In Kahn v. M&F Worldwide, 88 A.3d 635 (Del. 2014), and its progeny, Delaware courts established that transactions subject to the entire fairness standard of review due to the presence of a conflicted controlling stockholder will nonetheless receive business judgment rule deference if the deal in question is conditioned ab initio on two well-known procedural protections: approval by a fully empowered special committee of disinterested directors, and a fully informed, uncoerced vote of a majority of disinterested stockholders. The Delaware Supreme Court's most recent definitive explanation of what MFW's ab initio element requires arrived just over a year ago in Olenik v. Lodzinski, 208 A.3d 704 (Del. 2019), where the high court explained that "ab initio" means "early and before substantive economic negotiation [takes] place." Since Olenik, however, each of the three published Court of Chancery opinions substantively addressing whether transacting parties met the ab initio requirement held that the parties failed. This article elucidates the contours of the ab initio requirement by mining fact-based guideposts from those three cases.

The first case, Arkansas Teacher Retirement System v. Alon USA Energy, (Del. Ch. June 28, 2019), involved a 48% controlling stockholder's buyout of the remaining 52% of the target company's stock. Before the parties conditioned the deal on MFW protections, the target's special committee retained financial and legal advisers, the controller and target entered into a confidentiality agreement, and the controller's CEO and president met with the chairman of the target's special committee six times. The Court of Chancery, applying the plaintiff-friendly reasonable conceivability standard applicable to motions to dismiss, held that the ab initio requirement was not met because during those six meetings, the following back-and-forth occurred:

• The controller first proposed stock-for-stock consideration and an exchange ratio reflecting a discount to market price.
• The target responded by requesting a $4 special dividend and an exchange ratio not reflecting a discount.
• The controller proposed mixed consideration to accommodate a no-discount exchange ratio.
• The target responded that the special committee would expect a cash-based premium.

The Court of Chancery reasoned that this colloquy was "substantive" under Olenik because it addressed the deal's "structure, exchange ratio, and price terms." The court cited the confidentiality agreement and the special committee's retention of advisers as further factual support for its holding.