Majority of the Minority Approval in a World of Active Shareholders
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Description
Majority of the minority (MOM) approval is one of the key devices used in corporate law systems around the world to control controlling shareholder conflicts of interest. Taking Delaware corporate law’s treatment of conflicted control transactions as a laboratory, I investigate how MOM approval functions in the presence of active shareholders (both hedge funds and actively managed mutual funds). I approach this question as follows. In Part I, I review the uses made of the MOM device, in general and in Delaware. In Part II, I survey the justifications given for reliance on MOM approval as a “cleansing device,” and review criticisms of the use. In Part III, I provide a broad overview of the use of MOM provisions in going private transactions in the United States and then look closely at three deals that involved MOM and active shareholders: Carl Icahn’s opposition to the Dell buyout; T. Rowe Price’s opposition to the Oracle/Netsuite merger; and GAMCO, T. Rowe Price and ClearBridge’s opposition to the Dolan’s 2007 going private proposal at Cablevision. In Part IV, I consider the implications of the case studies for Delaware corporate law’s reliance on MOM, and for the utility of MOM more generally. I close with a brief conclusion. In doing so, I ask a number of questions. First, what are the potential benefits of MOM approval? Are these realistic expectations? Second, does the presence of large, active shareholders make things better, worse or leave things as they are? In particular, if active shareholders make MOM approval more effective, does it make it sufficiently effective that we might want to give it more significance than we traditionally have? If it makes things worse, does it make things sufficiently worse that we should avoid MOM approval? Third, are the inadequacies or infirmities of MOM approval, alone or combined with other cleansing devices, such that we want to maintain a place for judicial review of the fairness of the transaction? To what extent does existing doctrine preserve the role of equity review?
Source Publication
Law and Finance of Related Party Transactions
Source Editors/Authors
Luca Enriques, Tobias H. Tröger
Publication Date
2019
Recommended Citation
Rock, Edward B., "Majority of the Minority Approval in a World of Active Shareholders" (2019). Faculty Chapters. 1903.
https://gretchen.law.nyu.edu/fac-chapt/1903
