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194 Delaware Law Review Volume 7:2 Second, the court concluded that the “price” was fair largely because Cysive’s pre- and post-agreement market checks brought forth no third-party bidders. Specifically, the court concluded that “[g]iven the substantial efforts that have been undertaken to find other buyers and the market’s knowledge that Cysive is for sale, the absence of any other party willing to make a higher bid than the [Carbonell] offer is strong evidence of financial fairness.” 83 The court also based its determination on the fact that the Carbonell offer exceeded the “pre-affected trading price of Cysive shares by 37 cents per share.” 84 In a footnote, the court dismissed the plaintiffs’ Revlon claims, stating that “[b]ecause entire fairness is the most exacting form of review, and because the [Carbonell] Agreement passes muster under that test, it is difficult to see how the intermediate Revlon standard could be violated.” 85 Notwithstanding this observation, the court separately concluded that “the sales effort undertaken on behalf of Cysive represented a reasonable means by which to obtain the highest value reasonably available,” thus meeting the intermediate Revlon standard. 86 D. Majority-of-the-Minority Stockholder Approval and the Acquiescence Defense in Cash-Out Mergers In In re JCC Holding Co., Inc., 87 the Court of Chancery concluded that approval of a merger by a majority-of-the-minority stockholders, while potentially sufficient to shift the fairness burden to the plaintiffs, was insufficient to grant the defendants’ motion for judgment on the pleadings. In JCC Holding, the class action plaintiffs challenged a cash-out merger between JCC Holding Co., Inc. (“JCC”) and its controlling stockholder, Harrah’s Entertainment, Inc., a wholly owned subsidiary of Harrah’s Operating Company, Inc. (together, “Harrah’s”), on entire fairness grounds. The plaintiffs also alleged disclosure violations in connection with the vote on the merger. 83. Id. at 556-57. 84. Id. at 557. 85. Id. at 557 n.40. 86. Id. 87. C.A. No. 19796, 2003 WL 22246591 (Del. Ch. Sept. 30, 2003).
2004 Recent Developments in Delaware Corporate Law 195 The court concluded that because Harrah’s was a controlling stockholder of JCC, the merger was subject to the standard of review set forth in Kahn v. Lynch Communication Systems, Inc. 88 Specifically, the court determined that the exacting entire fairness standard applied. 89 Notwithstanding the application of the Kahn v. Lynch standard, the defendants argued that the inadequacy of the plaintiffs’ alleged disclosure violations constituted an adequate basis for the court to grant judgment on the pleadings to the defendants. In particular, the defendants argued that those stockholders who voted “yes” to the merger, or who accepted the merger consideration, were, under the holding in Bershad v. Curtiss-Wright Corp., 90 prohibited from pressing their entire fairness claims because the merger was conditioned upon majority-of-the-minority stockholder approval — which approval was obtained. In furtherance of this argument, the defendants contended that the elimination of these stockholders, who constituted a majority of the stockholders of JCC not affiliated with Harrah’s, caused the class of plaintiffs to be so small as to preclude certification. The court found that the plaintiffs’ disclosure claims were inadequate because they merely (i) sought to require JCC’s investment banker to conduct additional analyses, and (ii) claimed that certain of the investment banker’s analyses were wrong. With respect to the failure of JCC’s investment banker to conduct certain analyses, the court stated that “[u]nder Delaware law, there is no obligation on the part of a board to disclose information that simply does not exist.” 91 Accordingly, since JCC’s investment banker had not conducted the analyses sought by the plaintiffs, the defendants were not required to disclose them. With respect to the claim that the defendants’ disclosures were inadequate because the plaintiffs disagreed with the analysis conducted by JCC’s investment banker, the court concluded: This kind of quibble with the substance of a banker’s opinion does not constitute a disclosure claim. The proxy statement obviously provided the plaintiffs with the material they needed to determine various ways in which they disagreed with [JCC’s investment banker]. This does not 88. 638 A.2d 1110 (Del. 1994). 89. 2003 WL 22246591, at *1,7. 90. 535 A.2d 840 (Del. 1987). 91. JCC Holding, 2003 WL 22246591, at *5.
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