UCLA School of Law

In a decades-long series of decisions culminating with its 2014 ruling in In re MFW Shareholders Litigation, the Delaware courts constructed a doctrinal infrastructure that encouraged two procedural protections for minority shareholders in freezeout transactions: approval by a special committee of independent directors (“SC approval”), and approval by a majority-of-the-minority shares (a “MOM condition”).  Empirical evidence indicated that practitioners largely adopted this dual-pronged approach to freezeouts for most of the following decade. However, in a trilogy of decisions from 2022-2023, the Delaware Chancery Court unintentionally created dis-incentives for MOM conditions. We present the first empirical evidence from this new doctrinal regime, and find that MOM conditions have indeed decreased significantly in incidence: from approximately 85% beforehand to approximately 50% afterwards.  

As a policy matter, we argue that our findings reflect a step in the wrong direction. Delaware courts should encourage the procedural protections of SC approval and a MOM condition, because these protections track the procedural protections in an arms-length deal process.  While jurisdictions around the world are attempting to replicate Delaware’s protections for minority shareholders, Delaware itself has unintentionally moved away from those same protections.  To the extent that controllers and special committees are reluctant to provide MOM conditions due to “hold up” risk by activist investors, we offer a majority-of-the-original minority (MOOM) condition as an alternative that would address this concern.  In a recent transaction announced after the working paper version of this Article was published online (the $9.4 billion freezeout of the minority shares in Skechers, announced in May 2025), the controlling shareholder implemented a version of a MOOM condition, thereby demonstrating the viability of this mechanism.

Our MOOM proposal has greater salience after the Delaware legislature’s 2025 amendments to the Delaware corporate code, which weakened the effectiveness of special committees in freezeouts.  With weaker special committees, the back-end protection of majority-of-the-minority approval becomes more important.  Our proposal strengthens the back-end; and in doing so it represents a welfare-improving private response to legislative developments in Delaware.