FORTUNE — The Delaware Chancery Court has given some comfort to venture capital and private equity firms with minority stakes in publicly-traded companies, in a ruling related to last year’s $117 million acquisition of steakhouse chain Morton’s Restaurant Group by an affiliate of Landry’s Inc.
Certain shareholders had challenged the sale, partially under a theory that private equity firm Castle Harlan – a 28% shareholder in Morton’s – had improperly influenced the sale process. Why? To provide liquidity to limited partners (the original investment was a decade old), so as to improve future fundraising odds.
Judge Leo Strine – not always private equity’s biggest fan, despite last week’s Dell
decision – dismissed the complaint, finding that: (a) The sale process was thorough, and (b) Castle Harlan “benefited from the transaction pro rata with the other stockholders.
“This nips in the bud a plaintiff’s theory that was beginning to blossom about there being something wrong with a large stockholder – maybe even a controlling stockholder – being part of a decision that it’s time to sell the company,” says Jim Lidbury, co-head of the M&A practice at Ropes & Gray.
Lidbury dismisses the notion that a PE firm would time a sale process to benefit fundraising – he (and seemingly Strine) finds it “absurd” while I find it entirely plausible – but adds that motive is secondary to process.
“There have now been four broadly similar cases in the past several years, and the only time the plaintiff survives is when there is something flaky about the process, like an allegation of intimidation to fire people,” he explains. “So long as you run a professional, clean process you’re going to be in a very defensible position.”
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