Fair Shares in Corporate Mergers and Takeovers

Abstract

Professors Brudney and Chirelstein urge a new approach to judicial supervision of mergers between parent and subsidiary corporations. They argue that a fair merger requires that gains generated by the combination should be shared by the two corporations rather than wholly absorbed by either, and they posit a sharing formula to provide fair treatment to all parties to the merger. Rather than attempting to intuit or deduce the result of an arm's-length bargain that does not and cannot exist in the parent-subsidiary context, the authors emphasize the joint obligation of management to the public stockholders of both companies. The sharing formula for mergers may be used to determine the fairness of other decisions made by the parent during the period of affiliation. Finally, the authors suggest a somewhat different sharing formula for mergers which are the contemplated second step following an acquisition of control.