Delaware Court Applies Revlon To Hybrid Merger And Provides Guidance
By Peter Tennyson & James Herriott
The Delaware Court of Chancery on May 20 rejected a challenge to the merger of Smurfit-Stone Container Corp. with Rock-Tenn Corporation. The challengers sought to delay the stockholder vote by claiming that a 50% cash / 50% stock merger was subject to strict judicial scrutiny under the Revlon line of cases and that for several factors, including failure to hold an auction either pre- or post-announcement, the court should enjoin the transaction. With respect to the first contention, the court agreed with the challengers and applied enhanced scrutiny to the hybrid merger. Despite applying an enhanced scrutiny standard, however, the court was unwilling to set aside decisions it found were made by informed, active and independent directors.