Corwin v. Kkr Financial Holdings LLC

125 A.3d 304 (2015)

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Nature of the Case

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Facts

Ps filed a challenge to a stock-for-stock merger between KKR & Co. L.P. (LP) and KKR Financial Holdings LLC (D) in which LP acquired each share of D's stock for 0.51 of a share of KKR stock, a 35% premium to the unaffected market price. P's claimed the transaction presumptively subject to the entire fairness standard of review because D's primary business was financing LP's leveraged buyout activities, and instead of having employees manage the company's day-to-day operations, D was managed by KKR Financial Advisors, an affiliate of LP, under a contractual management agreement that could only be terminated by D if it paid a termination fee. Ps alleged that LP was a controlling stockholder of D, which was an LLC, not a corporation. Ds moved to dismiss. LP owned less than 1% of D's stock, had no right to appoint any directors, and had no contractual right to veto any board action. The Chancellor posited that in cases where a party that did not have majority control of the entity's voting stock courts looked for a combination of potent voting power and management control such that the stockholder could be deemed to have effective control of the board without actually owning a majority of stock. Every stockholder of D knew about the limitations the Management Agreement imposed on D's business. The Chancellor held that there are no facts from which it is reasonable to infer that LP could prevent the D board from freely exercising its independent judgment in considering the proposed merger. The case was dismissed, and Ps appealed.