Restatement of Corporate Freezeouts

Abstract

Apparently overruling earlier decisions, the Supreme Court of Delaware has recently declared that a merger effected "for the sole purpose of freezing out minority stockholders ...is an abuse of the corporate process ...[and a] violation of a fiduciary duty for which the Court may grant.. . relief."' In Singer v. Magnavox Co.,2 a parent corporation had merged with its eighty-four-percent-owned subsidiary. Minority stockholders of the subsidiary had received only cash for their shares and thus had been eliminated from participation in the combined enterprise. The court confirmed that the parent owed a fiduciary duty to the minority by reason of its status as majority stockholder, but then-in what is generally viewed as a new development in Delaware law-the court held that this duty would not be met unless a corporate purpose for the merger, other than mere elimination of the minorityheld stock, were supported by the evidence.