Shareholder Can’t Challenge Board Merger Approval Because No Change of Control


A shareholder could not sue his directors for accepting a merger proposal for a claimed lower price than offered by another suitor because each target shareholder was to exchange each target share of stock for 1/3rd cash and the other 2/3rd of consideration in shares from a company “in a large, fluid, public market.”

M&A Stories

January 13, 2021


No event is more important to a company than when considering a sale or merger. And the responsibility to manage this process falls directly on the board of directors. Not surprisingly, some shareholders may not like the board’s course of action

The deal

The target in this deal was a publicly traded Maryland corporation that operated a Michigan community bank. The directors of the target accepted the offer by a much larger publicly traded community bank to merge the target into the buyer where each target share currently trading at about $42 would be exchanged for $14 cash and buyer stock.

The lawsuit

A target shareholder filed a lawsuit in a Michigan state court against the board after the board had approved the merger and submitted a proxy to the shareholder for approval. The shareholder sued to stop the deal on that grounds that the board had breached its duty to the shareholders to maximize shareholder value. The shareholder alleged that the board had turned down a higher offer from another suiter.

The trial court dismissed the lawsuit and the shareholder appealed to a Michigan intermediate court of appeal. The court of appeal affirmed the dismissal. The court said that under applicable Maryland law, the shareholder could only sue the directors directly for breach of their duty to maximize shareholder value if the proposed merger was a change of control transaction.

In this case, the target shareholders were receiving 2/3rd of their consideration from a widely held public company. This, the court held was not a change of control transaction. 

This case is referred to as Finke v. Vanderkelen, No. 345621, Court of Appeals of Michigan, (May 21, 2020)  unpublished, per curiam. 


A director duty to maximize a shareholder transaction was first recognized in 1986 by the Delaware Supreme Court in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). The “Revlon Doctrine” is currently recognized by at least 9 states (California, Delaware, Illinois, Kansas, Maryland, Michigan, Minnesota, Missouri, and New Hampshire).

But when does it apply? Clearly in any all-cash transaction. Also, any stock transaction where, or—in the case of a stock-for-stock acquisition—an acquisition in which a widely held public stock is exchanged for shares of a company in which there is a controlling shareholder. The principal transaction type that does not trigger Revlon is the stock-for-stock deal in which the post-closing entity remains widely held by stockholders.

By John McCauley: I help people manage M&A risks involving privately held companies.



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