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Rabkin v. Philip A. Hunt Chemical Corporation, 498 A.2d 1099 (1985)

A cash-out merger occurs when the acquiring company owns most of the target company’s stock and forces a buyout of the target’s remaining shares. In a Delaware case challenging the validity of a cash-out merger, the Delaware Supreme Court held that minority shareholders couldn’t set aside the merger or receive damages but were instead limited to pursuing an appraisal remedy. In Rabkin versus Philip A. Hunt Chemical Corporation, we explore whether this holding applies if the acquiring company acted in bad faith.

On March 1st, 1983, Olin Corporation bought over 63% of Philip A Hunt Chemical Corporation for $25 per share. The purchase agreement required that if Olin acquired the remainder of Hunt within one year, it had to pay $25 per share for the remaining stock.

Based on several internal memoranda, it was clear Olin always intended to acquire the remainder of Hunt. However, Olin didn’t act on that intention until right after one year had passed.

On March 23rd, 1984, Olin hired Morgan Lewis, an investment-banking firm, to render a fairness opinion on a purchase price of $20 per share. Morgan Lewis agreed the price was fair, and Olin’s Finance Committee voted unanimously to propose $20 per share for Hunt’s remaining stock.

Upon receiving Olin’s merger proposal, Hunt’s board appointed a special committee to review its fairness. The committee’s advisor, Merrill Lynch, found that although twenty dollars per share was fair, it was on the low end, as the stock was worth somewhere between 19 and 25 dollars per share. The committee asked Olin to increase its offer, but Olin declined.

The committee subsequently announced $20 per share was fair and recommended approval of the merger.

Frieda Rabkin and other Hunt minority shareholders brought suit, challenging the merger. The shareholders claimed Olin manipulated the timing of its merger proposal to avoid the one-year commitment price, thus costing the shareholders $5 per share.

The chancery court dismissed the shareholder’s claims, holding that absent fraud or deception, the minority shareholders’ only remedy was their appraisal right. The shareholders appealed to the Delaware Supreme Court.

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