Citation. 48 N.Y.2d 684, 421 N.Y.S.2d 877, 397 N.E.2d 387 (1979)
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Plaintiff, Lev Zetlin, brought this action to receive the premium price for his minority shares that Defendants, Hanson Holdings, Inc. et al., received for their controlling shares.
Synopsis of Rule of Law.
Absent bad faith such as corporate looting of assets or a conversion of a corporate opportunity, a party can purchase a controlling share of a corporation at a premium price without extending a tender offer to all shareholders.
Facts.
Plaintiff owned 2% of Gable Industries, Inc. Defendants owned 44.4% of the outstanding shares which they sold to Flintkote Co. for $15, giving Flintkote the controlling majority. The open market value of the shares was $7.38 per share. Plaintiff brought this action, believing all of the Gable shareholders were entitled to the premium paid by Flintkote.
Issue.
The issue is whether Plaintiff is entitled to the premium share value that Flintkote paid to Defendants for their controlling shares.
Held.
The Court of Appeals of New York declined to adopt Plaintiff rule which would effectively mandate that a purchaser give a tender offer to all shareholders when they are only seeking a controlling interest in a corporation. The rule change should be provided by the legislature and not the courts, but the current law has never held that such a policy should be in place.
Discussion.
The court realized that the rule advocated by Plaintiff would place a significant burden on parties who are simply trying to get a majority interest in a company rather than complete ownership.
