Whether minority shareholders are entitled to share proportionately in a premium paid to purchase a controlling block of corporate stock.
Holding
No. A controlling shareholder may sell a controlling interest at a premium without sharing that premium with minority shareholders, absent looting of corporate assets, diversion of a corporate opportunity, fraud, or other bad faith.
Reasoning
The Court applied the settled rule that a person who has invested enough capital to acquire a dominant ownership position has the right to transfer that control. A buyer may likewise pay more than the market price to obtain the ability to direct the corporation's affairs.
A control premium reflects the additional value a purchaser places on the privilege of directly influencing corporate management and policy. It is therefore compensation for the controlling block's distinct attribute—effective control—not simply an increase in the value of every outstanding share.
Minority shareholders remain protected when a controller's sale involves looting corporate assets, conversion of a corporate opportunity, fraud, or comparable bad faith. But Zetlin alleged no such abuse, and the Court declined to extend minority protection into a general right to participate in every control premium.
The rule Zetlin proposed would effectively require transfers of control to proceed through an offer to all shareholders, much like a tender offer. Because that approach would radically alter established practice governing transfers of controlling stock, the Court concluded that any such change should come from the Legislature rather than judicial decision.