Conflicted Merger Transactions: Consolidating the Standards of Review


Mergers are structured in a variety of ways, in keeping with the underlying purpose of the transaction. While this structural flexibility is beneficial from a financial standpoint, it has resulted in varied interpretations of the case law surrounding the standards of review that govern conflicted merger transactions. Where there is no apparent conflict of interest between the board of directors of a corporation and the corporation’s shareholders, the courts have traditionally accorded the board deference under the lenient business judgment rule. On the other hand, where there is a direct conflict of interest, the board is required to show the entire fairness of the transaction. However, conflicted transactions that fall in-between these two extremes have been reviewed in mixed ways, ultimately resulting in shifts between the two standards of review. This Note argues that there already exists an intermediate standard of review, the enhanced scrutiny standard, which appropriately addresses the potential underlying conflicts of interest in such transactions. This Note calls for the application of the enhanced scrutiny standard to all conflicted merger transactions regardless of their structure, which would clarify existing law and provide a uniform standard of review.

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