Back to Basics: Harmonizing Delaware\u27s Law Governing Going Private Transactions©

This Article agrees with the objectives of the hybrid approach, but argues that a more doctrinally consistent way to achieve that result would be to shift the analytical focus from the duties of the controlling stockholder to the duties of the corporation’s board. The Article will show that the Delaware Supreme Court’s focus on the duties of controlling stockholders in going-private transactions and its resistance to applying traditional modes of analysis to decisions by independent, disinterested directors has led to the current “incoherence” of Delaware’s going-private jurisprudence. Moreover, under the approach urged by the Court of Chancery in the Pure Resources decision that same focus threatens to lead to a confusing, transactionally specific patchwork of duties for controlling stockholders. This Article, supported by a number of decisions decided by the Court of Chancery during the summer of 2006, shows that by shifting the analytical focus to the board and by applying traditional principles for the review of business judgments, the standards by which these two types of going-private transactions are judged can be brought into harmony with one another and with the rest of Delaware law. The aim of encouraging arm’s-length negotiation in going private transactions would be served because, under traditional principles, only a transaction negotiated at arm’s-length and approved by independent corporate decision-makers is entitled to protection under the business judgment rule