Chancery says bids in squeeze-out merger are not comparable

The Delaware Court of Chancery recently cut short a challenge by minority shareholders to a going private merger when it dismissed the plaintiffs' complaint.

The subject company was a retail book seller, Books-A-Million (BAM). The business was founded almost 100 years ago by Clyde Anderson, and the Anderson family was still the controlling shareholder at the time of the merger. 

After several failed attempts to acquire the outstanding BAM shares, the family finally succeeded when the company's board, a special committee, and a majority of the minority shareholders approved the contested merger. The yes vote came even though there was a third-party bid that offered a higher price for 100% of the company's shares.

Although the transaction followed the framework the Delaware Supreme Court had approved in Kahn v. M&F Worldwide Corp. several plaintiffs claimed the defendants—board and special committee members as well as several Anderson family members—had acted in bad faith when they rejected the third-party's "substantially superior offer," which was nearly 30% higher than the Anderson family's bid.

The court disagreed explaining that the bids were fundamentally different. In a nutshell, one bidder wanted to acquire control of the company, the other had control and contemplated a discount for the minority shares.

Read more about the court's analysis here.