In re PNB Holding Co. Shareholders Litigation
Court of Chancery of Delaware
2006 WL 2403999 (2006)
PNB Holding Company (PNB), a rural Illinois bank holding company, merged to reclassify as a subchapter S corporation, cashing out most of its shareholders while its directors and their families — 68 of over 300 original stockholders — remained shareholders in the new entity. Cashed-out minority shareholders were offered $41 per share; counting only shareholders who actually voted, a majority favored the merger, but counting all cashed-out minority shareholders, including those who didn't vote, only about 49 percent affirmatively approved it, with the directors and their families voting unanimously in favor. Dissenting shareholders sued for a higher valuation, and the key trial issue was what standard of review applied to the $41 price.
Whether, if an interested board of directors can show that a corporate merger was approved using a cleansing device, like an informed majority-of-the-minority vote, courts will review the merger's fairness using the deferential business-judgment-rule standard.