The CEO of Trans Union, a Delaware corporation, negotiated a leveraged buyout with an investor. The deal was made outside of the knowledge of the other members of the board of directors and was proposed to them in a summary fashion in a relatively short board meeting with no supporting data or figures.

The buyout plan was approved by the board without significant investigation, and the price was approved at $55 per share, which was far above the stock market price. The majority of the shareholders approved the merger, but a group of shareholders opposed to the deal sued the board in the Delaware Court of Chancery, demanding the fair market value of their shares.

CASE QUESTIONS

1. Is the board’s decision to approve the buyout protected by the business judgment rule (i.e., made in good faith) under these facts? Why or why not?
2. How likely is it that a court will apply the enhanced scrutiny test to these facts?