Smith v Van Gorkom

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Smith v Van Gorkom
In order to take advantage of a favorable tax situation, defendant Van Gorkom, chief executive…

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Smith v Van Gorkom

Smith v Van Gorkom

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CASE 17-3 Smith v. Van Gorkom

Delaware Supreme Court 488 A.2d 858 (1985)

In order to take advantage of a favorable tax situation, defendant Van Gorkom, chief executive of Trans Union Corporation (Trans Union or the Company), solicited a merger offer from Pritzker, an outside investor. Van Gorkom acted on his own and arbitrarily arrived at a buyout price of $55 per share. Without any investigation, the full Trans Union board accepted the offer informally.

The offer was proposed two more times before its formal acceptance by the board. Plaintiff Smith and other shareholders brought suit, claiming that the board had failed to give due consideration to the offer. The trial court held that the shareholder vote approving the merger should not be set aside because the stockholders had been “fairly informed” by the board of directors before they voted on it.

The court also found that, because the board had considered the offer three times before formally accepting it, the board had acted in an informed manner and was, therefore, entitled to the protection of the business judgment rule. The plaintiffs appealed…