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Kahn v. Lynch Communication Systems, Inc.

638 A.2d 1110 (Del. 1994)

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Kahn v. Lynch Communication Systems, Inc.

Supreme Court of Delaware

638 A.2d 1110 (Del. 1994)

Facts

Alcatel U.S.A. Corporation (Alcatel) (defendant) owned 43.3 percent of the stock of Lynch Communication Systems, Inc. (Lynch) (defendant). The corporations began discussing a cash-out merger in which Alcatel would acquire Lynch. The Lynch board of directors formed an independent special committee to review the transaction. The committee reviewed and rejected three Alcatel offers. Subsequently, one of the members of the committee informed the committee that Alcatel was “ready to proceed with an unfriendly tender at a lower price” if the committee did not recommend Alcatel’s third offer. After this warning, the committee recommended to the Lynch board that it accept the Alcatel offer. The board did so and approved the merger. Alan Kahn (plaintiff) brought suit in the Delaware Court of Chancery, seeking to enjoin the merger. The trial court denied his motion for a preliminary injunction, and he amended his complaint to seek money damages. The trial court held that the committee’s analysis of the transaction was legally independent and thus shifted the burden of proving entire fairness of the transaction onto Kahn. The trial court then found in favor of the defendants. Kahn appealed.

Rule of Law

Issue

Holding and Reasoning (Holland, J.)

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