Mills v. Electric Auto-Lite Co.

Mergenthaler Linotype Company (Mergenthaler), a corporation, gradually acquired shares of the Electric Auto-Lite Company (Auto-Lite) (defendant). Mergenthaler eventually acquired a majority of Auto-Lite and took control of the latter’s board. Mergenthaler planned to consolidate the two companies by merging them into the newly formed Eltra Corporation (Eltra). Before the merger, Auto-Lite stock paid higher dividends than Mergenthaler stock. Under the terms of the merger, Eltra issued preferred stock to the former Auto-Lite shareholders and common stock to the former Mergenthaler shareholders. The Eltra preferred stock initially paid a higher dividend than the common stock and was convertible into common stock. Before the merger, both Mergenthaler and Auto-Lite stock were widely traded. After the merger, both common and preferred Eltra stock were widely traded. A group of minority Auto-Lite shareholders (plaintiffs) sued to challenge the process by which the merger was approved. The litigation made its way to the United States Supreme Court, which ruled for the minority shareholders but remanded to the district court to determine the appropriate monetary damages. The district court calculated the minority shareholders’ award based on the fairness of the merger terms. The district court used a combination of market values of the three corporations’ stock before and after the merger and qualitative factors to determine that the terms of the merger unfairly undercompensated the Auto-Lite minority shareholders. The district court awarded the minority shareholders over $1 million. Both sides appealed.