Chancery Court Shifts Entire Fairness Burden in 'Sauer-Danfoss'

In a Jan. 22 order, Delaware Court of Chancery Vice Chancellor J. Travis Laster ruled that the entire fairness standard of review would apply in post-closing damages litigation arising out of the acquisition by Danfoss of the 24.4 percent of Sauer-Danfoss shares that it did not already own. The court, however, shifted the burden of persuasion to the shareholder-plaintiffs to prove at trial that the acquisition was not entirely fair, as in In re Sauer-Danfoss Stockholder Litigation, C.A. No. 8396-VCL (Order Partially Granting Motions for Summary Judgment, Jan. 22, 2016).

The transaction announced March 1, 2013, involved a tender offer by Danfoss for the minority shares of Sauer-Danfoss, and a subsequent short-form merger that was completed April 12, 2013. The discussions started with a letter from Danfoss to the Sauer-Danfoss board, which stated that Danfoss understood the board “will want to establish a special committee comprised of independent directors” and that the “special committee will want to retain its own legal and financial advisers.” The letter further expressed Danfoss’ “willingness and desire to engage in productive and friendly discussions … that will result in a fair and mutually beneficial negotiated transaction.”