the UOP board. Even when queried at a prior oral argument before this Court, counsel for Signal did not claim that the Arledge-Chitiea report had been disclosed to UOP's outside directors. Instead, he chose to belittle its contents. This was the same approach taken before us at the last oral argument.

Actually, it appears that a three-page summary of figures was given to all UOP directors. Its first page is identical to one page of the Arledge-Chitiea report, but this dealt with nothing more than a justification of the $21 price. Significantly, the contents of this three-page summary are what the minutes reflect Mr. Walkup told the UOP board. However, nothing contained in either the minutes or this three-page summary reflects Signal's study regarding the $24 price.

The Arledge-Chitiea report speaks for itself in supporting the Chancellor's finding that a price of up to $24 was a "good investment" for Signal. It shows that a return on the investment at $21 would be 15.7% versus 15.5% at $24 per share. This was a difference of only two-tenths of one percent, while it meant over $17,000,000 to the minority. Under such circumstances, paying UOP's minority shareholders $24 would have had relatively little long-term effect on Signal, and the Chancellor's findings concerning the benefit to Signal, even at a price of $24, were obviously correct. Levitt v. Bouvier, Del.Supr., 287 A.2d 671, 673 (1972).

Certainly, this was a matter of material significance to UOP and its shareholders. Since the study was prepared by two UOP directors, using UOP information for the exclusive benefit of Signal, and nothing whatever was done to disclose it to the outside UOP directors or the minority shareholders, a question of breach of fiduciary duty arises. This problem occurs because there were common Signal-UOP directors participating, at least to some extent, in the UOP board's decision-making processes without full disclosure of the conflicts they faced.^[7]

[710] B.

In assessing this situation, the Court of Chancery was required to:

examine what information defendants had and to measure it against what they gave to the minority stockholders, in a context in which `complete candor' is required. In other words, the limited function of the Court was to determine whether defendants had disclosed all information in their possession germane to the transaction in issue. And by `germane' we mean, for present purposes, information such as a reasonable shareholder would consider important in deciding whether to sell or retain stock.

* * * * * *

... Completeness, not adequacy, is both the norm and the mandate under present circumstances.

Lynch v. Vickers Energy Corp., Del.Supr., 383 A.2d 278, 281 (1977) (Lynch I). This is merely stating in another way the long-existing principle of Delaware law that these Signal designated directors on UOP's board still owed UOP and its shareholders an uncompromising duty of loyalty. The classic language of Guth v. Loft, Inc., Del.Supr., 5 A.2d 503, 510 (1939), requires no embellishment:

A public policy, existing through the years, and derived from a profound knowledge of human characteristics and motives, has established a rule that demands of a corporate officer or director, peremptorily and inexorably, the most scrupulous observance of his duty, not only affirmatively to protect the interests of the corporation committed to his charge, but also to refrain from doing anything that would work injury to the corporation, or to deprive it of profit or advantage which his skill and ability might properly bring to it, or to enable it to make in the reasonable and lawful exercise of its powers. The rule that requires an undivided and unselfish loyalty to the corporation demands that there shall be no conflict between duty and self-interest.

Given the absence of any attempt to structure this transaction on an arm's length basis, Signal cannot escape the effects of the conflicts it faced, particularly when its designees on UOP's board did not totally abstain from participation in the matter. There is no "safe harbor" for such divided loyalties in Delaware. When directors of a Delaware corporation are on both sides of a transaction, they are required to demonstrate their utmost good faith and the most scrupulous inherent fairness of the bargain. Gottlieb v. Heyden Chemical Corp., Del.Supr., 91 A.2d 57, 57-58 (1952). The requirement of fairness is unflinching in its demand that where one stands on both sides of a transaction, he has the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts. Sterling v. Mayflower Hotel Corp., Del.Supr., 93 A.2d 107, 110 (1952); Bastian v. Bourns, Inc., Del.Ch., 256 A.2d 680, 681 (1969), aff'd, Del.Supr., 278 A.2d 467 (1970); David J. Greene & Co. v. Dunhill International Inc., Del.Ch., 249 A.2d 427, 431 (1968).

There is no dilution of this obligation where one holds dual or multiple directorships, as in a parent-subsidiary context. Levien v. Sinclair Oil Corp., Del.Ch., 261 A.2d 911, 915 (1969). Thus, individuals who act in a dual capacity as directors of two corporations, one of whom is parent and the other subsidiary, owe the same duty of good management to both corporations, and in the absence of an independent negotiating [711] structure (see note 7, supra), or the directors' total abstention from any participation in the matter, this duty is to be exercised in light of what is best for both companies. Warshaw v. Calhoun, Del. Supr., 221 A.2d 487, 492 (1966). The record demonstrates that Signal has not met this obligation.

C.

The concept of fairness has two basic aspects: fair dealing and fair price. The former embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained. The latter aspect of fairness relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock. Moore, The "Interested" Director or Officer Transaction, 4 Del.J. Corp.L. 674, 676 (1979); Nathan & Shapiro, Legal Standard of Fairness of Merger Terms Under Delaware Law, 2 Del.J. Corp.L. 44, 46-47 (1977). See Tri-Continental Corp. v. Battye, Del.Supr., 74 A.2d 71, 72 (1950); 8 Del.C. § 262(h). However, the test for fairness is not a bifurcated one as between fair dealing and price. All aspects of the issue must be examined as a whole since the question is one of entire fairness. However, in a non-fraudulent transaction we recognize that price may be the preponderant consideration outweighing other features of the merger. Here, we address the two basic aspects of fairness separately because we find reversible error as to both.

D.

Part of fair dealing is the obvious duty of candor required by Lynch I, supra. Moreover, one possessing superior knowledge may not mislead any stockholder by use of corporate information to which the latter is not privy. Lank v. Steiner, Del. Supr., 224 A.2d 242, 244 (1966). Delaware has long imposed this duty even upon persons who are not corporate officers or directors, but who nonetheless are privy to matters of interest or significance to their company. Brophy v. Cities Service Co., Del. Ch., 70 A.2d 5, 7 (1949). With the well-established Delaware law on the subject, and the Court of Chancery's findings of fact here, it is inevitable that the obvious conflicts posed by Arledge and Chitiea's preparation of their "feasibility study", derived from UOP information, for the sole use and benefit of Signal, cannot pass muster.

The Arledge-Chitiea report is but one aspect of the element of fair dealing. How did this merger evolve? It is clear that it was entirely initiated by Signal. The serious time constraints under which the principals acted were all set by Signal. It had not found a suitable outlet for its excess cash and considered UOP a desirable investment, particularly since it was now in a position to acquire the whole company for itself. For whatever reasons, and they were only Signal's, the entire transaction was presented to and approved by UOP's board within four business days. Standing alone, this is not necessarily indicative of any lack of fairness by a majority shareholder. It was what occurred, or more properly, what did not occur, during this brief period that makes the time constraints imposed by Signal relevant to the issue of fairness.

The structure of the transaction, again, was Signal's doing. So far as negotiations were concerned, it is clear that they were modest at best. Crawford, Signal's man at UOP, never really talked price with Signal, except to accede to its management's statements on the subject, and to convey to Signal the UOP outside directors' view that as between the $20-$21 range under consideration, it would have to be $21. The latter is not a surprising outcome, but hardly arm's length negotiations. Only the protection of benefits for UOP's key employees and the issue of Lehman Brothers' fee approached any concept of bargaining.

[712] As we have noted, the matter of disclosure to the UOP directors was wholly flawed by the conflicts of interest raised by the Arledge-Chitiea report. All of those conflicts were resolved by Signal in its own favor without divulging any aspect of them to UOP.

This cannot but undermine a conclusion that this merger meets any reasonable test of fairness. The outside UOP directors lacked one material piece of information generated by two of their colleagues, but shared only with Signal. True, the UOP board had the Lehman Brothers' fairness opinion, but that firm has been blamed by the plaintiff for the hurried task it performed, when more properly the responsibility for this lies with Signal. There was no disclosure of the circumstances surrounding the rather cursory preparation of the Lehman Brothers' fairness opinion. Instead, the impression was given UOP's minority that a careful study had been made, when in fact speed was the hallmark, and Mr. Glanville, Lehman's partner in charge of the matter, and also a UOP director, having spent the weekend in Vermont, brought a draft of the "fairness opinion letter" to the UOP directors' meeting on March 6, 1978 with the price left blank. We can only conclude from the record that the rush imposed on Lehman Brothers by Signal's timetable contributed to the difficulties under which this investment banking firm attempted to perform its responsibilities. Yet, none of this was disclosed to UOP's minority.

Finally, the minority stockholders were denied the critical information that Signal considered a price of $24 to be a good investment. Since this would have meant over $17,000,000 more to the minority, we cannot conclude that the shareholder vote was an informed one. Under the circumstances, an approval by a majority of the minority was meaningless. Lynch I, 383 A.2d at 279, 281; Cahall v. Lofland, Del.Ch., 114 A. 224 (1921).

Given these particulars and the Delaware law on the subject, the record does not establish that this transaction satisfies any reasonable concept of fair dealing, and the Chancellor's findings in that regard must be reversed.

E.

Turning to the matter of price, plaintiff also challenges its fairness. His evidence was that on the date the merger was approved the stock was worth at least $26 per share. In support, he offered the testimony of a chartered investment analyst who used two basic approaches to valuation: a comparative analysis of the premium paid over market in ten other tender offer-merger combinations, and a discounted cash flow analysis.

In this breach of fiduciary duty case, the Chancellor perceived that the approach to valuation was the same as that in an appraisal proceeding. Consistent with precedent, he rejected plaintiff's method of proof and accepted defendants' evidence of value as being in accord with practice under prior case law. This means that the so-called "Delaware block" or weighted average method was employed wherein the elements of value, i.e., assets, market price, earnings, etc., were assigned a particular weight and the resulting amounts added to determine the value per share. This procedure has been in use for decades. See In re General Realty & Utilities Corp., Del.Ch., 52 A.2d 6, 14-15 (1947). However, to the extent it excludes other generally accepted techniques used in the financial community and the courts, it is now clearly outmoded. It is time we recognize this in appraisal and other stock valuation proceedings and bring our law current on the subject.

While the Chancellor rejected plaintiff's discounted cash flow method of valuing UOP's stock, as not corresponding with "either logic or the existing law" (426 A.2d at 1360), it is significant that this was essentially the focus, i.e., earnings potential of UOP, of Messrs. Arledge and Chitiea in their evaluation of the merger. Accordingly, the standard "Delaware block" or weighted average method of valuation, formerly [713] employed in appraisal and other stock valuation cases, shall no longer exclusively control such proceedings. We believe that a more liberal approach must include proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court, subject only to our interpretation of 8 Del.C. § 262(h), infra. See also D.R.E. 702-05. This will obviate the very structured and mechanistic procedure that has heretofore governed such matters. See Jacques Coe & Co. v. Minneapolis-Moline Co., Del.Ch., 75 A.2d 244, 247 (1950); Tri-Continental Corp. v. Battye, Del.Ch., 66 A.2d 910, 917-18 (1949); In re General Realty and Utilities Corp., supra.

Fair price obviously requires consideration of all relevant factors involving the value of a company. This has long been the law of Delaware as stated in Tri-Continental Corp., 74 A.2d at 72:

The basic concept of value under the appraisal statute is that the stockholder is entitled to be paid for that which has been taken from him, viz., his proportionate interest in a going concern. By value of the stockholder's proportionate interest in the corporate enterprise is meant the true or intrinsic value of his stock which has been taken by the merger. In determining what figure represents this true or intrinsic value, the appraiser and the courts must take into consideration all factors and elements which reasonably might enter into the fixing of value. Thus, market value, asset value, dividends, earning prospects, the nature of the enterprise and any other facts which were known or which could be ascertained as of the date of merger and which throw any light on future prospects of the merged corporation are not only pertinent to an inquiry as to the value of the dissenting stockholders' interest, but must be considered by the agency fixing the value. (Emphasis added.)

This is not only in accord with the realities of present day affairs, but it is thoroughly consonant with the purpose and intent of our statutory law. Under 8 Del.C. § 262(h), the Court of Chancery:

shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors ... (Emphasis added)

See also Bell v. Kirby Lumber Corp., Del. Supr., 413 A.2d 137, 150-51 (1980) (Quillen, J., concurring).

It is significant that section 262 now mandates the determination of "fair" value based upon "all relevant factors". Only the speculative elements of value that may arise from the "accomplishment or expectation" of the merger are excluded. We take this to be a very narrow exception to the appraisal process, designed to eliminate use of pro forma data and projections of a speculative variety relating to the completion of a merger. But elements of future value, including the nature of the enterprise, which are known or susceptible of proof as of the date of the merger and not the product of speculation, may be considered. When the trial court deems it appropriate, fair value also includes any damages, resulting from the taking, which the stockholders sustain as a class. If that was not the case, then the obligation to consider "all relevant factors" in the valuation process would be eroded. We are supported in this view not only by Tri-Continental Corp., 74 A.2d at 72, but also by the evolutionary amendments to section 262.

Prior to an amendment in 1976, the earlier relevant provision of section 262 stated:

(f) The appraiser shall determine the value of the stock of the stockholders ... The Court shall by its decree determine the value of the stock of the stockholders entitled to payment therefor ...

The first references to "fair" value occurred in a 1976 amendment to section 262(f), which provided:

[714] (f) ... the Court shall appraise the shares, determining their fair value exclusively of any element of value arising from the accomplishment or expectation of the merger....

It was not until the 1981 amendment to section 262 that the reference to "fair value" was repeatedly emphasized and the statutory mandate that the Court "take into account all relevant factors" appeared [section 262(h)]. Clearly, there is a legislative intent to fully compensate shareholders for whatever their loss may be, subject only to the narrow limitation that one can not take speculative effects of the merger into account.

Although the Chancellor received the plaintiff's evidence, his opinion indicates that the use of it was precluded because of past Delaware practice. While we do not suggest a monetary result one way or the other, we do think the plaintiff's evidence should be part of the factual mix and weighed as such. Until the $21 price is measured on remand by the valuation standards mandated by Delaware law, there can be no finding at the present stage of these proceedings that the price is fair. Given the lack of any candid disclosure of the material facts surrounding establishment of the $21 price, the majority of the minority vote, approving the merger, is meaningless.

The plaintiff has not sought an appraisal, but rescissory damages of the type contemplated by Lynch v. Vickers Energy Corp., Del.Supr., 429 A.2d 497, 505-06 (1981) (Lynch II). In view of the approach to valuation that we announce today, we see no basis in our law for Lynch II's exclusive monetary formula for relief. On remand the plaintiff will be permitted to test the fairness of the $21 price by the standards we herein establish, in conformity with the principle applicable to an appraisal — that fair value be determined by taking "into account all relevant factors" [see 8 Del.C. § 262(h), supra]. In our view this includes the elements of rescissory damages if the Chancellor considers them susceptible of proof and a remedy appropriate to all the issues of fairness before him. To the extent that Lynch II, 429 A.2d at 505-06, purports to limit the Chancellor's discretion to a single remedial formula for monetary damages in a cash-out merger, it is overruled.

While a plaintiff's monetary remedy ordinarily should be confined to the more liberalized appraisal proceeding herein established, we do not intend any limitation on the historic powers of the Chancellor to grant such other relief as the facts of a particular case may dictate. The appraisal remedy we approve may not be adequate in certain cases, particularly where fraud, misrepresentation, self-dealing, deliberate waste of corporate assets, or gross and palpable overreaching are involved. Cole v. National Cash Credit Association, Del.Ch., 156 A. 183, 187 (1931). Under such circumstances, the Chancellor's powers are complete to fashion any form of equitable and monetary relief as may be appropriate, including rescissory damages. Since it is apparent that this long completed transaction is too involved to undo, and in view of the Chancellor's discretion, the award, if any, should be in the form of monetary damages based upon entire fairness standards, i.e., fair dealing and fair price.

Obviously, there are other litigants, like the plaintiff, who abjured an appraisal and whose rights to challenge the element of fair value must be preserved.^[8] Accordingly, the quasi-appraisal remedy we grant the plaintiff here will apply only to: (1) this case; (2) any case now pending on appeal to this Court; (3) any case now pending in the Court of Chancery which has not yet been appealed but which may be eligible for direct appeal to this Court; (4) any case challenging a cash-out merger, the effective date of which is on or before February 1, 1983; and (5) any proposed merger to be [715] presented at a shareholders' meeting, the notification of which is mailed to the stockholders on or before February 23, 1983. Thereafter, the provisions of 8 Del.C. § 262, as herein construed, respecting the scope of an appraisal and the means for perfecting the same, shall govern the financial remedy available to minority shareholders in a cash-out merger. Thus, we return to the well established principles of Stauffer v. Standard Brands, Inc., Del.Supr., 187 A.2d 78 (1962) and David J. Greene & Co. v. Schenley Industries, Inc., Del.Ch., 281 A.2d 30 (1971), mandating a stockholder's recourse to the basic remedy of an appraisal.

III.

Finally, we address the matter of business purpose. The defendants contend that the purpose of this merger was not a proper subject of inquiry by the trial court. The plaintiff says that no valid purpose existed — the entire transaction was a mere subterfuge designed to eliminate the minority. The Chancellor ruled otherwise, but in so doing he clearly circumscribed the thrust and effect of Singer. Weinberger v. UOP, 426 A.2d at 1342-43, 1348-50. This has led to the thoroughly sound observation that the business purpose test "may be ... virtually interpreted out of existence, as it was in Weinberger".^[9]

The requirement of a business purpose is new to our law of mergers and was a departure from prior case law. See Stauffer v. Standard Brands, Inc., supra; David J. Greene & Co. v. Schenley Industries, Inc., supra.

In view of the fairness test which has long been applicable to parent-subsidiary mergers, Sterling v. Mayflower Hotel Corp., Del.Supr., 93 A.2d 107, 109-10 (1952), the expanded appraisal remedy now available to shareholders, and the broad discretion of the Chancellor to fashion such relief as the facts of a given case may dictate, we do not believe that any additional meaningful protection is afforded minority shareholders by the business purpose requirement of the trilogy of Singer, Tanzer,^[10]Najjar,^[11] and their progeny. Accordingly, such requirement shall no longer be of any force or effect.

The judgment of the Court of Chancery, finding both the circumstances of the merger and the price paid the minority shareholders to be fair, is reversed. The matter is remanded for further proceedings consistent herewith. Upon remand the plaintiff's post-trial motion to enlarge the class should be granted.

* * * * * *

REVERSED AND REMANDED.

[1] Accordingly, this Court's February 9, 1982 opinion is withdrawn.

[2] For the opinion of the trial court see Weinberger v. UOP, Inc., Del.Ch., 426 A.2d 1333 (1981).

[3] Shortly before the last oral argument, the plaintiff dismissed Lehman Brothers from the action. Thus, we do not deal with the issues raised by the plaintiff's claims against this defendant.

[4] In a pre-trial ruling the Chancellor ordered the complaint dismissed for failure to state a cause of action. See Weinberger v. UOP, Inc., Del.Ch., 409 A.2d 1262 (1979).

[5] Weinberger v. UOP, Inc., Del.Ch., 426 A.2d 1333, 1335-40 (1981).

[6] The parentheses indicate certain handwritten comments of Mr. Arledge.

[7] Although perfection is not possible, or expected, the result here could have been entirely different if UOP had appointed an independent negotiating committee of its outside directors to deal with Signal at arm's length. See, e.g., Harriman v. E.I. duPont de Nemours & Co., 411 F.Supp. 133 (D.Del.1975). Since fairness in this context can be equated to conduct by a theoretical, wholly independent, board of directors acting upon the matter before them, it is unfortunate that this course apparently was neither considered nor pursued. Johnston v. Greene, Del.Supr., 121 A.2d 919, 925 (1956). Particularly in a parent-subsidiary context, a showing that the action taken was as though each of the contending parties had in fact exerted its bargaining power against the other at arm's length is strong evidence that the transaction meets the test of fairness. Getty Oil Co. v. Skelly Oil Co., Del.Supr., 267 A.2d 883, 886 (1970); Puma v. Marriott, Del.Ch., 283 A.2d 693, 696 (1971).

[8] Under 8 Del.C. § 262(a), (d) & (e), a stockholder is required to act within certain time periods to perfect the right to an appraisal.

[9] Weiss, The Law of Take Out Mergers: A Historical Perspective, 56 N.Y.U.L.Rev. 624, 671, n. 300 (1981).

[10] Tanzer v. International General Industries, Inc., Del.Supr., 379 A.2d 1121, 1124-25 (1977).

[11] Roland International Corp. v. Najjar, Del. Supr., 407 A.2d 1032, 1036 (1979).

R. Bruce McNew, Esquire (argued), of Taylor & McNew, LLP, Greenville, Delaware, and Pamela S. Tikellis, Esquire, Robert J. Kriner, Jr., Esquire, and Timothy R. Dudderar, Esquire, of Chimicles & [243] Tikellis, LLP, Wilmington, Delaware, for Appellants.

Kenneth J. Nachbar, Esquire (argued) and Jon E. Abramczyk, Esquire, of Morris, Nichols, Arsht & Tunnell, Wilmington, Delaware, for Appellees Unocal Corporation, John W. Amerman, Roger C. Beach, Claude S. Brinegar, Malcolm R. Currie, Richard K. Eamer, Frank C. Herringer, John F. Imle, Jr., Donald P. Jacobs, Neal E. Schmale, Thomas B. Sleeman and Richard J. Stegemeier; and Brett D. Fallon, Esquire, of Morris, James, Hitchens & Williams, Wilmington, Delaware, for Appellees Unocal Exploration Corporation, MacDonald G. Becket, Ann McLaughlin and Charles R. Weaver.

Before VEASEY, Chief Justice, WALSH, HOLLAND, BERGER and STEELE, Justices, constituting the Court en Banc.

BERGER, Justice.

In this appeal, we consider the fiduciary duties owed by a parent corporation to the subsidiary's minority stockholders in the context of a "short-form" merger. Specifically, we take this opportunity to reconcile a fiduciary's seemingly absolute duty to establish the entire fairness of any self-dealing transaction with the less demanding requirements of the short-form merger statute. The statute authorizes the elimination of minority stockholders by a summary process that does not involve the "fair dealing" component of entire fairness. Indeed, the statute does not contemplate any "dealing" at all. Thus, a parent corporation cannot satisfy the entire fairness standard if it follows the terms of the short-form merger statute without more.

Unocal Corporation addressed this dilemma by establishing a special negotiating committee and engaging in a process that it believed would pass muster under traditional entire fairness review. We find that such steps were unnecessary. By enacting a statute that authorizes the elimination of the minority without notice, vote, or other traditional indicia of procedural fairness, the General Assembly effectively circumscribed the parent corporation's obligations to the minority in a short-form merger. The parent corporation does not have to establish entire fairness, and, absent fraud or illegality, the only recourse for a minority stockholder who is dissatisfied with the merger consideration is appraisal.

I. Factual and Procedural Background

Unocal Corporation is an earth resources company primarily engaged in the exploration for and production of crude oil and natural gas. At the time of the merger at issue, Unocal owned approximately 96% of the stock of Unocal Exploration Corporation ("UXC"), an oil and gas company operating in and around the Gulf of Mexico. In 1991, low natural gas prices caused a drop in both companies' revenues and earnings. Unocal investigated areas of possible cost savings and decided that, by eliminating the UXC minority, it would reduce taxes and overhead expenses.

In December 1991 the boards of Unocal and UXC appointed special committees to consider a possible merger. The UXC committee consisted of three directors who, although also directors of Unocal, were not officers or employees of the parent company. The UXC committee retained financial and legal advisors and met four times before agreeing to a merger exchange ratio of .54 shares of Unocal stock for each share of UXC. Unocal and UXC announced the merger on February 24, 1992, and it was effected, pursuant to 8 Del.C. § 253, on May 2, 1992. The Notice of Merger and Prospectus stated the terms of the merger and advised the former [244] UXC stockholders of their appraisal rights.

Plaintiffs filed this class action, on behalf of UXC's minority stockholders, on the day the merger was announced. They asserted, among other claims, that Unocal and its directors breached their fiduciary duties of entire fairness and full disclosure. The Court of Chancery conducted a two day trial and held that: (i) the Prospectus did not contain any material misstatements or omissions; (ii) the entire fairness standard does not control in a short-form merger; and (iii) plaintiffs' exclusive remedy in this case was appraisal. The decision of the Court of Chancery is affirmed.

II. Discussion

The short-form merger statute, as enacted in 1937, authorized a parent corporation to merge with its wholly-owned subsidiary by filing and recording a certificate evidencing the parent's ownership and its merger resolution. In 1957, the statute was expanded to include parent/subsidiary mergers where the parent company owns at least 90% of the stock of the subsidiary. The 1957 amendment also made it possible, for the first time and only in a short-form merger, to pay the minority cash for their shares, thereby eliminating their ownership interest in the company. In its current form, which has not changed significantly since 1957, 8 Del.C. § 253 provides in relevant part:

(a) In any case in which at least 90 percent of the outstanding shares of each class of the stock of a corporation... is owned by another corporation..., the corporation having such stock ownership may ... merge the other corporation ... into itself... by executing, acknowledging and filing, in accordance with § 103 of this title, a certificate of such ownership and merger setting forth a copy of the resolution of its board of directors to so merge and the date of the adoption; provided, however, that in case the parent corporation shall not own all the outstanding stock of ... the subsidiary corporation[ ],... the resolution ... shall state the terms and conditions of the merger, including the securities, cash, property or rights to be issued, paid delivered or granted by the surviving corporation upon surrender of each share of the subsidiary corporation....

* * *

(d) In the event that all of the stock of a subsidiary Delaware corporation... is not owned by the parent corporation immediately prior to the merger, the stockholders of the subsidiary Delaware corporation party to the merger shall have appraisal rights as set forth in Section 262 of this Title.

This Court first reviewed § 253 in Coyne v. Park & Tilford Distillers Corporation.^[1] There, minority stockholders of the merged-out subsidiary argued that the statute could not mean what it says because Delaware law "never has permitted, and does not now permit, the payment of cash for whole shares surrendered in a merger and the consequent expulsion of a stockholder from the enterprise in which he has invested."^[2] The Coyne court held that § 253 plainly does permit such a result and that the statute is constitutional.

The next question presented to this Court was whether any equitable relief is available to minority stockholders who object to a short-form merger. In Stauffer v. Standard Brands Incorporated,^[3] minority [245] stockholders sued to set aside the contested merger or, in the alternative, for damages. They alleged that the merger consideration was so grossly inadequate as to constitute constructive fraud and that Standard Brands breached its fiduciary duty to the minority by failing to set a fair price for their stock. The Court of Chancery held that appraisal was the stockholders' exclusive remedy, and dismissed the complaint. This Court affirmed, but explained that appraisal would not be the exclusive remedy in a short-form merger tainted by fraud or illegality:

[T]he exception [to appraisal's exclusivity]... refers generally to all mergers, and is nothing but a reaffirmation of the ever-present power of equity to deal with illegality or fraud. But it has no bearing here. No illegality or overreaching is shown. The dispute reduces to nothing but a difference of opinion as to value. Indeed it is difficult to imagine a case under the short merger statute in which there could be such actual fraud as would entitle a minority to set aside the merger. This is so because the very purpose of the statute is to provide the parent corporation with a means of eliminating the minority shareholder's interest in the enterprise. Thereafter the former stockholder has only a monetary claim.^[4]

The Stauffer doctrine's viability rose and fell over the next four decades. Its holding on the exclusivity of appraisal took on added significance in 1967, when the long-form merger statute — § 251 — was amended to allow cash-out mergers. In David J. Greene & Co. v. Schenley Industries, Inc.,^[5] the Court of Chancery applied Stauffer to a long-form cash-out merger. Schenley recognized that the corporate fiduciaries had to establish entire fairness, but concluded that fair value was the plaintiff's only real concern and that appraisal was an adequate remedy. The court explained:

While a court of equity should stand ready to prevent corporate fraud and any overreaching by fiduciaries of the rights of stockholders, by the same token this Court should not impede the consummation of an orderly merger under the Delaware statutes, an efficient and fair method having been furnished which permits a judicially protected withdrawal from a merger by a disgruntled stockholder.^[6]

In 1977, this Court started retreating from Stauffer (and Schenley). Singer v. Magnavox Co.^[7] held that a controlling stockholder breaches its fiduciary duty if it effects a cash-out merger under § 251 for the sole purpose of eliminating the minority stockholders. The Singer court distinguished Stauffer as being a case where the only complaint was about the value of the converted shares. Nonetheless, the Court cautioned:

[T]he fiduciary obligation of the majority to the minority stockholders remains and proof of a purpose, other than such freeze-out, without more, will not necessarily discharge it. In such case the Court will scrutinize the circumstances for compliance with the Sterling [v. Mayflower Hotel Corp., Del.Supr., 93 A.2d 107 (1952)] rule of "entire fairness" and, if it finds a violation thereof, will grant such relief as equity may require. Any statement in Stauffer inconsistent herewith is held inapplicable to a § 251 merger.^[8]

[246] Singer's business purpose test was extended to short-form mergers two years later in Roland International Corporation v. Najjar.^[9] The Roland majority wrote:

The short form permitted by § 253 does simplify the steps necessary to effect a merger, and does give a parent corporation some certainty as to result and control as to timing. But we find nothing magic about a 90% ownership of outstanding shares which would eliminate the fiduciary duty owed by the majority to the minority.

* * *

As to Stauffer, we agree that the purpose of § 253 is to provide the parent with a means of eliminating minority shareholders in the subsidiary but, as we observed in Singer, we did "not read the decision [Stauffer] as approving a merger accomplished solely to freeze-out the minority without a valid business purpose." We held that any statement in Stauffer inconsistent with the principles restated in Singer was inapplicable to a § 251 merger. Here we hold that the principles announced in Singer with respect to a § 251 merger apply to a § 253 merger. It follows that any statement in Stauffer inconsistent with that holding is overruled.^[10]

After Roland, there was not much of Stauffer that safely could be considered good law. But that changed in 1983, in Weinberger v. UOP, Inc.,^[11] when the Court dropped the business purpose test, made appraisal a more adequate remedy, and said that it was "return[ing] to the well established principles of Stauffer ... and Schenley ... mandating a stockholder's recourse to the basic remedy of an appraisal."^[12]Weinberger focused on two subjects — the "unflinching" duty of entire fairness owed by self-dealing fiduciaries, and the "more liberalized appraisal" it established.

With respect to entire fairness, the Court explained that the concept includes fair dealing (how the transaction was timed, initiated, structured, negotiated, disclosed and approved) and fair price (all elements of value); and that the test for fairness is not bifurcated. On the subject of appraisal, the Court made several important statements: (i) courts may consider "proof of value by any techniques or methods which are generally considered acceptable in the financial community and otherwise admissible in court....;"^[13] (ii) fair value must be based on "all relevant factors," which include not only "elements of future value ... which are known or susceptible of proof as of the date of the merger"^[14] but also, when the court finds it appropriate, "damages, resulting from the taking, which the stockholders sustain as a class;"^[15] and (iii) "a plaintiff's monetary remedy ordinarily should be confined to the more liberalized appraisal proceeding herein established...."^[16]

By referencing both Stauffer and Schenley, one might have thought that the Weinberger court intended appraisal to be the exclusive remedy "ordinarily" in nonfraudulent [247] mergers where "price ... [is] the preponderant consideration outweighing other features of the merger."^[17] In Rabkin v. Philip A. Hunt Chemical Corp.,^[18] however, the Court dispelled that view. The Rabkin plaintiffs claimed that the majority stockholder breached its fiduciary duty of fair dealing by waiting until a one year commitment to pay $25 per share had expired before effecting a cash-out merger at $20 per share. The Court of Chancery dismissed the complaint, reasoning that, under Weinberger, plaintiffs could obtain full relief for the alleged unfair dealing in an appraisal proceeding. This Court reversed, holding that the trial court read Weinberger too narrowly and that appraisal is the exclusive remedy only if stockholders' complaints are limited to "judgmental factors of valuation."^[19]

Rabkin, through its interpretation of Weinberger, effectively eliminated appraisal as the exclusive remedy for any claim alleging breach of the duty of entire fairness. But Rabkin involved a long-form merger, and the Court did not discuss, in that case or any others, how its refinement of Weinberger impacted short-form mergers. Two of this Court's more recent decisions that arguably touch on the subject are Bershad v. Curtiss-Wright Corp.^[20] and Kahn v. Lynch Communication Systems, Inc.,^[21] both long-form merger cases. In Bershad, the Court included § 253 when it identified statutory merger provisions from which fairness issues flow:

In parent-subsidiary merger transactions the issues are those of fairness — fair price and fair dealing. These flow from the statutory provisions permitting mergers, 8 Del.C. §§ 251-253 (1983), and those designed to ensure fair value by an appraisal, 8 Del.C. § 262 (1983)...;"^[22]

and in Lynch, the Court described entire fairness as the "exclusive" standard of review in a cash-out, parent/subsidiary merger.^[23]

Mindful of this history, we must decide whether a minority stockholder may challenge a short-form merger by seeking equitable relief through an entire fairness claim. Under settled principles, a parent corporation and its directors undertaking a short-form merger are self-dealing fiduciaries who should be required to establish entire fairness, including fair dealing and fair price. The problem is that § 253 authorizes a summary procedure that is inconsistent with any reasonable notion of fair dealing. In a short-form merger, there is no agreement of merger negotiated by two companies; there is only a unilateral act — a decision by the parent company that its 90% owned subsidiary shall no longer exist as a separate entity. The minority stockholders receive no advance notice of the merger; their directors do not consider or approve it; and there is no vote. Those who object are given the right to obtain fair value for their shares through appraisal.

The equitable claim plainly conflicts with the statute. If a corporate fiduciary follows the truncated process authorized by § 253, it will not be able to establish the fair dealing prong of entire fairness. If, instead, the corporate fiduciary sets up negotiating committees, hires independent [248] financial and legal experts, etc., then it will have lost the very benefit provided by the statute — a simple, fast and inexpensive process for accomplishing a merger. We resolve this conflict by giving effect the intent of the General Assembly.^[24] In order to serve its purpose, § 253 must be construed to obviate the requirement to establish entire fairness.^[25]

Thus, we again return to Stauffer, and hold that, absent fraud or illegality, appraisal is the exclusive remedy available to a minority stockholder who objects to a short-form merger. In doing so, we also reaffirm Weinberger's statements about the scope of appraisal. The determination of fair value must be based on all relevant factors, including damages and elements of future value, where appropriate. So, for example, if the merger was timed to take advantage of a depressed market, or a low point in the company's cyclical earnings, or to precede an anticipated positive development, the appraised value may be adjusted to account for those factors. We recognize that these are the types of issues frequently raised in entire fairness claims, and we have held that claims for unfair dealing cannot be litigated in an appraisal.^[26] But our prior holdings simply explained that equitable claims may not be engrafted onto a statutory appraisal proceeding; stockholders may not receive rescissionary relief in an appraisal. Those decisions should not be read to restrict the elements of value that properly may be considered in an appraisal.

Although fiduciaries are not required to establish entire fairness in a short-form merger, the duty of full disclosure remains, in the context of this request for stockholder action.^[27] Where the only choice for the minority stockholders is whether to accept the merger consideration or seek appraisal, they must be given all the factual information that is material to that decision.^[28] The Court of Chancery carefully considered plaintiffs' disclosure claims and applied settled law in rejecting them. We affirm this aspect of the appeal on the basis of the trial court's decision.^[29]

III. Conclusion

Based on the foregoing, we affirm the Court of Chancery and hold that plaintiffs' only remedy in connection with the short-form merger of UXC into Unocal was appraisal.

[1] Del.Supr., 154 A.2d 893 (1959).

[2] Id. at 895.

[3] Del.Supr., 187 A.2d 78 (1962).

[4] 187 A.2d at 80.

[5] Del.Ch., 281 A.2d 30 (1971).

[6] Id. at 36. (Citations omitted.)

[7] Del.Supr., 380 A.2d 969 (1977).

[8] 380 A.2d at 980.

[9] Del.Supr., 407 A.2d 1032 (1979).

[10] 407 A.2d at 1036 (Citations omitted). Justice Quillen dissented, saying that the majority created "an unnecessary damage forum" for a plaintiff whose complaint demonstrated that appraisal would have been an adequate remedy. Id. at 1039-40.

[11] Del.Supr., 457 A.2d 701 (1983).

[12] Id. at 715.

[13] Id. at 713.

[14] Ibid.

[15] Ibid.

[16] Id. at 714.

[17] Id. at 711.

[18] Del.Supr., 498 A.2d 1099 (1985).

[19] 498 A.2d at 1108.

[20] Del.Supr., 535 A.2d 840 (1987).

[21] Del.Supr., 638 A.2d 1110 (1994).

[22] 535 A.2d at 845.

[23] 638 A.2d at 1117.

[24] Klotz v. Warner Communications, Inc., Del. Supr., 674 A.2d 878, 879 (1995).

[25] We do not read Lynch as holding otherwise; this issue was not before the Court in Lynch.

[26] Alabama By-Products Corporation v. Neal, Del.Supr., 588 A.2d 255, 257 (1991).

[27] See: Malone v. Brincat, Del.Supr., 722 A.2d 5 (1998) (No stockholder action was requested, but Court recognized that even in such a case, directors breach duty of loyalty and good faith by knowingly disseminating false information to stockholders.)

[28] McMullin v. Beran, Del.Supr., 765 A.2d 910 (2000).

[29] In Re Unocal Exploration Corporation Shareholders Litigation, Del.Ch., 2001 WL 823376 (2000).

[638] Carmella P. Keener, Esquire, Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware, Peter B. Andrews, Esquire, Nadeem Faruqi, Esquire, Beth A. Keller, Esquire, Faruqi & Faruqi, LLP, Wilmington, Delaware, Carl L. Stine, Esquire (argued) and Matthew Insley-Pruitt, Esquire, Wolf Popper LLP, New York, New York, and James S. Notis, Esquire and Kira German, Esquire, Gardy & Notis, LLP, New York, New York, for appellants.

William M. Lafferty, Esquire, and D. McKinley Measley, Esquire, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, and Tariq Mundiya, Esquire (argued), Todd G. Cosenza, Esquire and Christopher J. Miritello, Esquire, Willkie Farr & Gallagher LLP, New York, New York, for appellees, Paul M. Meister, Martha L. Byorum, Viet D. Dinh and Carl B. Webb.

Thomas J. Allingham, II, Esquire (argued), Christopher M. Foulds, Esquire, Joseph O. Larkin, Esquire, and Jessica L. Raatz, Esquire, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware, for appellees MacAndrews & Forbes Holdings, Inc., Ronald O. Perelman, Barry F. Schwartz, and William C. Bevins.

Stephen P. Lamb, Esquire and Meghan M. Dougherty, Esquire, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wilmington, Delaware, for appellees M & F Worldwide Corp., Bruce Slovin, Charles T. Dawson, Stephen G. Taub, John M. Keane, Theo W. Folz, and Philip E. Beekman.

Before HOLLAND, BERGER, JACOBS and RIDGELY, Justices and JURDEN, Judge,^[1] constituting the Court en Banc.

HOLLAND, Justice:

This is an appeal from a final judgment entered by the Court of Chancery in a proceeding that arises from a 2011 acquisition by MacAndrews & Forbes Holdings, Inc. ("M & F" or "MacAndrews & Forbes") — a 43% stockholder in M & F Worldwide Corp. ("MFW") — of the remaining common stock of MFW (the "Merger"). From the outset, M & F's proposal to take MFW private was made contingent upon two stockholder-protective procedural conditions. First, M & F required the Merger to be negotiated and approved by a special committee of independent MFW directors (the "Special Committee"). Second, M & F required that the Merger be approved by a majority of stockholders unaffiliated with M & F. The Merger closed in December 2011, after it was approved by a vote of 65.4% of MFW's minority stockholders.

The Appellants initially sought to enjoin the transaction. They withdrew their request for injunctive relief after taking expedited discovery, including several depositions. The Appellants then sought post-closing relief against M & F, Ronald O. Perelman, and MFW's directors (including the members of the Special Committee) for breach of fiduciary duty. Again, the Appellants were provided with extensive discovery. The Defendants then moved for [639] summary judgment, which the Court of Chancery granted.

Court of Chancery Decision

The Court of Chancery found that the case presented a "novel question of law," specifically, "what standard of review should apply to a going private merger conditioned upfront by the controlling stockholder on approval by both a properly empowered, independent committee and an informed, uncoerced majority-of-the-minority vote." The Court of Chancery held that business judgment review, rather than entire fairness, should be applied to a very limited category of controller mergers. That category consisted of mergers where the controller voluntarily relinquishes its control — such that the negotiation and approval process replicate those that characterize a third-party merger.

The Court of Chancery held that, rather than entire fairness, the business judgment standard of review should apply "if, but only if: (i) the controller conditions the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee acts with care; (v) the minority vote is informed; and (vi) there is no coercion of the minority."^[2]

The Court of Chancery found that those prerequisites were satisfied and that the Appellants had failed to raise any genuine issue of material fact indicating the contrary. The court then reviewed the Merger under the business judgment standard and granted summary judgment for the Defendants.

Appellants' Arguments

The Appellants raise two main arguments on this appeal. First, they contend that the Court of Chancery erred in concluding that no material disputed facts existed regarding the conditions precedent to business judgment review. The Appellants submit that the record contains evidence showing that the Special Committee was not disinterested and independent, was not fully empowered, and was not effective. The Appellants also contend, as a legal matter, that the majority-of-the-minority provision did not afford MFW stockholders protection sufficient to displace entire fairness review.

Second, the Appellants submit that the Court of Chancery erred, as a matter of law, in holding that the business judgment standard applies to controller freeze-out mergers where the controller's proposal is conditioned on both Special Committee approval and a favorable majority-of-the-minority vote. Even if both procedural protections are adopted, the Appellants argue, entire fairness should be retained as the applicable standard of review.

Defendants' Arguments

The Defendants argue that the judicial standard of review should be the business judgment rule, because the Merger was conditioned ab initio on two procedural protections that together operated to replicate an arm's-length merger: the employment of an active, unconflicted negotiating agent free to turn down the transaction; and a requirement that any transaction negotiated by that agent be approved by a majority of the disinterested stockholders. The Defendants argue that using and establishing pretrial that both protective conditions were extant renders a going private transaction analogous to that of a third-party arm's-length merger under [640] Section 251 of the Delaware General Corporation Law. That is, the Defendants submit that a Special Committee approval in a going private transaction is a proxy for board approval in a third-party transaction, and that the approval of the unaffiliated, noncontrolling stockholders replicates the approval of all the (potentially) adversely affected stockholders.

FACTS

MFW and M & F

MFW is a holding company incorporated in Delaware. Before the Merger that is the subject of this dispute, MFW was 43.4% owned by MacAndrews & Forbes, which in turn is entirely owned by Ronald O. Perelman. MFW had four business segments. Three were owned through a holding company, Harland Clarke Holding Corporation ("HCHC"). They were the Harland Clarke Corporation ("Harland"), which printed bank checks; Harland Clarke Financial Solutions, which provided technology products and services to financial services companies; and Scantron Corporation, which manufactured scanning equipment used for educational and other purposes. The fourth segment, which was not part of HCHC, was Mafco Worldwide Corporation, a manufacturer of licorice flavorings.

The MFW board had thirteen members. They were: Ronald Perelman, Barry Schwartz, William Bevins, Bruce Slovin, Charles Dawson, Stephen Taub, John Keane, Theo Folz, Philip Beekman, Martha Byorum, Viet Dinh, Paul Meister, and Carl Webb. Perelman, Schwartz, and Bevins were officers of both MFW and MacAndrews & Forbes. Perelman was the Chairman of MFW and the Chairman and CEO of MacAndrews & Forbes; Schwartz was the President and CEO of MFW and the Vice Chairman and Chief Administrative Officer of MacAndrews & Forbes; and Bevins was a Vice President at MacAndrews & Forbes.

The Taking MFW Private Proposal

In May 2011, Perelman began to explore the possibility of taking MFW private. At that time, MFW's stock price traded in the $20 to $24 per share range. MacAndrews & Forbes engaged a bank, Moelis & Company, to advise it. After preparing valuations based on projections that had been supplied to lenders by MFW in April and May 2011, Moelis valued MFW at between $10 and $32 a share.

On June 10, 2011, MFW's shares closed on the New York Stock Exchange at $16.96. The next business day, June 13, 2011, Schwartz sent a letter proposal ("Proposal") to the MFW board to buy the remaining MFW shares for $24 in cash. The Proposal stated, in relevant part:

The proposed transaction would be subject to the approval of the Board of Directors of the Company [i.e., MFW] and the negotiation and execution of mutually acceptable definitive transaction documents. It is our expectation that the Board of Directors will appoint a special committee of independent directors to consider our proposal and make a recommendation to the Board of Directors. We will not move forward with the transaction unless it is approved by such a special committee. In addition, the transaction will be subject to a non-waivable condition requiring the approval of a majority of the shares of the Company not owned by M & F or its affiliates ....^[3]

... In considering this proposal, you should know that in our capacity as a stockholder of the Company we are interested [641] only in acquiring the shares of the Company not already owned by us and that in such capacity we have no interest in selling any of the shares owned by us in the Company nor would we expect, in our capacity as a stockholder, to vote in favor of any alternative sale, merger or similar transaction involving the Company. If the special committee does not recommend or the public stockholders of the Company do not approve the proposed transaction, such determination would not adversely affect our future relationship with the Company and we would intend to remain as a long-term stockholder.

. . . .

In connection with this proposal, we have engaged Moelis & Company as our financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as our legal advisor, and we encourage the special committee to retain its own legal and financial advisors to assist it in its review.

MacAndrews & Forbes filed this letter with the U.S. Securities and Exchange Commission ("SEC") and issued a press release disclosing substantially the same information.

The Special Committee Is Formed

The MFW board met the following day to consider the Proposal. At the meeting, Schwartz presented the offer on behalf of MacAndrews & Forbes. Subsequently, Schwartz and Bevins, as the two directors present who were also directors of MacAndrews & Forbes, recused themselves from the meeting, as did Dawson, the CEO of HCHC, who had previously expressed support for the proposed offer.

The independent directors then invited counsel from Willkie Farr & Gallagher — a law firm that had recently represented a Special Committee of MFW's independent directors in a potential acquisition of a subsidiary of MacAndrews & Forbes — to join the meeting. The independent directors decided to form the Special Committee, and resolved further that:

[T]he Special Committee is empowered to: (i) make such investigation of the Proposal as the Special Committee deems appropriate; (ii) evaluate the terms of the Proposal; (iii) negotiate with Holdings [i.e., MacAndrews & Forbes] and its representatives any element of the Proposal; (iv) negotiate the terms of any definitive agreement with respect to the Proposal (it being understood that the execution thereof shall be subject to the approval of the Board); (v) report to the Board its recommendations and conclusions with respect to the Proposal, including a determination and recommendation as to whether the Proposal is fair and in the best interests of the stockholders of the Company other than Holdings and its affiliates and should be approved by the Board; and (vi) determine to elect not to pursue the Proposal....^[4]

. . . .

... [T]he Board shall not approve the Proposal without a prior favorable recommendation of the Special Committee....

... [T]he Special Committee [is] empowered to retain and employ legal counsel, a financial advisor, and such other agents as the Special Committee shall deem necessary or desirable in connection with these matters....

The Special Committee consisted of Byorum, Dinh, Meister (the chair), Slovin, and Webb. The following day, Slovin recused himself because, although the MFW [642] board had determined that he qualified as an independent director under the rules of the New York Stock Exchange, he had "some current relationships that could raise questions about his independence for purposes of serving on the Special Committee."

ANALYSIS

What Should Be The Review Standard?

Where a transaction involving self-dealing by a controlling stockholder is challenged, the applicable standard of judicial review is "entire fairness," with the defendants having the burden of persuasion.^[5] In other words, the defendants bear the ultimate burden of proving that the transaction with the controlling stockholder was entirely fair to the minority stockholders. In Kahn v. Lynch Communication Systems, Inc.,^[6] however, this Court held that in "entire fairness" cases, the defendants may shift the burden of persuasion to the plaintiff if either (1) they show that the transaction was approved by a well-functioning committee of independent directors; or (2) they show that the transaction was approved by an informed vote of a majority of the minority stockholders.^[7]

This appeal presents a question of first impression: what should be the standard of review for a merger between a controlling stockholder and its subsidiary, where the merger is conditioned ab initio upon the approval of both an independent, adequately-empowered Special Committee that fulfills its duty of care, and the uncoerced, informed vote of a majority of the minority stockholders. The question has never been put directly to this Court.

Almost two decades ago, in Kahn v. Lynch, we held that the approval by either a Special Committee or the majority of the noncontrolling stockholders of a merger with a buying controlling stockholder would shift the burden of proof under the entire fairness standard from the defendant to the plaintiff.^[8]Lynch did not involve a merger conditioned by the controlling stockholder on both procedural protections. The Appellants submit, nonetheless, that statements in Lynch and its progeny could be (and were) read to suggest that even if both procedural protections were used, the standard of review would remain entire fairness. However, in Lynch and the other cases that Appellants cited, Southern Peru and Kahn v. Tremont, the controller did not give up its voting power by agreeing to a non-waivable majority-of-the-minority condition.^[9] That is the vital distinction between those cases and this one. The question is what the legal consequence of that distinction should be in these circumstances.

The Court of Chancery held that the consequence should be that the business judgment standard of review will govern going private mergers with a controlling stockholder that are conditioned ab initio upon (1) the approval of an independent and fully-empowered Special Committee that fulfills its duty of care and (2) the uncoerced, informed vote of the majority of the minority stockholders.

[643] The Court of Chancery rested its holding upon the premise that the common law equitable rule that best protects minority investors is one that encourages controlling stockholders to accord the minority both procedural protections. A transactional structure subject to both conditions differs fundamentally from a merger having only one of those protections, in that:

By giving controlling stockholders the opportunity to have a going private transaction reviewed under the business judgment rule, a strong incentive is created to give minority stockholders much broader access to the transactional structure that is most likely to effectively protect their interests.... That structure, it is important to note, is critically different than a structure that uses only one of the procedural protections. The "or" structure does not replicate the protections of a third-party merger under the DGCL approval process, because it only requires that one, and not both, of the statutory requirements of director and stockholder approval be accomplished by impartial decisionmakers. The "both" structure, by contrast, replicates the arm's-length merger steps of the DGCL by "requir[ing] two independent approvals, which it is fair to say serve independent integrity-enforcing functions."^[10]

Before the Court of Chancery, the Appellants acknowledged that "this transactional structure is the optimal one for minority shareholders." Before us, however, they argue that neither procedural protection is adequate to protect minority stockholders, because "possible ineptitude and timidity of directors" may undermine the special committee protection, and because majority-of-the-minority votes may be unduly influenced by arbitrageurs that have an institutional bias to approve virtually any transaction that offers a market premium, however insubstantial it may be. Therefore, the Appellants claim, these protections, even when combined, are not sufficient to justify "abandon[ing]" the entire fairness standard of review.

With regard to the Special Committee procedural protection, the Appellants' assertions regarding the MFW directors' inability to discharge their duties are not supported either by the record or by well-established principles of Delaware law. As the Court of Chancery correctly observed:

Although it is possible that there are independent directors who have little regard for their duties or for being perceived by their company's stockholders (and the larger network of institutional investors) as being effective at protecting public stockholders, the court thinks they are likely to be exceptional, and certainly our Supreme Court's jurisprudence does not embrace such a skeptical view.

Regarding the majority-of-the-minority vote procedural protection, as the Court of Chancery noted, "plaintiffs themselves do not argue that minority stockholders will vote against a going private transaction because of fear of retribution." Instead, as the Court of Chancery summarized, the Appellants' argued as follows:

[Plaintiffs] just believe that most investors like a premium and will tend to vote for a deal that delivers one and that many long-term investors will sell out when they can obtain most of the premium without waiting for the ultimate vote. But that argument is not one that suggests that the voting decision is not voluntary, it is simply an editorial about [644] the motives of investors and does not contradict the premise that a majority-of-the-minority condition gives minority investors a free and voluntary opportunity to decide what is fair for themselves.

Business Judgment Review Standard Adopted

We hold that business judgment is the standard of review that should govern mergers between a controlling stockholder and its corporate subsidiary, where the merger is conditioned ab initio upon both the approval of an independent, adequately-empowered Special Committee that fulfills its duty of care; and the uncoerced, informed vote of a majority of the minority stockholders. We so conclude for several reasons.

First, entire fairness is the highest standard of review in corporate law. It is applied in the controller merger context as a substitute for the dual statutory protections of disinterested board and stockholder approval, because both protections are potentially undermined by the influence of the controller. However, as this case establishes, that undermining influence does not exist in every controlled merger setting, regardless of the circumstances. The simultaneous deployment of the procedural protections employed here create a countervailing, offsetting influence of equal — if not greater — force. That is, where the controller irrevocably and publicly disables itself from using its control to dictate the outcome of the negotiations and the shareholder vote, the controlled merger then acquires the shareholder-protective characteristics of third-party, arm's-length mergers, which are reviewed under the business judgment standard.

Second, the dual procedural protection merger structure optimally protects the minority stockholders in controller buyouts. As the Court of Chancery explained:

[W]hen these two protections are established up-front, a potent tool to extract good value for the minority is established. From inception, the controlling stockholder knows that it cannot bypass the special committee's ability to say no. And, the controlling stockholder knows it cannot dangle a majority-of-the-minority vote before the special committee late in the process as a deal-closer rather than having to make a price move.

Third, and as the Court of Chancery reasoned, applying the business judgment standard to the dual protection merger structure:

... is consistent with the central tradition of Delaware law, which defers to the informed decisions of impartial directors, especially when those decisions have been approved by the disinterested stockholders on full information and without coercion. Not only that, the adoption of this rule will be of benefit to minority stockholders because it will provide a strong incentive for controlling stockholders to accord minority investors the transactional structure that respected scholars believe will provide them the best protection, a structure where stockholders get the benefits of independent, empowered negotiating agents to bargain for the best price and say no if the agents believe the deal is not advisable for any proper reason, plus the critical ability to determine for themselves whether to accept any deal that their negotiating agents recommend to them. A transactional structure with both these protections is fundamentally different from one with only one protection.^[11]

Fourth, the underlying purposes of the dual protection merger structure utilized [645] here and the entire fairness standard of review both converge and are fulfilled at the same critical point: price. Following Weinberger v. UOP, Inc., this Court has consistently held that, although entire fairness review comprises the dual components of fair dealing and fair price, in a non-fraudulent transaction "price may be the preponderant consideration outweighing other features of the merger."^[12] The dual protection merger structure requires two price-related pretrial determinations: first, that a fair price was achieved by an empowered, independent committee that acted with care;^[13] and, second, that a fully-informed, uncoerced majority of the minority stockholders voted in favor of the price that was recommended by the independent committee.

The New Standard Summarized

To summarize our holding, in controller buyouts, the business judgment standard of review will be applied if and only if: (i) the controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders; (ii) the Special Committee is independent; (iii) the Special Committee is empowered to freely select its own advisors and to say no definitively; (iv) the Special Committee meets its duty of care in negotiating a fair price; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority.^[14]

If a plaintiff that can plead a reasonably conceivable set of facts showing that any or all of those enumerated conditions did not exist, that complaint would state a claim for relief that would entitle the plaintiff to proceed and conduct discovery.^[15] If, after discovery, triable issues of fact remain about whether either or both of the dual procedural protections were [646] established, or if established were effective, the case will proceed to a trial in which the court will conduct an entire fairness review.^[16]

This approach is consistent with Weinberger, Lynch and their progeny. A controller that employs and/or establishes only one of these dual procedural protections would continue to receive burden-shifting within the entire fairness standard of review framework. Stated differently, unless both procedural protections for the minority stockholders are established prior to trial, the ultimate judicial scrutiny of controller buyouts will continue to be the entire fairness standard of review.^[17]

Having articulated the circumstances that will enable a controlled merger to be reviewed under the business judgment standard, we next address whether those circumstances have been established as a matter of undisputed fact and law in this case.

Dual Protection Inquiry

To reiterate, in this case, the controlling stockholder conditioned its offer upon the MFW Board agreeing, ab initio, to both procedural protections, i.e., approval by a Special Committee and by a majority of the minority stockholders. For the combination of an effective committee process and majority-of-the-minority vote to qualify (jointly) for business judgment review, each of these protections must be effective singly to warrant a burden shift.

We begin by reviewing the record relating to the independence, mandate, and process of the Special Committee. In Kahn v. Tremont Corp., this Court held that "[t]o obtain the benefit of burden shifting, the controlling stockholder must do more than establish a perfunctory special committee of outside directors."^[18]

Rather, the special committee must "function in a manner which indicates that the controlling stockholder did not dictate the terms of the transaction and that the committee exercised real bargaining power `at an arms-length.'"^[19] As we have previously noted, deciding whether an independent committee was effective in negotiating a price is a process so fact-intensive and inextricably intertwined with the merits of an entire fairness review (fair dealing and fair price) that a pretrial determination of burden shifting is often impossible.^[20] Here, however, the Defendants have successfully established a record of independent committee effectiveness and process that warranted a grant of summary judgment entitling them to a burden shift prior to trial.

We next analyze the efficacy of the majority-of-the-minority vote, and we conclude that it was fully informed and not coerced. That is, the Defendants also established a pretrial majority-of-the-minority vote record that constitutes an independent [647] and alternative basis for shifting the burden of persuasion to the Plaintiffs.

The Special Committee Was Independent

The Appellants do not challenge the independence of the Special Committee's Chairman, Meister. They claim, however, that the three other Special Committee members — Webb, Dinh, and Byorum — were beholden to Perelman because of their prior business and/or social dealings with Perelman or Perelman-related entities.

The Appellants first challenge the independence of Webb. They urged that Webb and Perelman shared a "longstanding and lucrative business partnership" between 1983 and 2002 which included acquisitions of thrifts and financial institutions, and which led to a 2002 asset sale to Citibank in which Webb made "a significant amount of money." The Court of Chancery concluded, however, that the fact of Webb having engaged in business dealings with Perelman nine years earlier did not raise a triable fact issue regarding his ability to evaluate the Merger impartially.^[21] We agree.

Second, the Appellants argued that there were triable issues of fact regarding Dinh's independence. The Appellants demonstrated that between 2009 and 2011, Dinh's law firm, Bancroft PLLC, advised M & F and Scientific Games (in which M & F owned a 37.6% stake), during which time the Bancroft firm earned $200,000 in fees. The record reflects that Bancroft's limited prior engagements, which were inactive by the time the Merger proposal was announced, were fully disclosed to the Special Committee soon after it was formed. The Court of Chancery found that the Appellants failed to proffer any evidence to show that compensation received by Dinh's law firm was material to Dinh, in the sense that it would have influenced his decisionmaking with respect to the M & F proposal.^[22] The only evidence of record, the Court of Chancery concluded, was that these fees were "de minimis" and that the Appellants had offered no contrary evidence that would create a genuine issue of material fact.^[23]

The Court of Chancery also found that the relationship between Dinh, a Georgetown University Law Center professor, and M & F's Barry Schwartz, who sits on the Georgetown Board of Visitors, did not create a triable issue of fact as to Dinh's independence. No record evidence suggested that Schwartz could exert influence on Dinh's position at Georgetown based on his recommendation regarding the Merger. Indeed, Dinh had earned tenure as a professor at Georgetown before he ever knew Schwartz.

The Appellants also argue that Schwartz's later invitation to Dinh to join [648] the board of directors of Revlon, Inc. "illustrates the ongoing personal relationship between Schwartz and Dinh." There is no record evidence that Dinh expected to be asked to join Revlon's board at the time he served on the Special Committee. Moreover, the Court of Chancery noted, Schwartz's invitation for Dinh to join the Revlon board of directors occurred months after the Merger was approved and did not raise a triable fact issue concerning Dinh's independence from Perelman. We uphold the Court of Chancery's findings relating to Dinh.

Third, the Appellants urge that issues of material fact permeate Byorum's independence and, specifically, that Byorum "had a business relationship with Perelman from 1991 to 1996 through her executive position at Citibank." The Court of Chancery concluded, however, the Appellants presented no evidence of the nature of Byorum's interactions with Perelman while she was at Citibank. Nor was there evidence that after 1996 Byorum had an ongoing economic relationship with Perelman that was material to her in any way. Byorum testified that any interactions she had with Perelman while she was at Citibank resulted from her role as a senior executive, because Perelman was a client of the bank at the time. Byorum also testified that she had no business relationship with Perelman between 1996 and 2007, when she joined the MFW Board.

The Appellants also contend that Byorum performed advisory work for Scientific Games in 2007 and 2008 as a senior managing director of Stephens Cori Capital Advisors ("Stephens Cori"). The Court of Chancery found, however, that the Appellants had adduced no evidence tending to establish that the $100,000 fee Stephens Cori received for that work was material to either Stephens Cori or to Byorum personally.^[24] Stephens Cori's engagement for Scientific Games, which occurred years before the Merger was announced and the Special Committee was convened, was fully disclosed to the Special Committee, which concluded that "it was not material, and it would not represent a conflict."^[25] We uphold the Court of Chancery's findings relating to Byorum as well.

To evaluate the parties' competing positions on the issue of director independence, the Court of Chancery applied well-established Delaware legal principles.^[26] To show that a director is not independent, a plaintiff must demonstrate that the director is "beholden" to the controlling party [649] "or so under [the controller's] influence that [the director's] discretion would be sterilized."^[27] Bare allegations that directors are friendly with, travel in the same social circles as, or have past business relationships with the proponent of a transaction or the person they are investigating are not enough to rebut the presumption of independence.^[28]

A plaintiff seeking to show that a director was not independent must satisfy a materiality standard. The court must conclude that the director in question had ties to the person whose proposal or actions he or she is evaluating that are sufficiently substantial that he or she could not objectively discharge his or her fiduciary duties.^[29] Consistent with that predicate materiality requirement, the existence of some financial ties between the interested party and the director, without more, is not disqualifying. The inquiry must be whether, applying a subjective standard, those ties were material, in the sense that the alleged ties could have affected the impartiality of the individual director.^[30]

The Appellants assert that the materiality of any economic relationships the Special Committee members may have had with Mr. Perelman "should not be decided on summary judgment." But Delaware courts have often decided director independence as a matter of law at the summary judgment stage.^[31] In this case, the Court of Chancery noted, that despite receiving extensive discovery, the Appellants did "nothing ... to compare the actual circumstances of the [challenged directors] to the ties [they] contend affect their impartiality" and "fail[ed] to proffer any real evidence of their economic circumstances."

The Appellants could have, but elected not to, submit any Rule 56 affidavits, either factual or expert, in response to the Defendants' summary judgment motion. The Appellants argue that they were entitled to wait until trial to proffer evidence compromising the Special Committee's independence. That argument misapprehends how Rule 56 operates.^[32] Court of Chancery Rule 56 states that "the adverse [non-moving] party's response, by affidavits or as otherwise provided in this rule, [650] must set forth specific facts showing that there is a genuine issue for trial."^[33]

The Court of Chancery found that to the extent the Appellants claimed the Special Committee members, Webb, Dinh, and Byorum, were beholden to Perelman based on prior economic relationships with him, the Appellants never developed or proffered evidence showing the materiality of those relationships:

Despite receiving the chance for extensive discovery, the plaintiffs have done nothing ... to compare the actual economic circumstances of the directors they challenge to the ties the plaintiffs contend affect their impartiality. In other words, the plaintiffs have ignored a key teaching of our Supreme Court, requiring a showing that a specific director's independence is compromised by factors material to her. As to each of the specific directors the plaintiffs challenge, the plaintiffs fail to proffer any real evidence of their economic circumstances.

The record supports the Court of Chancery's holding that none of the Appellants' claims relating to Webb, Dinh or Byorum raised a triable issue of material fact concerning their individual independence or the Special Committee's collective independence.^[34]

The Special Committee Was Empowered

It is undisputed that the Special Committee was empowered to hire its own legal and financial advisors, and it retained Willkie Farr & Gallagher LLP as its legal advisor. After interviewing four potential financial advisors, the Special Committee engaged Evercore Partners ("Evercore"). The qualifications and independence of Evercore and Willkie Farr & Gallagher LLP are not contested.

Among the powers given the Special Committee in the board resolution was the authority to "report to the Board its recommendations and conclusions with respect to the [Merger], including a determination and recommendation as to whether the Proposal is fair and in the best interests of the stockholders...." The Court of Chancery also found that it was "undisputed that the [S]pecial [C]ommittee was empowered not simply to `evaluate' the offer, like some special committees with weak mandates, but to negotiate with [M & F] over the terms of its offer to buy out the noncontrolling stockholders.^[35] This negotiating power was accompanied by the clear authority to say no definitively to [M & F]" and to "make that decision stick." MacAndrews & Forbes promised that it would not proceed with any going private proposal that did not have the support of the Special Committee. Therefore, the Court of Chancery concluded, "the MFW committee did not have to fear that if it bargained too hard, MacAndrews & Forbes could bypass the committee and make a tender offer directly to the minority stockholders."

[651] The Court of Chancery acknowledged that even though the Special Committee had the authority to negotiate and "say no," it did not have the authority, as a practical matter, to sell MFW to other buyers. MacAndrews & Forbes stated in its announcement that it was not interested in selling its 43% stake. Moreover, under Delaware law, MacAndrews & Forbes had no duty to sell its block, which was large enough, again as a practical matter, to preclude any other buyer from succeeding unless MacAndrews & Forbes decided to become a seller. Absent such a decision, it was unlikely that any potentially interested party would incur the costs and risks of exploring a purchase of MFW.

Nevertheless, the Court of Chancery found, "this did not mean that the MFW Special Committee did not have the leeway to get advice from its financial advisor about the strategic options available to MFW, including the potential interest that other buyers might have if MacAndrews & Forbes was willing to sell."^[36] The undisputed record shows that the Special Committee, with the help of its financial advisor, did consider whether there were other buyers who might be interested in purchasing MFW, and whether there were other strategic options, such as asset divestitures, that might generate more value for minority stockholders than a sale of their stock to MacAndrews & Forbes.

The Special Committee Exercised Due Care

The Special Committee insisted from the outset that MacAndrews (including any "dual" employees who worked for both MFW and MacAndrews) be screened off from the Special Committee's process, to ensure that the process replicated arm's-length negotiations with a third party. In order to carefully evaluate M & F's offer, the Special Committee held a total of eight meetings during the summer of 2011.

From the outset of their work, the Special Committee and Evercore had projections that had been prepared by MFW's business segments in April and May 2011. Early in the process, Evercore and the Special Committee asked MFW management to produce new projections that reflected management's most up-to-date, and presumably most accurate, thinking. Consistent with the Special Committee's determination to conduct its analysis free of any MacAndrews influence, MacAndrews — including "dual" MFW/MacAndrews executives who normally vetted MFW projections — were excluded from the process of preparing the updated financial projections. Mafco, the licorice business, advised Evercore that all of its projections would remain the same. Harland Clarke updated its projections. On July 22, 2011, Evercore received new projections from HCHC, which incorporated the updated projections from Harland Clarke. Evercore then constructed a valuation model based upon all of these updated projections.

The updated projections, which formed the basis for Evercore's valuation analyses, reflected MFW's deteriorating results, especially in Harland's check-printing business. Those projections forecast EBITDA for MFW of $491 million in 2015, as opposed to $535 million under the original projections.

On August 10, Evercore produced a range of valuations for MFW, based on the updated projections, of $15 to $45 per share. Evercore valued MFW using a variety of accepted methods, including a discounted cash flow ("DCF") model. Those valuations generated a range of fair value of $22 to $38 per share, and a premiums [652] paid analysis resulted in a value range of $22 to $45. MacAndrews & Forbes's $24 offer fell within the range of values produced by each of Evercore's valuation techniques.

Although the $24 Proposal fell within the range of Evercore's fair values, the Special Committee directed Evercore to conduct additional analyses and explore strategic alternatives that might generate more value for MFW's stockholders than might a sale to MacAndrews. The Special Committee also investigated the possibility of other buyers, e.g., private equity buyers, that might be interested in purchasing MFW. In addition, the Special Committee considered whether other strategic options, such as asset divestitures, could achieve superior value for MFW's stockholders. Mr. Meister testified, "The Committee made it very clear to Evercore that we were interested in any and all possible avenues of increasing value to the stockholders, including meaningful expressions of interest for meaningful pieces of the business."

The Appellants insist that the Special Committee had "no right to solicit alternative bids, conduct any sort of market check, or even consider alternative transactions." But the Special Committee did just that, even though MacAndrews' stated unwillingness to sell its MFW stake meant that the Special Committee did not have the practical ability to market MFW to other buyers. The Court of Chancery properly concluded that despite the Special Committee's inability to solicit alternative bids, it could seek Evercore's advice about strategic alternatives, including values that might be available if MacAndrews was willing to sell.

Although the MFW Special Committee considered options besides the M & F Proposal, the Committee's analysis of those alternatives proved they were unlikely to achieve added value for MFW's stockholders. The Court of Chancery summarized the performance of the Special Committee as follows:

[t]he special committee did consider, with the help of its financial advisor, whether there were other buyers who might be interested in purchasing MFW, and whether there were other strategic options, such as asset divestitures, that might generate more value for minority stockholders than a sale of their stock to MacAndrews & Forbes.

On August 18, 2011, the Special Committee rejected the $24 a share Proposal, and countered at $30 per share. The Special Committee characterized the $30 counteroffer as a negotiating position. The Special Committee recognized that $30 per share was a very aggressive counteroffer and, not surprisingly, was prepared to accept less.

On September 9, 2011, MacAndrews & Forbes rejected the $30 per share counteroffer. Its representative, Barry Schwartz, told the Special Committee Chair, Paul Meister, that the $24 per share Proposal was now far less favorable to MacAndrews & Forbes — but more attractive to the minority — than when it was first made, because of continued declines in MFW's businesses. Nonetheless, MacAndrews & Forbes would stand behind its $24 offer. Meister responded that he would not recommend the $24 per share Proposal to the Special Committee. Later, after having discussions with Perelman, Schwartz conveyed MacAndrews's "best and final" offer of $25 a share.

At a Special Committee meeting the next day, Evercore opined that the $25 per share price was fair based on generally accepted valuation methodologies, including DCF and comparable companies analyses. At its eighth and final meeting on [653] September 10, 2011, the Special Committee, although empowered to say "no," instead unanimously approved and agreed to recommend the Merger at a price of $25 per share.

Influencing the Special Committee's assessment and acceptance of M & F's $25 a share price were developments in both MFW's business and the broader United States economy during the summer of 2011. For example, during the negotiation process, the Special Committee learned of the underperformance of MFW's Global Scholar business unit. The Committee also considered macroeconomic events, including the downgrade of the United States' bond credit rating, and the ongoing turmoil in the financial markets, all of which created financing uncertainties.

In scrutinizing the Special Committee's execution of its broad mandate, the Court of Chancery determined there was no "evidence indicating that the independent members of the special committee did not meet their duty of care...." To the contrary, the Court of Chancery found, the Special Committee "met frequently and was presented with a rich body of financial information relevant to whether and at what price a going private transaction was advisable." The Court of Chancery ruled that "the plaintiffs d[id] not make any attempt to show that the MFW Special Committee failed to meet its duty of care...." Based on the undisputed record, the Court of Chancery held that, "there is no triable issue of fact regarding whether the [S]pecial [C]ommittee fulfilled its duty of care." In the context of a controlling stockholder merger, a pretrial determination that the price was negotiated by an empowered independent committee that acted with care would shift the burden of persuasion to the plaintiffs under the entire fairness standard of review.^[37]

Majority of Minority Stockholder Vote

We now consider the second procedural protection invoked by M & F — the majority-of-the-minority stockholder vote.^[38] Consistent with the second condition imposed by M & F at the outset, the Merger was then put before MFW's stockholders for a vote. On November 18, 2011, the stockholders were provided with a proxy statement, which contained the history of the Special Committee's work and recommended that they vote in favor of the transaction at a price of $25 per share.

The proxy statement disclosed, among other things, that the Special Committee had countered M & F's initial $24 per share offer at $30 per share, but only was able to achieve a final offer of $25 per share. The proxy statement disclosed that the MFW business divisions had discussed with Evercore whether the initial projections Evercore received reflected management's latest thinking. It also disclosed that the updated projections were lower. The proxy statement also included the five separate price ranges for the value of MFW's stock that Evercore had generated with its different valuation analyses.

Knowing the proxy statement's disclosures of the background of the Special Committee's work, of Evercore's valuation ranges, and of the analyses supporting [654] Evercore's fairness opinion, MFW's stockholders — representing more than 65% of the minority shares — approved the Merger. In the controlling stockholder merger context, it is settled Delaware law that an uncoerced, informed majority-of-the-minority vote, without any other procedural protection, is itself sufficient to shift the burden of persuasion to the plaintiff under the entire fairness standard of review.^[39] The Court of Chancery found that "the plaintiffs themselves do not dispute that the majority-of-the-minority vote was fully informed and uncoerced, because they fail to allege any failure of disclosure or any act of coercion."

Both Procedural Protections Established

Based on a highly extensive record,^[40] the Court of Chancery concluded that the procedural protections upon which the Merger was conditioned — approval by an independent and empowered Special Committee and by a uncoerced informed majority of MFW's minority stockholders — had both been undisputedly established prior to trial. We agree and conclude the Defendants' motion for summary judgment was properly granted on all of those issues.

Business Judgment Review Properly Applied

We have determined that the business judgment rule standard of review applies to this controlling stockholder buyout. Under that standard, the claims against the Defendants must be dismissed unless no rational person could have believed that the merger was favorable to MFW's minority stockholders.^[41] In this case, it cannot be credibly argued (let alone concluded) that no rational person would find the Merger favorable to MFW's minority stockholders.

Conclusion

For the above-stated reasons, the judgment of the Court of Chancery is affirmed.

[1] Sitting by designation pursuant to Del. Const. art. IV, § 12 and Supr. Ct. R. 2 and 4.

[2] Emphasis by the Court of Chancery.

[3] Emphasis added.

[4] Emphasis added.

[5] Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997); Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del.1983); see also Rosenblatt v. Getty Oil Co., 493 A.2d 929, 937 (Del. 1985).

[6] Kahn v. Lynch Comc'n Sys., Inc., 638 A.2d 1110 (Del. 1994).

[7] See id. at 1117 (citation omitted).

[8] Kahn v. Lynch Commc'n Sys. (Lynch I), 638 A.2d 1110, 1117 (Del.1994).

[9] Id.; Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1234 (Del.2012); Kahn v. Tremont Corp., 694 A.2d 422, 428 (Del. 1997).

[10] In re MFW Shareholders Litigation, 67 A.3d 496, 528 (Del.Ch.2013) (citing In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 604, 618 (Del.Ch.2005)).

[11] Emphasis added.

[12] Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983).

[13] In Americas Mining, for example, it was not possible to make a pretrial determination that the independent committee had negotiated a fair price. After an entire fairness trial, the Court of Chancery held that the price was not fair. See Ams. Mining. Corp. v. Theriault, 51 A.3d 1213, 1241-44 (Del.2012).

[14] The Verified Consolidated Class Action Complaint would have survived a motion to dismiss under this new standard. First, the complaint alleged that Perelman's offer "value[d] the company at just four times" MFW's profits per share and "five times 2010 pre-tax cash flow," and that these ratios were "well below" those calculated for recent similar transactions. Second, the complaint alleged that the final Merger price was two dollars per share lower than the trading price only about two months earlier. Third, the complaint alleged particularized facts indicating that MWF's share price was depressed at the times of Perelman's offer and the Merger announcement due to short-term factors such as MFW's acquisition of other entities and Standard & Poor's downgrading of the United States' creditworthiness. Fourth, the complaint alleged that commentators viewed both Perelman's initial $24 per share offer and the final $25 per share Merger price as being surprisingly low. These allegations about the sufficiency of the price call into question the adequacy of the Special Committee's negotiations, thereby necessitating discovery on all of the new prerequisites to the application of the business judgment rule.

[15] Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings LLC, 27 A.3d 531, 536-37 (Del.2011). See also Winshall v. Viacom Int'l, Inc., 76 A.3d 808 (Del.2013); White v. Panic, 783 A.2d 543, 549 n. 15 (Del.2001) (We have emphasized on several occasions that stockholder "[p]laintiffs may well have the `tools at hand' to develop the necessary facts for pleading purposes," including the inspection of the corporation's books and records under Del. Code Ann. tit. 8, § 220. There is also a variety of public sources from which the details of corporate act actions may be discovered, including governmental agencies such as the U.S. Securities and Exchange Commission.).

[16] Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1240-41 (Del.2012).

[17] Id. at 1241.

[18] Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 1997) (citation omitted). See Emerald Partners v. Berlin, 726 A.2d 1215, 1222-23 (Del. 1999) (describing that the special committee must exert "real bargaining power" in order for defendants to obtain a burden shift); see also Beam v. Stewart, 845 A.2d 1040, 1055 n. 45 (Del.2004) (citing Kahn v. Tremont Corp., 694 A.2d 422, 429-30 (Del. 1997)) (noting that the test articulated in Tremont requires a determination as to whether the committee members "in fact" functioned independently).

[19] Kahn v. Tremont Corp., 694 A.2d at 429 (citation omitted).

[20] Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del.2012).

[21] Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1051 (Del.2004) ("Allegations that [the controller] and the other directors ... developed business relationships before joining the board... are insufficient, without more, to rebut the presumption of independence.").

[22] See In re Gaylord Container Corp. S'holder Litig., 753 A.2d 462, 465 n. 3 (Del.Ch.2000) (no issue of fact concerning director's independence where director's law firm "has, over the years, done some work" for the company because plaintiffs did not provide evidence showing that the director "had a material financial interest" in the representation).

[23] See Ct. Ch. R. 56(e) ("An adverse party may not rest upon the mere allegations or denials in the adverse party's pleading, but the adverse party's response, by affidavits or otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial.").

[24] The Court of Chancery observed that Stephens Cori's fee from the Scientific Games engagement was "only one tenth of the $1 million that Stephens Cori would have had to have received for Byroum not to be considered independent under NYSE rules."

[25] Although the Appellants note that Stephens Cori did some follow-up work for Scientific Games in 2011, it is undisputed that work was also fully disclosed to the Special Committee, and that Stephens Cori did not receive any additional compensation as a result.

[26] The record does not support the Appellants' contention that that the Court of Chancery "relied heavily" on New York Stock Exchange ("NYSE") rules in assessing the independence of the Special Committee, and that the application of such rules "goes against longstanding Delaware precedent." The Court of Chancery explicitly acknowledged that directors' compliance with NYSE independence standards "does not mean that they are necessarily independent under [Delaware] law in particular circumstances." The record reflects that the Court of Chancery discussed NYSE standards on director independence for illustrative purposes. See, e.g., In re J.P. Morgan Chase & Co. S'holder Litig., 906 A.2d 808, 823-24 (Del.Ch.2005). However, the Court of Chancery's factual and legal determinations regarding the Special Committee's independence were premised on settled Delaware law. Id. at 824.

[27] Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993) (citing Aronson v. Lewis, 473 A.2d 805, 815 (Del.1984)).

[28] Beam ex rel. Martha Stewart Living Omnimedia v. Stewart, 845 A.2d 1040, 1051-52 (Del.2004).

[29] Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167 (Del.1995) ("[A] shareholder plaintiff [must] show the materiality of a director's self-interest to the ... director's independence....") (citation omitted); see Brehm v. Eisner, 746 A.2d 244, 259 n. 49 (Del.2000) ("The term `material' is used in this context to mean relevant and of a magnitude to be important to directors in carrying out their fiduciary duty of care in decisionmaking.").

[30] See Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156 (Del.1995) (adopting a subjective standard for determining an individual director's financial self-interest). See also, Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del.1993) (affirming Court of Chancery's requirement that "a shareholder show ... the materiality of a director's self-interest to the given director's independence" as a "restatement of established Delaware law"); see also, e.g., Grimes v. Donald, 673 A.2d 1207, 1216 (Del. 1996) (stating, in the context of demand futility, that a stockholder must show that "a majority of the board has a material financial or familial interest" (emphasis added and citation omitted)).

[31] See, e.g., In re Transkaryotic Therapies, Inc., 954 A.2d 346, 369-70 (Del.Ch.2008) (no issue of material fact concerning directors' alleged conflict of loyalty); In re Gaylord Container Corp. S'holder Litig., 753 A.2d 462, 465 (Del. Ch.2000) (concluding that directors were independent on a motion for summary judgment).

[32] In re Gaylord Container Corp. S'holder Litig., 753 A.2d at 465 n. 3.

[33] See also Burkhart v. Davies, 602 A.2d 56, 59 (Del. 1991) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)).

[34] See In re W. Nat'l Corp. S'holders Litig., 2000 WL 710192, at *6 (Del.Ch. May 22, 2000) (to survive summary judgment, nonmoving party "must affirmatively state facts — not guesses, innuendo, or unreasonable inferences....").

[35] See, e.g., Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1244-46 (Del.2012) (noting that a special committee that could only "evaluate" an offer had a "narrow mandate"); Brinckerhoff v. Tex. E. Prods. Pipeline Co., LLC, 986 A.2d 370, 381 (Del.Ch.2010) (observing that a special committee should have the mandate to "review, evaluate, negotiate, and to recommend, or reject, a proposed merger").

[36] Emphasis added.

[37] Kahn v. Lynch Commc'n Sys. (Lynch I), 638 A.2d 1110, 1117 (Del.1994).

[38] The MFW board discussed the Special Committee's recommendation to accept the $25 a share offer. The three directors affiliated with MacAndrews & Forbes, Perelman, Schwartz, and Bevins, and the CEOs of HCHC and Mafco, Dawson and Taub, recused themselves from the discussions. The remaining eight directors voted unanimously to recommend the $25 a share offer to the stockholders.

[39] Rosenblatt v. Getty Oil Co., 493 A.2d 929, 937 (Del.1985).

[40] The Appellants received more than 100,000 pages of documents, and deposed all four Special Committee members, their financial advisors, and senior executives of MacAndrews and MFW. After eighteen months of discovery, the Court of Chancery found that the Appellants offered no evidence to create a triable issue of fact with regard to: (1) the Special Committee's independence; (2) the Special Committee's power to retain independent advisors and to say no definitively; (3) the Special Committee's due care in approving the Merger; (4) whether the majority-of-the-minority vote was fully informed; and (5) whether the minority vote was uncoerced.

[41] E.g., In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del.2006) ("[W]here business judgment presumptions are applicable, the board's decision will be upheld unless it cannot be `attributed to any rational business purpose.'" (quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del.1971))).