Meaning
Strict judicial standards applied to corporate transactions involving conflicted fiduciaries require the demonstrating of both fair dealing and a fair price. An entire fairness review is the most demanding test used by a court to judge whether a transaction was fair to the minority shareholders. It applies when the board of directors has a conflict of interest, such as when a majority owner is buying the rest of the company.
This review stops being the standard if a committee of independent directors is formed and given full power to negotiate.
Procedural Integrity
The court looks at the timing of the deal and how it was initiated. It examines whether the board was truly independent and if they had access to their own legal and financial advice. A rushed process usually fails this part of the test.
Analysis Strategy
Evaluation of the price paid to the shareholders involves a deep look at the market value, the earnings of the company, and any other offers that were received. The price must be within the range of what a reasonable buyer would pay. This ensures that the minority receives the full value of their holdings.
Burden Shifting
If the company uses an independent committee, the responsibility to prove unfairness moves back to the person suing. This is a massive legal advantage.
