Hollinger, Inc. v. Hollinger International, Inc.

Delaware Court of Chancery · Corporations

CorporationsAsset salesStockholder votingControlling stockholdersDirector fiduciary dutiesDGCL 271substantially allasset sale

Facts

International agreed to sell the Telegraph Group, one of its most valuable publishing assets, for about $1.2 billion after a lengthy strategic process and auction. Inc., which held only 18% of International's equity but 68% of its voting power, sought to block the sale and claimed the transaction involved substantially all of International's assets. International would retain the Chicago Group, other publishing assets, and other non-operating assets after the sale, and the record showed the Chicago Group had profitability and economic significance comparable in many respects to the Telegraph Group. The sale decision was made by independent directors through the CRC after exploring alternatives, including a sale of the whole company, and after receiving valuation advice that the sale price exceeded the expected present value of the Telegraph Group's projected cash flows.

Issue

Did the sale of the Telegraph Group constitute a sale of "substantially all" of International's assets under DGCL § 271, thereby requiring a stockholder vote? If not, did equity nevertheless require a vote or an injunction because Inc. was a controlling stockholder allegedly deprived of influence and because the directors allegedly acted with gross negligence?

Rule

Under DGCL § 271, a stockholder vote is required only when a sale, considered both quantitatively and qualitatively, amounts to substantially all of the corporation's assets. Applying Gimbel, the court asks whether the assets sold are quantitatively vital to the corporation and whether the transaction substantially affects the corporation's existence and purpose in the sense of striking at the heart of the corporate existence; a major or prestigious asset sale alone is not enough. A controlling stockholder has no extra-equitable veto right over board decisions beyond rights provided by statute, and disinterested directors do not breach the duty of care absent gross negligence.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Granite Harbor Media, a Delaware corporation based in Denver, owns two major operating divisions: a Pacific Northwest newspaper chain and a Texas digital-news network. After an auction, the board agrees to sell the newspaper chain for 57% of the company’s estimated sale value, while retaining the digital network, which has produced EBITDA comparable to the sold division and will keep the company profitable.

Is stockholder approval most likely required under DGCL § 271?

Explanation. Under the majority opinion, § 271 requires a vote only when the assets sold are quantitatively and qualitatively substantially all of the corporation’s assets. The court rejected any 'approximately half' test. Where the corporation retains another substantial, profitable operating business with comparable cash-flow significance, the sale does not amount to substantially all even if the sold division is the most valuable single asset. (Derived from Hollinger, Inc. v. Hollinger International, Inc. (n.d.).)