In In re Crimson Exploration Stockholder Litigation, (October 24, 2014), the Delaware Court of Chancery provides valuable guidance for directors, advisers and block shareholders involved in merger transactions. Vice Chancellor Donald F. Parsons Jr.’s analysis identifies key factors used by Delaware courts in determining whether non-majority shareholders are controlling, conflicted and subject to entire-fairness analysis. The opinion is also particularly useful for practitioners because it contains detailed pleading critiques and comparisons of prior, non-majority shareholder control and conflict holdings.
The case concerns a challenge made by plaintiff shareholders to Crimson’s stock-for-stock merger with Contango Oil & Gas Co. The plaintiffs alleged that Crimson’s largest shareholder—which held a third of Crimson’s shares and was a Crimson creditor—controlled Crimson’s board and caused the company to be sold at an improperly low price. The plaintiffs pointed to side agreements involving lien repayment and future stock placement benefits as demonstrating the alleged conflict and self-interest.
