Shareholders' Rights in Short-Form Mergers: The New Deleware Formula
Shareholders' Rights in Short-Form Mergers: The New Deleware Formula
Shareholders' Rights in Short-Form Mergers: The New Deleware Formula
Volume 64
Article 4
Issue 4 Summer 1981
Repository Citation
Catherine L. Curran, Shareholders' Rights in Short-Form Mergers: The New Deleware Formula, 64 Marq. L. Rev. 687 (1981).
Available at: http://scholarship.law.marquette.edu/mulr/vol64/iss4/4
This Article is brought to you for free and open access by the Journals at Marquette Law Scholarly Commons. It has been accepted for inclusion in
Marquette Law Review by an authorized administrator of Marquette Law Scholarly Commons. For more information, please contact
megan.obrien@marquette.edu.
SHAREHOLDERS' RIGHTS IN SHORT-FORM
MERGERS: THE NEW DELAWARE FORMULA
I. INTRODUCTION
6. Des Moines Life & Annuity Co. v. Midland Ins. Co., 6 F.2d 228 (Minn. 1925);
American Seating Co. v. Bullard, 290 F. 896 (6th Cir. 1923); People v. Ballard, 134
N.Y. 269, 32 N.E. 54 (1892); Abbot v. American Hard Rubber Co., 33 Barb. 578 (N.Y.
App. Div. 1861).
The unanimity rule arose from the common law view that the relationship be-
tween the shareholders and the corporation was contractual. Since a major transac-
tion involving corporate assets would affect the contract and property rights of every
shareholder (including even the smallest minority) the rule held that only a unani-
mous vote could protect the rights of all. Kean v. Johnson, 9 N.J. Eq. 401 (1853). See
generally Kremer v. Public Drug Co., 41 S.D. 365, 170 N.W. 571 (1919); Gibson, How
Fixed are Class ShareholderRights?, 23 L. & CONTsMP. PROB. 283 (1958).
7. "Neither the directors nor a majority of the stockholders have power to sell all
the corporate property as against the dissent of a single stockholder, unless the corpo-
ration is in a failing condition." 3 COOK ON CORPORATIONS § 670 (7th Ed. 1913). See
also Geddes v. Anaconda Copper Mining Co., 254 U.S. 590 (1921); Treadwell v. Salis-
bury Mfg. Co., 73 Mass. (7 Gray) 393 (1856).
8. Voeller v. Neilston Warehouse Co., 311 U.S. 531, 535 n.6 (1941)(citing S.E.C.
Report on the Work of the Protective and Reorganization Committees, Part VII 557,
590).
9. Voeller v. Nielston Warehouse Co., 311 U.S. 531, 535 n.6 (1941). See generally
Gibson, How Fixed are Class Shareholder Rights?, 23 L. & CoNTzau. PROB. 283
(1958).
Many states have reduced the requirement still further to a simple majority of the
vote. For a comparison of state statutes regarding shareholder approval, see 2 MODEL
MARQUETTE LAW REVIEW [Vol. 64:687
23. For a comparison of short-form merger statutes, appraisal rights, and cash-
for-shares provisions, see 2 MODEL Bus. CoRP. AcT ANN. 2D § 75 %13-6.
24. 1924 N.Y. LAWS CH. 441.
25. Comment, The Short Merger Statute, 32 U. CHI. L. Rav. 596, 602 (1965).
26. Id.
27. Beloff v. Consolidated Edison Co., 300 N.Y. 11, 87 N.E.2d 561, 565 (1949).
28. Id.
1981] SHORT-FORM MERGERS
29. Id.
30. Id.
31. Id.
32. 1936 N.Y. LAWS CH. 778. In 1937 "domestic district steam corporations" were
added to the utilities allowed to use the short-form merger statute. 1937 N.Y. LAWS
CH. 815.
33. N.Y. STOCK CORP.LAw CH. 60 § 85(1) (Consol.) (1936 Supp.).
MARQUETTE LAW REVIEW [Vol. 64:687
34. The appraisal statute at that time was contained in N.Y. STOCK CORP. LAW CH.
60 § 21 (Consol.)(1936 Supp.).
35. N.Y. STOCK CORP. LAW CH. 60 § 85(5) (Consol.)(1936 Supp.).
36. Id.
37. The 1936 New York Statutes provided that notice of a proposed merger be
mailed to each stockholder of the subsidiary corporation before the merger was filed
with the Secretary of State. N.Y. STOCK CORP. LAW CH. 60 § 85(1) (Consol.)(1936
Supp.). The statute also provided that the Public Service Commission's authorization
be obained before filing with the Secretary of State. Id. at § 85(5). When read to-
gether, the apparent legislative intent of those two sections was to give notice to
shareholders so that their dissent could be registered at the Commission's hearings,
before the merger was approved and before it was finalized with the Secretary of
State.
38. N.Y. STOCK CORP. LAW CH. 60 § 85(1) (Consol.)(1936 Supp.).
39. 168 Misc. 381, 5 N.Y.S.2d 254 (Sup. Ct. 1938).
1981] SHORT-FORM MERGERS
40. Id. at 383, 5 N.Y.S.2d at 256. The Alpren case is often cited as an endorse-
ment of the judicial "hands-off" policy and judicial deference to legislative authority
in this area of the law.
41. 300 N.Y. 11, 87 N.E.2d 561 (1949).
42. Id. at 19, 87 N.E.2d 564-65.
43. See text accompanying notes 27-31 supra.
MARQUETTE LAW REVIEW [Vol. 64:687
making."" But, it is clear from the court's decision and the au-
thority cited, that the elimination of the minority, while unde-
sirable, was meant by the legislature to be merely incidental
to a necessary corporate action, an incidental cost which was
incurred so that the entire enterprise could continue to func-
tion. In no way did the court view the legislature's intent as
condoning the use of the short-form merger procedure for the
purpose of eliminating the minority. But again, at the time
the Beloff case arose, the legislature had placed strict limita-
tions on the application of the short-form merger (it applied
only to utilities), and had required the utilities to obtain Pub-
lic Service Commission authorization.45
In 1949, the New York legislature removed two restrictions
on the short-form merger, thereby making the procedure
available to all stock corporations and removing the require-
ment that the merger receive prior agency approval. 4 6 The
statute still required, however, that the subsidiary be "author-
ized to engage in business similar to or incidental to the busi-
ness which the possessor corporation is authorized to engage
in."' 47 Eventually, this requirement was also eliminated when
the New York statutes were revised to follow the Model Busi-
ness Corporation Act of 1960.48
As these checks on the operation of the statute were re-
moved, the short-form merger became a tool which manage-
ment could more freely wield to whatever end they desired.
The initial impetus and rationale for the short-form merger
(the simplification of corporate restructuring in the desperate
utility empires) became buried in the history of the statute.
The short-form merger as a management tool remained, ap-
plying to corporations generally in many states by 1960."9
44. The Beloff opinion at 87 N.E.2d 565 cites In re Timmis, 200 N.Y. 177, 181, 93
N.E. 522, 523 (1910) for the proposition that the minority must yield to the wishes of
the majority in order for the corporate form to function.
45. See text accompanying notes 35-38 supra.
46. 1949 N.Y. LAWS CH. 762.
47. Id.
48. N.Y. Bus. CORP. LAW § 905 (McKinney) (Legislative Studies and Reports) at
55.
49. Comment, The Short Merger Statute, 32 U. CHi. L. REv. 596, 602 (1965).
1981] SHORT-FORM MERGERS
50. Stauffer v. Standard Brands, Inc., 41 Del. Ch. 7, 187 A.2d 78 (1962).
51. 41 DEL. LAWS CH. 131 (1937).
52. 51 DEL. LAWS CH. 121 (1957). Prior to this amendment in 1957, three other
states (including New York) permitted short-form mergers where the parent owned
95% of the subsidiary: COLO. CORP. ACT § 71 (1958); N.Y. STOCK CORP. LAW § 85
(1949); TENN. GEN. CORP. LAW § 48-518 (1955).
53. 154 A.2d 893 (Del. 1959). For a critical analysis of the Coyne decision, see
Note, Elimination of Minority Share Interest by Merger: A Dissent, 54 Nw. U.L.
REV. 629, 631 (1959).
54. 154 A.2d at 895.
55. Id. at 896. The Delaware statute under scrutiny in Coyne was almost identical
to the New York provision:
IT]he resolution ... shall state the terms and conditions of the merger, in-
cluding the securities, cash, or other consideration to be issued, paid, or deliv-
ered by the parent corporation upon surrender of each share of the merged
corporation not owned by the parent corporation.
Id. at 894.
56. Id. at 898.
MARQUETTE LAW REVIEW [Vol. 64:687
57. 2 MODEL Bus. CORP. ACT ANN. § 68A 1 1 (1960). For a list of states' treatment
of the short-form merger, see 2 MODEL Bus. CORP. ACT ANN. § 68A 1 2.01-6 (1960).
58. 2 MODEL BUS. CORP. ACT ANN. 2D § 75 1 (1971). Court decisions paralleled
this development. The New York court's treatment of the short-form merger in Al-
pren indicated their deference to the will of the legislature and their hesitance to
become involved in the complexities of corporate restructuring. See text accompany-
ing notes 39-40 supra. The early decisions treating short-form mergers were en-
couraged in their hands-off policy by arguments that legislatures "favor" mergers:
"The state has an interest in the corporate structures erected under its authority.
Having provided for the merger of corporations, they are not regarded with disfavor.
On the contrary, mergers are encouraged to the extent that they tend to conserve and
promote corporate interests." Federal United Corp. v. Havender, 24 Del. Ch. 318,
334-35, 11 A.2d 331, 338 (1940). See also Note, Elimination of Minority Share Inter-
est by Merger: A Dissent, 54 Nw. U.L. REv. 629, 631 (1959).
59. 41 Del. Ch. 7, 187 A.2d 78 (Del. 1962).
60. 41 Del. Ch. 7, -, 187 A.2d at 80.
61. M. EISENBERG, THE STRUCTURE OF THE CORPORATION: A LEGAL ANALYSIS 240
(1976).
1981] SHORT-FORM MERGERS
62. When the minority interests are paid off in cash, securities or other property,
the individual minority shareholders will have to recognize gain on the transaction,
for tax purposes, to the extent that the fair market value of the cash, securities or
other property exceeds the shareholder's basis in the property. I.R.C. § 1001(a) & (c),
TREAS. REG. § 1.1001-1(a).
Although the minority shareholder's conversion of his stock into cash, securities or
property is, in fact, involuntary, it does not fall within any of the Internal Revenue
Code's non-recognition provisions which postpone recognition of gain. See I.R.C. §
1031(a) ("not including. . . stock") and I.R.C. § 1033 ("property destroyed in whole
or in part by theft, seizure, requisition or condemnation").
Fortunately, the minority shareholder will be entitled to treat these gains as long-
term capital gains if they qualify under I.R.C. §§ 1221-1223. This entitles a taxpayer
to a deduction for 60% of the net capital gain recognized on an item. I.R.C. § 1202(a).
This will, to some extent, mitigate the adverse tax consequences to minority share-
holders who have been forced out in a short-form merger.
63. Comment, The Short Merger Statute, 32 U. CHI. L. Rv. 596, 600 (1965). See
also F. O'NEAL, OPPRESSION OF MINORITY SHAREHOLDERS § 5.13 at 55 (Cumulative
Supp. 1979)(Supplementing p. 256 n.9 of the 1975 edition).
64. Note, Going Private,84 YALE L.J. 903, 903 n.3 (1975). This article states that
between 1967 and 1972, some 3000 corporations filed registration statements with the
SEC for the first time (citing Sommer, "Going Private":A Lesson in CorporateRe-
sponsibility, BNA SEc. REG. & L. REP. No. 278 at D-1 (Nov. 20, 1974)).
65. Note, Going Private, 84 YALE L.J. 903 (1975).
66. Id.
67. Public ownership necessarily includes compliance with the registration, filing
and numerous other requirements of the federal securities laws. 15 U.S.C. § 77-78
(1976). For a review of the costs of public ownership, see Borden, Going Private-Old
Tort, New Tort or No Tort? 49 N.Y.U.L. REv. 987, 1006-08 (1974). See also 46 GEO.
MARQUETTE LAW REVIEW [Vol. 64:687
unlawful for any person, directly or indirectly, by the use of any means or in-
strumentality of interstate commerce, or of the mails or of any facility of any
national securities exchange...
(c) To engage in any act, practice, or course of business which operates
or would operate as a fraud or deceit upon any person, in connection
with the purchase or sale of any security.
Indeed, in Green v. Santa Fe Industries, Inc., 533 F.2d 1283 (2d Cir.), rehearing
en banc denied, 533 F.2d 1309 (2d Cir. 1976), rev'd 430 U.S. 462 (1977) and in Mar-
shel v. AFW Fabric Corp., 533 F.2d 1277 (2d Cir.), rehearing en banc denied, 533
F.2d 1309 (2d Cir.), vacated and remanded for a determinationof mootness, 429 U.S.
881 (1976), the Second Circuit did recognize and fashion a "justifiable business pur-
pose" requirement under S.E.C. Rule 10b-5 to protect minority shareholders. The
Green case, brought in the Southern District of New York, involved a short-form
merger. The Marshel case, brought in the same court, involved a long-form merger.
84. 430 U.S. 462 (1977).
85. The Court expressed the fear that such "extention of the federal securities law
would overlap and quite possibly interfere with state corporation law" in a wide vari-
ety of corporate areas. 430 U.S. at 479.
86. The Singer court saw the Santa Fe ruling as "a current confirmation by the
Supreme Court of the responsibility of a State to govern the internal affairs of corpo-
rate life." 380 A.2d at 976 n.6.
The Court in Santa Fe had concluded that " 'it is entirely appropriate in this
instance to relegate respondent and others in his situation to whatever remedy is
created by state law.'" 430 U.S. at 478 (quoting Cort v. Ash, 422 U.S. 66, 84 (1975)).
The Court stated further: "There may well be a need for uniform federal fiduciary
standards to govern mergers .... But those standards should not be supplied by
judicial extension of § 10(b) and Rule 10b-5 to 'cover the corporate universe.'" 430
U.S. 479-80 (quoting Cary, Federalism and CorporateLaw: Reflection Upon Dela-
ware, 83 YALE L.J. 663, 700 (1974) (footnote omitted)).
87. 430 U.S. 462 (1977).
88. 380 A.2d 969 (Del. 1977).
19811 SHORT-FORM MERGERS
101. Id.
102. The defendants were Magnavox, North American Philips Corporation, North
American Philips Development Corporation and individual members of Magnavox
management. Id. at 971.
103. Id. at 972.
104. Id. The alleged violations were (1) the issuance, through proxy documents, of
false and misleading statements of material facts relating to the merger and (2) the
failure to disclose other material facts pertinent thereto. Id. at 980-81. The Chancery
Court concluded that this claim must fail because the proxy materials did not have a
significant enough impact upon the consummation of the merger. The Delaware Su-
preme Court upheld the dismissal on the above grounds and on the grounds that the
plaintiffs, Pennsylvania residents, did not have the proper standing to be covered by
the Delaware Securities Act. Id. at 981.
105. The Court of Chancery decision was reversed in part and affirmed in part.
380 A.2d at 970. The Court of Chancery had granted the motion to dismiss the entire
complaint, finding that (1) the merger was not fradulent merely because it was ac-
complished without any business purpose other than to eliminate the Magnavox mi-
nority shareholders; (2) dissatisfied shareholders, like the plaintiffs, have their rem-
edy in an appraisal; and (3) plaintiffs were not entitled to relief under the Delaware
Securities Act because the proxy materials did not have a significant impact on the
accomplishment of the merger. The issue of standing was not reached. Id. at 972.
106. Id. at 972.
107. Id. at 975.
108. The court cited Schnell v. Chris-Craft Industries, Inc., 285 A.2d 437, 439
(Del. 1971) and Guth v. Loft, Inc., 23 Del. Ch. 255, 5 A.2d 503, 511 (Del. 1939) for
support.
109. 380 A.2d at 975 (quoting Schnell v. Chris-Craft Industries, Inc., 285 A.2d 437,
439 (Del. Supr. 1971)). For a general review of the law of fiduciary duties as applied
to the corporate form, see H. HENN, HANDBOOK OF THE LAW OF CORPORATIONS AND
OTHER BusiNEss ENTERPRISES § 240 (1970).
1981] SHORT-FORM MERGERS
Drawing again from case law, the court held that "corpo-
rate officers and directors, and controlling shareholders owe
their corporation and its minority shareholders a fiduciary ob-
ligation of honesty, loyalty, good faith and fairness,"11 since
the minority's property interests are under their control. The
opinion rested on essentially two principles of law:
First, it is within the responsibility of an equity court to
scrutinize a corporate act when it is alleged that its purpose
violates the fiduciary duty owed to minority stockholders;
and second, those who control the corporate machinery owe
a fiduciary duty to the minority in exercise thereof over cor-
porate powers and property, and the use of such power to
perpetuate control is a violation of that duty.
By analogy, if not a fortiori, use of corporate power
solely to eliminate the minority is a violation of that duty."1
From these two fundamental principles, the court held that
the defendants had violated the fiduciary duties owed the mi-
nority and thus that the plaintiff minority's complaint did
state a cause of action for violation of fiduciary duty upon
12
which relief could be granted in equity.
The Singer court held that the elimination of the minority
was an improper purpose for a merger and was a violation of
the majority's fiduciary duty.11 3 However, the court left to an-
other day the question of what actually constitutes a proper
business purpose in the merger area. The court did hold that
courts were "duty bound"1 1 4 to closely examine any allega-
tions that the purpose for the merger was improper even if all
of the statutory requirements are met.115 The rule placed the
110. 380 A.2d at 977. See also Allied Chemical and Dye Corp. v. Steel and Tube
Co. of America, 120 A. 486 (Del. Ch. 1923).
111. 380 A.2d at 979-80.
112. Id. at 980. On April 3, 1981, the Delaware Supreme Court in Lynch v. Vick-
ers Energy Corp., 429 A.2d 497 (Del. 1981), held that rescission is the proper remedy
for a case involving a tender offer in which material facts had not been disclosed to
the minority shareholders. In Lynch, the court held that the appraisal method is im-
proper when determining damages in a fiduciary duty case, and rescission should be
used in order that the plaintiff stockholders be adequately compensated. While
Lynch did not involve a short-form merger, it did emphasize the law of fiduciaries in
the corporate form and thus may have an impact on the remedies available in short-
form merger cases.
113. Id. at 980 n.11.
114. Id. at 979.
115. Id.
MARQUETTE LAW REVIEW [Vol. 64:687
court held that the fiduciary duty owed by the majority to the minority requires the
same careful scrutiny by the court in a short-form merger as it does in a long-form
merger (as earlier decided in Singer and Tanzer). The court in Kemp decided that
the case must go to trial where all of the evidence could be properly scrutinized.
131. 407 A.2d 1032 (Del. 1979).
132. Id. at 1033.
133. Id. at 1037.
134. The Stauffer case had held that the purpose of the short-form merger was
the elimination of the minority. See text accompanying notes 59-61 supra.
135. 407 A.2d at 1036. The court continued:
To state it another way, the short cut to merger afforded by § 253 [Delaware's
short-form merger statute] may not be used to short-circuit the law of fiduci-
ary duty. [citation omitted] ... The duty of the majority is not diluted as
control is strengthened nor is the right of the minority determined by how
small it is. Thus the fiduciary obligation owed in the context of a merger, be it
long or short, is singular, and falls alike on those who control "at least 90% of
19811 SHORT-FORM MERGERS
the outstanding shares,".., and those who control a majority but less than
90% .... Id.
136. Id.
137. Id. at 1037.
138. 34 Del. Ch. 6, 99 A.2d 236 (1953). Bennett involved a plaintiff's attempt to
have a stock issuance cancelled despite the fact that the issuance met the statutory
requirements. The defendants' motions for dismissal and summary judgment were
denied.
MARQUETTE LAW REVIEW [Vol. 64:687
scale. ' 14 5 One month after the test was announced, in Tanzer
v. InternationalGeneral Industries,Inc., 4" the Delaware Su-
preme Court itself acknowledged that the rule was
"ambiguous."14
At least one commentator has criticized the Singer court
for not distinguishing between the different types of take-out
mergers in fashioning the rule. 14s However, the so-called "am-
biguity" of the business purpose rule was necessary to retain
court flexibility. The broad principles underpinning the rule
permit future courts to shape decisions according to all of the
circumstances surrounding the challenged merger.
A survey of some of the decisions which were handed down
in light of Singer and Roland provides some insight into the
application of the business purpose rule. In Kemp v. Angel, 4 9
the court looked at the corporation's history, paying special
attention to the majority's past treatment of the minority.
The Kemp facts reveal that the majority reached its superior
position by making continued stock offers and purchases over
the years. Finally when it reached 90.6% ownership, the ma-
jority used the short-form merger to cash-out the minority. 50
The court apparently viewed this background as supportive of
the allegation that the majority had a long-standing plan to
eliminate the minority 15 ' for it granted a preliminary injunc-
52
tion preventing the merger.1
Likewise, in Young v. Valhi, Inc.,153 the court viewed the
majority's three attempts to gain total control as evidence of
145. Guth v. Loft, Inc., 23 Del. Ch. 255, 5 A.2d 503, 510 (1939).
146. 379 A.2d 1121 (Del. 1977). See text accompanying notes 121-129 supra.
147. 379 A.2d at 1123.
148. See 64 VA. L. REV. 1101, 1110 in which it is further stated:
These mergers, however, serve different purposes: the merger may be intended
as the second step of an outside corporation's acquisition of a target corpora-
tion; it may reflect the classic 'going private' case,. . . ; or it may convey the
decision of a long-time public corporation to go private.
149. 381 A.2d 241 (Del. Ch. 1977). See note 130 supra.
150. Id. at 242.
151. Id. at 241.
152. Id. at 245.
153. 382 A.2d 1372 (Del. Ch. 1978). In Young, the majority holder of common
shares of Valid, Inc. was the defendant Contran Corporation, a holding company. The
plaintiffs, minority owners of stock in Valid, prayed for an injunction against the
merger between Contran, the parent-holding company and Valki. A permanent in-
junction was granted by the court.
MARQUETTE LAW REVIEW [Vol. 64:687
154. Id. at 1378. See also Terrell & Ranney-Marinelli, What Constitutes a Valid
Purpose for a Merger?, 51 TEMP. L.Q. 852 (1978).
155. 382 A.2d at 1378.
156. Id.
157. See text accompanying notes 127 & 128 supra.
158. 382 A.2d at 1378.
159. Both Singer and Roland stated that the effectuation of a merger for the sole
purpose of eliminating the minority constitutes a breach of fiduciary duty (without
regard to the fairness of the price). Singer, 380 A.2d at 977; Roland, 407 A.2d at 1034-
35. Indeed, the court in Tanzer found a "bona fide" purpose for the merger, yet re-
manded the case for a review of "entire fairness." 379 A.2d at 1125. See text accom-
panying note 129 supra.
For commentators who agree with this reading of Singer, see Comment, Delaware
Chills Freeze-Outs: A Critical Brief of Singer v. The Magnavox Company and
Tanzer v. InternationalGeneralIndustries, Inc., 3 DEL. J. CoRP. L. 426, 450 (1978);
Rothschild, Cash Mergers: A Current View, 4 DEL. J. CoRP. L. 708, 711 (1979); Ter-
rell, Planninga Cash Merger After Singer, 4 Dnt.. J. CoRP. L. 720, 720 (1979); Brud-
ney & Chirelstein, A Restatement of CorporateFreeze Outs, 87 YAL.E L.J. 1354, 1363
(1978).
19811 SHORT-FORM MERGERS
160. 487 F. Supp. 118 (D. Del. 1980). The Coleman case was a derivative action
challenging a short-form merger.
161. Compare, Coleman v. Taub, supra note 160 with Weinberger v. U.O.P., Inc.,
409 A.2d 1262 (Del. Ch.1979) which appears to inextricably join the issue of business
purpose with the issue of fairness. Coleman did not regard Weinberger as controlling.
162. For a thorough discussion of cases involving the construction of the "business
purpose" rule, both before and after Singer and Tanzer, see Terrell & Ranney-Mari-
nelli, What Constitutes a Valid Purpose for a Merger?, 51 TmP.L.Q. 852 (1978).
163. Note, Going Private, 84 YALE L.J. 903, 931 (1975).
164. Grimes v. Donaldson, Lufkin & Jenrette, Inc., 392 F. Supp. 1393 (N.D. Fla.
1974), aff'd, 521 F.2d 812 (5th Cir. 1975), cited in Terrell & Ranney-Marinelli, What
Constitutes a Valid Purpose for a Merger?, 51 TEmp. L.Q. 852, 871 (1978).
165. See text accompanying notes 123-26 supra.
166. 33 Del. Ch. 293, 93 A.2d 107 (Del.1952).
MARQUETTE LAW REVIEW [Vol. 64:687
VI. CONCLUSION
The Delaware cases provide a much needed formula for
giving redress to oppressed minority rights by weighing all of
the aspects of the merger transaction and granting relief on
the basis of traditional equity concepts. The courts are the
proper fora for a full consideration of testimony adduced as
well as other evidence offered before reaching a determination
on the fairness of the transaction. 17 The abuses of the present
corporate law regarding mergers have gone unchecked for far
too long. It is time for the courts of every state in which such
abuses have gone unchallenged to adopt the Delaware formula
and give redress in equity for minority rights.
The role of the courts must not be to bind the hands of all
corporate management, but rather to serve as a necessary
check on the abuses of some. This role can be properly main-
tained by the use of equitable principles which can be
adapted over time to the changing needs of the law, the corpo-
ration, and the public.
CATHERINE L. CURRAN
173. An alternative approach has been adopted in California to give a forum for
oppressed minorities in the merger area. Under Cal. Corp. Code §§ 1101(e) and 1101.1
(West), which became effective January 1, 1978, either all of the shareholders must
consent to a cash squeeze-out merger or the California Commisioner of Corporations
(or one of the other named government officials) must determine that the terms and
conditions of the cash squeeze-out merger are fair, just and equitable. The Commis-
sioner will give great weight to the collective judgment of the minority. F. O'NEAL,
OPPRESSION OF MINORrrY SHAREHOLDERS § 5.13 (Cum. Supp. 1979) (Supplementing p.
256 n.9 of the 1975 edition).