Hollinger Inc. v. Hollinger International, Inc.
858 A.2d 342, 2004 Del. Ch. LEXIS 100 (2004)
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Rule of Law:
Under Delaware General Corporation Law § 271, a sale of assets does not constitute a sale of 'substantially all' of a corporation's assets requiring stockholder approval if the corporation retains a substantial, viable, and profitable business component. The determination requires a combined quantitative and qualitative analysis of whether the sale strikes at the heart of the corporate existence, rather than being a simple numerical majority test.
Facts:
- Hollinger International, Inc. ('International') was a publicly traded publishing company controlled by its majority shareholder, Hollinger Inc. ('Inc.'), which was in turn controlled by Conrad Black.
- International's business involved owning various newspaper groups, and it had a history of buying and selling major publishing assets as part of its ordinary course of business.
- By 2003, International’s two most significant assets were the Telegraph Group (a prestigious UK publisher) and the Chicago Group (a US publisher). These two groups were of roughly comparable economic importance, with the Chicago Group recently generating more profit (EBITDA).
- Following an investigation into alleged self-dealing by Conrad Black, International's independent directors initiated a 'Strategic Process' to explore options to maximize shareholder value, including a potential sale of the company or its major assets.
- Conrad Black, acting for Inc., attempted to undermine this process by diverting a potential buyer for the Telegraph Group, the Barclays, into a secret deal to buy Inc. itself.
- After litigation enjoined Black's deal, International's board, through a Corporate Review Committee (CRC) of independent directors, conducted a broad auction for the company's assets.
- The CRC concluded that the most favorable transaction was the sale of the Telegraph Group and approved an agreement to sell it to the Barclays for approximately $1.2 billion.
- Following the proposed sale, International would still own the profitable Chicago Group, the Canada Group, and the Jerusalem Group, and would continue to operate as a viable publishing company with substantial assets and cash flow.
Procedural Posture:
- Hollinger Inc. filed a lawsuit against Hollinger International, Inc. in the Delaware Court of Chancery, a court of first instance specializing in corporate law.
- Hollinger Inc. moved for a preliminary injunction to prevent Hollinger International from consummating the sale of the Telegraph Group Ltd.
- The Court of Chancery conducted an expedited hearing to consider the motion for a preliminary injunction.
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Issue:
Does the sale of a major corporate asset group, the Telegraph Group, which may be the company's most valuable asset but leaves the company with another profitable, comparably sized operating group, constitute a sale of 'substantially all' of the corporation's assets under 8 Del. C. § 271, thus requiring stockholder approval?
Opinions:
Majority - Strine, Vice Chancellor
No. The sale of the Telegraph Group does not constitute a sale of 'substantially all' of Hollinger International's assets under § 271. The court applied the two-part test from Gimbel v. Signal Cos. to reach this conclusion. Quantitatively, the Telegraph Group is not 'vital' to International's existence because the company will retain the Chicago Group, another substantial and profitable operating asset of comparable economic significance. The court explicitly rejected interpreting 'substantially all' to mean 'approximately half.' Qualitatively, the sale does not fundamentally alter the nature of the corporation, as International has a history of acquiring and disposing of major publishing assets. The court dismissed arguments based on the Telegraph's prestige, focusing instead on the economic reality that International remains a viable, profitable publishing company post-sale, meaning the transaction does not strike at the heart of its corporate existence.
Analysis:
This decision provides significant clarification on the 'substantially all' assets test under DGCL § 271, solidifying the principles of the Gimbel case. It firmly rejects a bright-line quantitative rule, such as a simple majority of asset value, in favor of a more holistic analysis focused on the viability of the remaining business. The ruling gives corporate boards considerable discretion to divest major assets without a stockholder vote, provided the transaction does not effectively end the company's existing business enterprise. By emphasizing economic substance over non-economic factors like prestige, the opinion reinforces that the purpose of § 271 is to protect shareholders from the liquidation of their investment, not from major strategic shifts.
