In Re CNX Gas Corp. Shareholders Litigation

OPINION

Representatives of a putative class of minority stockholders have challenged a controlling stockholder freeze-out structured as a first-step tender offer to be followed by second-step short-form merger. The plaintiffs have sued the controlling stockholder, its controlled subsidiary, and the four members of the subsidiary board. Three of the subsidiary directors are also directors of the controller. The fourth is an independent outsider and the sole member of the special committee formed to respond to the controller’s ten *400 der offer. The plaintiffs have moved for a preliminary injunction against the transaction.

I apply the unified standard for reviewing controlling stockholder freeze-outs described in In re Cox Communications, Inc. Shareholders Litigation, 879 A.2d 604 (Del.Ch.2005). Under that standard, the business judgment rule applies when a freeze-out is conditioned on both the affirmative recommendation of a special committee and the approval of a majority of the unaffiliated stockholders. Because the special committee did not recommend in favor of the tender offer, the transaction at issue in this case will be reviewed for entire fairness. Although the lack of an affirmative recommendation is sufficient to trigger fairness review under Cox Communications, the plaintiffs also have shown that the special committee was not provided with the authority to bargain with the controller on an arms’ length basis. The plaintiffs similarly have established a reasonable basis to question the effectiveness of the majority-of-the-minority tender condition.

Because a fairness standard applies to the challenged transaction, any harm to the putative class can be remedied through a post-closing damages action. There are no viable disclosure claims, and the tender offer is not coercive. I therefore decline to issue a preliminary injunction.

I. FACTUAL BACKGROUND

The record developed during expedited discovery is limited. I draw the facts from the public disclosures provided in connection with the freeze-out and the few documents and five deposition transcripts submitted by the parties.

A. CONSOL Forms CNX Gas.

Defendant CONSOL Energy, Inc. (“CONSOL”) is a Delaware corporation with its principal place of business in Can-onsburg, Pennsylvania. CONSOL is the largest producer of high-Btu bituminous coal in the United States. Its shares trade publicly on the New York Stock Exchange under the symbol “CNX.”

CONSOL is also a leader in the production of coalbed methane gas. In the early 1980s, CONSOL began extracting coalbed methane gas to reduce the gas content of its coal and enhance the safety and productivity of its mining operations. From these beginnings sprang a commercial coalbed methane gas business.

In June 2005, CONSOL formed defendant CNX Gas Corporation (“CNX Gas”), also a Delaware corporation, to conduct CONSOL’s natural gas operations. CON-SOL’S board of directors authorized a public offering of less than 20% of the common stock of CNX Gas as the first step towards a potential spin-off. In August 2005, CNX Gas sold approximately 27.9 million shares in a private placement. A registration statement for the shares was declared effective in January 2006, and shares of CNX Gas began trading publicly on the New York Stock Exchange under the symbol “CXG.”

In contemplation of the potential spinoff, CONSOL and CNX Gas entered into a number of agreements to govern their relationship, including a Master Separation Agreement, a Master Cooperation and Safety Agreement, a Tax Sharing Agreement, and a Services Agreement. Among other things, the Master Separation Agreement provides that as long as CON-SOL beneficially owns at least 50% of the CNX Gas common stock, CNX Gas will not (i) take any action to limit the ability of CONSOL to transfer its shares, (ii) take any action that could reasonably result in CONSOL defaulting under any contract or agreement, or (iii) issue any additional eq *401 uity without CONSOL’s consent if the issuance would result in CONSOL owning less than 80% of CNX Gas’ outstanding shares. The Master Separation Agreement gives CONSOL the right to purchase additional shares of common stock in order to maintain at least 80% ownership in CNX Gas or to enable CONSOL to distribute its shares of CNX Gas in a tax-free spin-off. The exercise price under either option is the then-market price for CNX Gas common stock. CNX Gas further agreed not to buy or sell any assets, dispose of any assets, or acquire any equity or debt securities of a third party, in each case in excess of $30 million, without CON-SOL’s prior consent.

As of April 26, 2010, there were 151,-021,770 shares of CNX Gas common stock outstanding. CONSOL, its officers and directors, and the officers and directors of CNX Gas own 126,057,300 shares for an aggregate ownership stake of approximately 83.5%.

The remaining shares of CNX Gas are held principally by institutional investors, with the top twenty-five institutions holding over 87% of the public float. The largest minority stockholder of CNX Gas is T. Rowe Price Associates, Inc. (“T. Rowe Price”). The T. Rowe Price Capital Appreciation Fund and its clones (mirror image portfolios managed for insurance companies) hold approximately four million shares of CNX Gas. David Giroux manages the Capital Appreciation Fund. The T. Rowe Price Mid-Cap Growth Fund and its clones hold approximately five million shares of CNX Gas. John Wakeman and Brian Berghuis manage the Mid-Cap Growth Fund. Other funds in the T. Rowe Price family hold approximately 470,000 additional shares. In total, T. Rowe Price beneficially owns 9,474,116 shares of CNX Gas, representing 6.3% of the outstanding common stock and approximately 37% of the public float.

T. Rowe Price holds a slightly larger percentage stake in CONSOL, primarily through the Mid-Cap Growth Fund. In the aggregate, the T. Rowe Price fund family, including index funds, owns approximately 11,809,600 CONSOL shares. This represents approximately 6.5% of CONSOL’s outstanding common stock. T. Rowe Price also owns CONSOL debt. The Capital Appreciation Fund does not own any CONSOL stock or debt.

B. CONSOL’s 2008 Proposal

In January 2008, CONSOL proposed to acquire the public shares of CNX Gas through an exchange offer. On January 29, 2008, CONSOL publicly announced that it would exchange 0.4425 shares of CONSOL common stock for each share of CNX Gas it did not own. Based on the pre-announcement price of CONSOL common stock, the value of the consideration was $33.70. Various institutional investors, including T. Rowe Price, reacted negatively and indicated that they would not tender their shares. Although the board of CNX Gas formed a special committee to evaluate the exchange offer, CONSOL withdrew its proposal without ever formally commencing an exchange offer and before the special committee had a chance to consider it.

C. CONSOL Reorganizes The Board And Management Of CNX Gas.

In January 2009, CONSOL decided to revamp the corporate governance structure of CNX Gas. All board committees other than the audit committee were eliminated. The size of the board was decreased from eight directors to five. A subsequent resignation reduced its membership to four. The remaining directors are defendants J. Brett Harvey, the Chief *402 Executive Officer of CONSOL; Philip W. Baxter and Raj K. Gupta, both directors of CONSOL; and John R. Pipski, the sole independent director of CNX Gas.

In addition to the board-level changes, Harvey took over as Chairman and CEO of CNX Gas. Nicholas Deluliis, who had been CEO of CNX Gas, became Chief Operating Officer of CONSOL and CNX Gas. Other senior executives of CONSOL and CNX Gas also hold dual roles. William J. Lyons is Chief Financial Officer of both CONSOL and CNX Gas. F. Jerome Richey is General Counsel of both CON-SOL and CNX Gas. Robert P. King is Executive Vice President — Business Advancement and Support Services of both CONSOL and CNX Gas. Robert F. Pusa-teri is Executive Vice President — Energy Sales and Transportation Services of both CONSOL and CNX Gas. Daniel Zajdel is Vice President of Investor Relations for both CONSOL and CNX Gas.

D. The Tender Agreement With T. Rowe Price

In September 2009, CONSOL approached T. Rowe Price about potentially acquiring its CNX Gas shares. Harvey contacted Wakeman, a co-manager of the Mid-Cap Growth Fund, and asked him whether T. Rowe Price would consider exchanging its CNX Gas shares for CON-SOL shares. Wakeman said he would get back to Harvey, but did not, and the discussions lay dormant for six months.

On March 9, 2010, Wakeman and Ber-ghuis, the co-managers of the Mid-Cap Growth Fund, met with Deluliis and Zaj-del while attending an investor conference in Orlando, Florida. None of these gentlemen were deposed. A faxed memo dated March 11 and an email dated March 12, both from Wakeman to Deluliis, indicate that the meeting participants discussed having CONSOL acquire T. Rowe Price’s shares of CNX Gas in connection with a freeze-out transaction. During the meeting, the T. Rowe Price representatives suggested a price in the mid-$40s, and Deluliis indicated that a price of up to $40 per share could be acceptable. That same day, T. Rowe Price put CONSOL and CNX Gas on its restricted list. This permitted T. Rowe Price to negotiate with CONSOL over a potential sale.

In his March 11 memo, Wakeman followed up on these discussions. Wakeman stated that he viewed the CONSOL strategy as “pretty smart” and listed ten reasons why a freeze-out at $40 to $42.50 per share “ma[de] sense” for CONSOL. His reasons included the following:

(3) [CONSOL]’s management team A/K/A [CNX Gas]’s management has done a nice job of working down growth expectations for [CNX Gas] in 2010-2012 so [CNX Gas]’s #’s are too low on the production side.

% * *

(6) Given the low expectations for [CNX Gas], your new growth strategy for [CNX Gas] is not in street models for post 2011. As you ramp up production here starting in the 2H-2010 and into 2011-12 this is upside to the [CONSOL] story.

(7) It is interesting to note that a buy in price of $40 or $42.50 really has minimal impact on the initial deal dilution so the purchase price should almost be a non-event.

The defendants portray the fax as Wake-man’s friendly way of pushing for a price in excess of $40 for the CNX Gas shares. I regard it (at least at this preliminary stage) as suggesting Wakeman supported a freeze-out because of the benefits to CONSOL.

On March 15, 2010, CONSOL announced that it had agreed to acquire the *403 gas assets of Dominion Resources, Inc., a CNX Gas competitor, for approximately $3.475 billion in cash (the “Dominion Transaction”). Many of Dominion’s assets are located near CNX Gas properties. Under the Master Separation Agreement, CNX Gas has a right of first refusal on any corporate opportunity involving future gas rights that CONSOL proposes to pursue. The CONSOL board determined not to offer the Dominion Transaction to CNX Gas pursuant to the right of first refusal because it concluded that CNX Gas lacked the financial resources and could not access the capital markets. CNX Gas could not raise sufficient equity financing without CONSOL’s consent, and CONSOL was unwilling to permit the necessary issuance. Nevertheless, the long term benefits of consolidating the Dominion and CNX Gas assets were obvious, and CONSOL announced publicly that it was “evaluating a range of structural alternatives to facilitate the operation and development of the acquired assets including, among other things, consideration of the acquisition by CONSOL of the shares of CNX Gas common stock that it does not already own.”

On March 16, 2010, one day after the announcement of the Dominion Transaction, Shawn Driscoll, the analyst at T. Rowe Price who covered CNX Gas, contacted Zajdel to schedule a meeting with CONSOL management. A meeting was set for March 19. On March 17, Wakeman e-mailed Deluliis “to advance the ball in our discussions.” He wrote that “based on the belief that you would prefer an all-stock transaction in light of the recent development involving the asset purchase with Dominion Resources we feel that a $42.50 price along with a small collar of 5-10% of deal price support would allow us to support any purposed [sic.] transaction with [CNX Gas].”

The attendees for CONSOL at the March 19 meeting were Harvey, CEO of both CONSOL and CNX Gas, and Richey, General Counsel of both CONSOL and CNX Gas. The attendees for T. Rowe Price were Driscoll, the analyst; Giroux from the Capital Appreciation Fund; John Linehan, T. Rowe Price’s director of equities; and T. Rowe Price’s counsel. Wake-man and Berghuis from the Mid-Cap Growth Fund did not attend. They gave Giroux their proxy to negotiate on their behalf.

The meeting was divided into two phases: a negotiation session and an informational meeting about the Dominion Transaction. During the negotiation session, Driscoll presented T. Rowe Price’s views on valuation, which relied in part on the Dominion Transaction as a comparable arms’ length transaction involving similar assets. Giroux then suggested a range of $42 to $50 per share. Harvey responded by offering $35 per share in cash. Giroux rejected this as “not realistic.” A long discussion ensued. Harvey then asked for a break-out room and met with Richey in private. After they returned, Harvey raised his offer to $37 per share in cash. Giroux responded, “we need $40.” Harvey rejected that figure and regarded the negotiations as over.

With the negotiation session finished, Giroux departed. The record suggests that he called Berghuis, although the point is undeveloped. The remaining participants, including Linehan, discussed the Dominion Transaction. The plaintiffs assert that at the conclusion of the Dominion discussion, Linehan retrieved Giroux. Upon returning, Giroux stated that his “final offer” was now $38.25 in cash. Harvey agreed to $38.25, subject to the approval of the CONSOL board.

The CONSOL board signed off on the transaction with T. Rowe Price on March *404 20, 2010. On March 21, CONSOL and T. Rowe Price executed a tender agreement, and CONSOL issued a press release announcing the agreement and the contemplated tender offer. The tender agreement provided that, subject to certain conditions, CONSOL would commence the tender offer no later than May 5, 2010, at a price of no less than $38.25 per share in cash. The tender agreement obligated T. Rowe Price to tender its shares of CNX Gas no later than 10 business days after the commencement of the offer and to not withdraw its shares.

E. The Tender Offer

On April 28, 2010, CONSOL commenced a tender offer to acquire the outstanding public shares of CNX Gas at a price of $38.25 per share in cash (the “Tender Offer”). The price represents a premium of 45.83% over the closing price of CNX Gas’s common stock on the day before CONSOL announced the Dominion Transaction and its intent to acquire the shares of CNX Gas that it did not already own ($26.23). The Tender Offer price represents a 24.19% premium over the closing price of CNX Gas’s common stock on the day before CONSOL announced the T. Rowe Price agreement ($30.80).

CONSOL has committed to effect a short-form merger promptly after the successful consummation of the Tender Offer. In the merger, remaining stockholders will receive the same consideration of $38.25 per share in cash. Consummation of the Tender Offer is subject to a non-waivable condition that a majority of the outstanding minority shares be tendered, excluding shares owned by directors or officers of CONSOL or CNX Gas. The T. Rowe Price shares are included in the majority-of-the-minority calculation. With the T. Rowe Price shares locked up, CONSOL only needs to obtain an additional 3,006,316 shares, or approximately 12% of the outstanding stock, to satisfy the condition.

F. The Special Committee

After the public announcement of the tender agreement with T. Rowe Price, Lyons, the CFO of CONSOL and CNX Gas, discussed with Pipski, the lone independent director of CNX Gas, the possibility that the CNX Gas board might form a special committee in connection with the CONSOL Tender Offer. On April 9, 2010, Pipski met with Harvey and delivered a letter asking that CNX Gas form a special committee to evaluate the proposed Tender Offer and elect an additional director who could join Pipski on the special committee. At a special meeting held on April 15, the CNX Gas board unanimously approved the formation of a special committee consisting of Pipski (the “Special Committee”). The board did not act on Pipski’s request for an additional director.

The scope of the authority that the CNX Gas board provided to the Special Committee was limited. The Special Committee was authorized only to review and evaluate the Tender Offer, to prepare a Schedule 14D-9, and to engage legal and financial advisors for those purposes. The resolution did not authorize the Special Committee to negotiate the terms of the Tender Offer or to consider alternatives. Pipski asked for the authority to consider alternatives, but the CNX Gas board declined his request. The CNX Gas board majority grounded its decision on CONSOL’s unwillingness to sell its CNX Gas shares.

After the April 15 board meeting, the Special Committee retained Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) as its legal advisor and La-zard, Ltd. (“Lazard”) as its financial advis- or. The next day, Pipski delivered a letter to his fellow directors asking that they expand the Special Committee’s authority *405 to include “the full powers and authority of the board of directors” with respect to the Tender Offer. On April 21, the CNX Gas board declined this request, again because CONSOL was unwilling to sell its CNX Gas shares.

On April 22, 2010, CONSOL provided the Special Committee and its advisors with financial information, including projections for CNX Gas. On April 26, representatives from Skadden and Lazard met with executives of CONSOL and CNX Gas, including Harvey, Deluliis, and Lyons. The Special Committee’s advisors also spoke with T. Rowe Price.

On May 5, 2010, Pipski and his advisors met in person to determine how to respond to the Tender Offer. Lazard advised Pip-ski that it would be able to opine that an offer price of $38.25 per share was fair from a financial point of view to holders of CNX Gas common stock other than CON-SOL. But Pipski and his advisors believed that CONSOL was not paying the highest price it was prepared to pay.

Even though the Special Committee was technically not authorized to negotiate, Pipski decided to seek a price increase. On May 5, 2010, Skadden advised CONSOLE counsel that Pipski could not recommend the Tender Offer at a price of $38.25 but likely could do so at $41.20. Five days later, on May 10, the day before the Schedule 14D-9 was due, the CNX Gas board retroactively granted the Special Committee authority to negotiate. On the next day, May 11, Pipski and his advisors held a call with CONSOL senior executives and their advisors. CONSOL declined to increase the price.

Later on May 11, the Special Committee issued the Schedule 14D-9. The Special Committee stated in the Schedule 14D-9 that it “determined not to express an opinion on the offer and to remain neutral with respect to the offer.” The Special Committee cited its “concerns about the process by which CONSOL determined the offer price” and its “view that CONSOL was unwilling to negotiate the offer price.” The Schedule 14D-9 noted that a member of CONSOL management (apparently Deluliis) previously suggested that CNX Gas stock was worth more than $38.25. The Schedule 14D-9 also reported that the CNX Gas board refused to expand the size of the Special Committee or grant it the full power of the board in connection with the offer.

The Schedule 14D-9 specifically cited the tender agreement with T. Rowe Price as a “potentially negative factor[]” that the Special Committee considered when evaluating the Tender Offer. The Schedule 14D-9 states:

The Tender Agreement with T. Rowe Price increases the certainty of the offer being successful and, as a result, reduces the likelihood of any increase in the offer price by reducing the negotiation leverage of the “majority of the minority” condition. The Special Committee considered that T. Rowe Price’s interests may not be the same as the other minority shareholders due to the fact that T. Rowe Price beneficially owned 6.51% of the outstanding common stock of CONSOL. In addition, the offer price was determined through relatively short negotiations with T. Rowe Price without the input from any other minority shareholders or the Special Committee.

Trading in CNX Gas stock suggests a market consensus that a price bump was unlikely. Since the announcement of the tender offer agreement, CNX Gas shares have not traded more than a couple of pennies above the $38.25 per share agreed to by T. Rowe Price. The plaintiffs argue that by entering into the agreement with T. Rowe Price and announcing it on March *406 21, CONSOL capped the price of the CNX Gas stock and hamstrung the Special Committee.

The Tender Offer is scheduled to close tomorrow, May 26, 2010, at 5:00 p.m.

II. LEGAL ANALYSIS

A preliminary injunction will issue if the plaintiffs demonstrate “(1) a reasonable probability of ultimate success on the merits at trial; (2) that the failure to issue a preliminary injunction will result in immediate and irreparable injury before the final hearing; and (3) that the balance of hardships weighs in the movant’s favor.” La. Mun. Police Employees’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1185 (Del.Ch.2007).

A. The Plaintiffs Have Shown A Reasonable Likelihood Of Success On The Merits Of Their Fairness Claim.

The plaintiffs contend that the Tender Offer should be reviewed for entire fairness. This argument requires that I weigh in on a critical and much debated issue of Delaware law: the appropriate standard of review for a controlling stockholder freeze-out.

1. The Appropriate Standard Of Review For The Tender Offer

As knowledgeable readers understand all too well, Delaware law applies a different standard of review depending on how a controlling stockholder freeze-out is structured. Under Kahn v. Lynch Communication Systems, Inc., 638 A.2d 1110 (Del.1994) [hereinafter, “Lynch ”], a negotiated merger between a controlling stockholder and its subsidiary is reviewed for entire fairness. 1 But under In re Siliconix Inc. Shareholders Litigation, 2001 WL 716787 (Del.Ch. June 19, 2001), a controller’s unilateral tender offer followed by a short-form merger is reviewed under an evolving standard far less onerous than Lynch 2 The tension created by the differ *407 ent fiduciary standards has been discussed at length by Vice Chancellor Strine 3 and generated reams of scholarly and practitioner commentary. 4 I will set forth my own views in more abbreviated fashion.

I question the soundness of the twin cornerstones on which Siliconix rests. The first cornerstone is the statutory distinction between mergers and tender offers and the lack of any explicit role in the General Corporation Law for a target board of directors responding to a tender offer. For reasons explained at length in Pure Resources, the statutory distinction fails to justify adequately the divergent fiduciary approaches. See Pure Resources, 808 A.2d at 433-44, 439-41. Scholars have joined in criticizing the statutory distinction. See, e.g., Fixing Freezeouts, supra, at 24-25; Gilson & Gordon, supra, at 820-21.

The second cornerstone has been Solomon v. Pathe Communications Corp., 672 A.2d 35 (Del.1996) [hereinafter, “Solomon II”], which has been cited repeatedly for the rule that a tender offeror has no duty to provide a fair price. But Solomon II did not involve a freeze-out. Chancellor Allen, whose decision granting a motion to dismiss was affirmed by the Delaware Supreme Court in Solomon II, described the case as follows:

The suit grows out of the tail-end of a commercial debacle in which Credit Lyonnais Banque Nederland N.V. (“CLBN”) on its way to losing a huge sum, was forced to exercise certain contractual rights and its rights as a secured party, first to take over the management and later the legal ownership of MGM/UA Communications Corporation (“MGM”) and, incidentally thereto, of Pathe Communications Corporation [“Pathe”].

Solomon v. Pathe Communications Corp., 1995 WL 250374, at *1 (Del.Ch. Apr. 21, 1995) [hereinafter, “Solomon I”] (emphasis added).

The facts giving rise to Solomon II lead away from Siliconix. CLBN obtained its contractual and secured party rights when it financed Pathe’s purchase of 98.5% of the common stock of MGM, years before the tender offer. As security for the loan, Pathe pledged the MGM shares and Pathe’s controlling stockholder (the notorious Giancarlo Paretti) pledged his 89.5% interest in Pathe. CLBN also acquired the right to vote the MGM and Pathe shares as the trustee of two voting trusts. *408 When Pathe and MGM defaulted on the debt, CLBN exercised its voting power to take control of the Pathe and MGM boards. Paretti contested those actions, leading to Chancellor Allen’s decision in the resulting Section 225 proceeding and his famous footnote 55. See Credit Lyonnais Bank Nederland, N.V. v. Pathe Commc’ns Corp., 1991 WL 277613 (Del.Ch. Dec. 30,1991).

Despite losing the Section 225 action, “Paretti and his associates ... continued in Italian courts to challenge CLBN’s attempt to exercise control over Pathe and MGM” to the point of obtaining an order from an Italian court purporting to restore Paretti to power. Solomon I, 1995 WL 250374, at *3. At that point, CLBN gave notice that it was foreclosing on its security interests in the Pathe and MGM shares. Id.

To help ensure that Pathe would not attempt to delay the foreclosure, CLBN offered to make a tender offer for an unspecified number of Pathe’s publicly held shares of common stock. In response, Pathe appointed a special committee to review the proposal with the assistance of its own legal and financial advisors.

On May 1, 1992, Pathe and CLBN executed an agreement in which Pathe agreed not to delay the foreclosure. In turn, CLBN agreed to make a public tender offer of $1.50 per share for up to 5.8 million of Pathe’s publicly held shares.

Solomon II, 672 A.2d at 37; accord Solomon I, 1995 WL 250374, at *3-4. CLBN also agreed to purchase outstanding Pathe bonds at discounted prices and to provide credit support for a portion of the principal and interest on the outstanding bonds. Solomon I, 1995 WL 250374, at *4.

When the tender offer was announced, a stockholder plaintiff filed suit. The complaint challenged the tender offer as “coercive” and alleged various breaches of fiduciary duty by CLBN in its capacity as controlling stockholder of Pathe and MGM and by the directors of Pathe and CLBN. As Chancellor Allen observed,

Owning a 10% minority share in a corporation (Pathe) that shortly would own practically no assets, no doubt would strike most of us as an unattractive option. Plaintiff however sees the option to tender all shares to CLBN as an equitable wrong. He brought suit immediately (May 1992) but did not seek to enjoin the transaction, and until March 14, 1994 when he filed an amended complaint, plaintiff did essentially nothing to pursue the case.

Solomon I, 1995 WL 250374, at *1. The defendants moved to dismiss the amended complaint for failure to state a claim on which relief could be granted. Chancellor Allen granted the motion, and the Delaware Supreme Court affirmed.

In holding that the complaint failed to state a claim, Chancellor Allen ruled that “the adequacy of the price in a tender offer does not raise a triable issue unless price is connected to valid claims of breach of fiduciary duty, such as disclosure problems or actionable coercion.” Solomon I, 1995 WL 250374, at *5. On appeal, the Delaware Supreme Court remarked similarly that “[i]n the case of totally voluntary tender offers, as here, courts do not impose any right of the shareholders to receive a particular price.” Solomon II, 672 A.2d at 39.

Neither Chancellor Allen nor the Delaware Supreme Court delved into the particulars of a controlling stockholder tender offer, much less a tender offer made unilaterally by a controller as the front-end of a squeeze-out transaction. Nor was there any reason to. CLBN did *409 not make its tender offer unilaterally. The transaction was part of an agreement CLBN negotiated with Pathe and MGM in which the debtors agreed not to contest CLBN’s rights as a secured lender and, in return, CLBN made accommodations to the debtors that included the tender offer. The transaction did not contemplate any form of back-end squeeze-out. It provided protection against the minority stockholders being left owning 10% of a corporation with no assets. Nothing about CLBN’s actions resembled those of a controller in a squeeze-out scenario. CLBN was acting primarily in its role as a third-party lender. When a controller exercises contractual or statutory rights as a third-party lender, its actions are not subject to fiduciary review. See Odyssey Partners, L.P. v. Fleming Cos., 735 A.2d 386, 414-15 (Del.Ch.1999) (rejecting argument that fiduciary review applied to controlling stockholder’s exercise of creditor rights at statutory foreclosure sale); see also Nemec v. Shrader, 991 A.2d 1120, 1129 (Del.2010) (“It is a well-settled principle that where a dispute arises from obligations that are expressly addressed by contract, that dispute will be treated as a breach of contract claim. In that specific context, any fiduciary claims arising out of the same facts that underlie the contract obligations would be foreclosed as superfluous.”).

Moreover, despite starting from the premise that Pathe’s stockholders did not have “any right to receive a ‘fair price’ in a tender offer,” Solomon I, 1995 WL 250374, at *5, Chancellor Allen considered the plaintiffs allegations that the $1.50 tender offer price was unfair, id. at *5 n. 5. He rejected each argument as resting on the premise, no longer valid, that Pathe owned a valuable asset in the form of its MGM stock. Id. (“Insofar as the facts alleged show, Pathe has no legitimate claim to those assets, as it was in default of its obligations secured by its MGM stock.”). The Delaware Supreme Court affirmed “[t]he Chancellor’s holding that none of the facts cited by Solomon ‘can be said to arouse as much as a fleeting doubt of the fairness of the foreclosure or the $1.50 tender offer’ price.” Solomon II, 672 A.2d at 39 (quoting Solomon I, 1995 WL 250374, at *5 n. 5). Both Chancellor Allen and the Delaware Supreme Court thus considered, but ultimately rejected on the facts, challenges to the fairness of the tender offer.

The unique facts of Solomon II make it an odd and unsatisfactory cornerstone for the Siliconix line of authority. See Letsou & Haas, supra, at 42-44, 57-68 (arguing that Solomon II does not provide support for Siliconix); Gilson & Gordon, supra, at 818 n. 122 (same); see also Stevelman, supra, at 818-22 (distinguishing Solomon II ). 5 Further undercutting Solomon II as a source of freeze-out law is the fact that the decision was authored by Justice Hart-nett, because to read Solomon II as governing controlling stockholder freeze-outs renders the decision inconsistent with opinions Justice Hartnett wrote while serving on the Court of Chancery. See Letsou & Haas, supra, at 61-62.

*410 For example, in Lewis v. Fuqua Industries, Inc., 1982 WL 8783 (Del.Ch. Feb. 16, 1982), then-Vice Chancellor Hartnett held that a party making a tender offer “had no duty to offer any particular sum to the stockholders as long as they complied with the requirements of full disclosure with complete candor.” Id. at *3. He was careful to point out that “[a]lthough the Corporation originally proposed a going private freeze out plan, it was withdrawn and the defendants have assured the Court that no freeze out plan is now contemplated.” Id. at *1. He later noted that the rule rejecting an “obligation to pay a fair price” applied in a “non-freeze out Tender Offer.” Id. at *3.

In Joseph v. Shell Oil Co., 482 A.2d 335 (Del.Ch.1984), Vice Chancellor Hartnett considered a controlling stockholder tender offer that actually was the first step of a planned freeze-out. Royal Duty Petroleum Company owned approximately 69.5% of the common stock of Shell Oil Company. After an independent committee of Shell directors rejected a Royal Dutch transaction proposal at $55 per share, Royal Dutch launched a tender offer at $58 per share and disclosed that “it intended to eventually obtain all the shares of Shell” through a short-form merger after the tender offer or, if it did not obtain 90% of the shares, through open market purchases to reach the 90% ownership level. Id. at 340. Various stockholder plaintiffs sought to enjoin the transaction. Citing Lynch v. Vickers Energy Corp. 383 A.2d 278 (Del.1977), and other tender offer precedents, the defendants argued that Royal Dutch had “no legal duty to offer a fair price.” Joseph, 482 A.2d at 341. Vice Chancellor Hartnett rejected that argument, holding instead that “the plaintiffs met their burden of showing ... a reasonable probability” that the defendants had not complied with their duties under Weinberger v. UOP, Inc., 457 A.2d 701 (Del.1983), the landmark entire fairness case. Joseph, 482 A.2d at 340.

Fuqua and Joseph indicate that Justice Hartnett believed entire fairness would apply to a controlling stockholder tender offer that was the first step in a freeze-out. In Solomon II, Justice Hartnett cited both Lynch v. Vickers and Weinberger. Justice Hartnett did not mention, much less distinguish, his decisions in Fuqua and Joseph. Given his prior rulings, it hardly seems likely that Justice Hartnett regarded Solomon II as establishing a principle of non-review for a controller’s first-step tender offer.

The Siliconix line of cases has assumed Solomon II applies to a controller’s first-step tender offer without grappling with the fundamentally different nature of the Solomon II precedent. 6 Solomon II simply did not speak to controlling stockholder squeeze-outs. The decision rested on the case-specific reality that CLBN was not standing on both sides of the transaction. 7 When a controlling stockholder *411 does not stand on both sides of the transaction, the entire fairness standard does not apply. In re John Q. Hammons Hotels Inc. S’holder Litig., 2009 WL 3165613, at *10 (Del.Ch. Oct. 2, 2009); see Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del.1971) (“[Entire fairness] will be applied only when the fiduciary duty is accompanied by self-dealing — the situation when a parent is on both sides of a transaction with its subsidiary.”). This principle held true in Solomon II, but not in the generic sense that a tender offer always is made directly to stockholders. The principle rather held true in the specific sense of CLBN’s third party role on the facts alleged in the case.

Solomon II therefore does not hold that controllers never owe fiduciary duties when making tender offers, nor does it eliminate the possibility of entire fairness review for a two-step freeze-out transaction. “[T]he Solomon line of cases does not eliminate the fiduciary duties of controlling stockholder or target boards in connection with tender offers made by controlling stockholders. Rather, the question is the contextual extent and nature of those duties....” Pure Resources, 808 A.2d at 444. Put differently, the question is: What transactional structures result in the controlling stockholder not standing on both sides of a two-step freeze-out?

Pure Resources sought to answer this question and move towards harmonizing the Siliconix and Lynch lines of authority. The decision did not establish immutable rules for tender offer freeze-outs, as the defendants contend. Vice Chancellor Strine explicitly addressed the doctrinal issues “tentatively, and incompletely,” and in a manner which “befits the development of the common law in expedited decisions.” 808 A.2d at 445. As confirmed by his subsequent decision in Cox Communications, Vice Chancellor Strine did not regard Pure Resources as the final word on Siliconix tender offers. See also Next Level, 834 A.2d at 854 n. 106 (“The court agrees that this area of the law [i.e., review of Siliconix transactions] is developing....”).

Pure Resources set out a series of requirements for a controlling stockholder tender offer.

In order to address the prisoner’s dilemma problem, our law should consider an acquisition tender offer by a controlling stockholder non-coercive only when: 1) it is subject to a non-waivable majority of the minority tender condition; 2) the controlling stockholder promises to consummate a prompt § 253 merger at the same price if it obtains more than 90% of the shares; and 3) the controlling stockholder has made no retributive threats.

808 A.2d at 445. The decision also imposed a duty on the controlling stockholder

to permit the independent directors on the target board both free rein and adequate time to react to the tender offer, by (at the very least) hiring their own advisors, providing the minority with a *412 recommendation as to the advisability of the offer, and disclosing adequate information for the minority to make an informed judgment.

Id.

Pure Resources was an evolutionary decision that raised the bar for two-step squeeze-outs. The transaction structures approved in the two preceding Court of Chancery decisions — Siliconix and Agui-la — would not have passed muster under the Pure Resources test. In Siliconix, the controller did not commit to a prompt back-end merger; it merely stated that it would “consider” a follow-on short-form merger. 2001 WL 716787, at *2. The Sili-conix court declined to impose a fairness duty in part because the Court regarded a tender offer followed by a short-form merger “as separate events.” Id. at *8 n. 35. In Aguila, the tender offeror made a back-end commitment, but the target subsidiary board lacked any independent directors. 805 A.2d at 186. The target board did not attempt to negotiate with the controller or make a recommendation on how to tender; it merely hired an investment banker and disseminated the banker’s opinion and analysis. Id. at 191. The controller in Aguila could not have satisfied its Pure Resources duty “to permit the independent directors on the target board both free rein and adequate time to react to the tender offer....” 808 A.2d at 445.

Three years after Pure Resources, Vice Chancellor Strine revisited the tension between Lynch and Siliconix in Cox Communications. Commenting on Pure Resources, he recalled that in that decision

the court decided that it was better to formulate protective standards that were more flexible, with the hope that at a later stage the two strands could be made more coherent, in a manner that addressed not only the need to protect minority stockholders but also the utility of providing a non-litigious route to effecting transactions that often were economically efficient both for the minority who received a premium and in the sense of creating more rationally organized corporations.

Cox Commc’ns,