Weinberger v. UOP, Inc.

Signal Companies purchased 51.5% of Universal Oil Products Company's (UOP's) stock. Signal then decided to acquire the remaining outstanding stock of UOP stock through a cash-out merger. Plaintiff challenged the cashing-out of UOP's minority shareholders and brought a duty of loyalty claim against UOP's directors.

(1) The plaintiff in a suit challenging a cash-out merger must allege specific acts of fraud, misrepresentation, or other items of misconduct to demonstrate the unfairness of the merger terms to the minority; (2) In a cash-out merger, the burden of proof is on the majority to show by a preponderance of the evidence that the transaction is fair; (3) It is first the burden of the plaintiff attacking the merger to demonstrate some basis for invoking the fairness obligation; and (4) Where corporate action has been approved by an informed vote of a majority of minority shareholders, the burden entirely shifts to the plaintiff to show that the transaction was unfair to the minority. The standard applied by the court is known as the ENTIRE FAIRNESS standard, which means that the merger must be fair in both price and process. The court held that the vote wasn't informed and that there were conflicting duties because of similar directors in both target and acquiring companies.

Fundamental Change Transactions | Freezeout Mergers