Court of Appeals of the State of New York.
Arthur D. Emil and Steven L. Cohen for appellant.
David Parker, Stephen M. Axinn and Carol B. Schachner for James D. Moran and another, respondents.
Adele R. Wailand and Jay Topkis for Joseph J. Sylvestri, respondent.
Sidney O. Friedman and Abraham L. Bienstock for Hanson Holdings, Inc., and others, respondents.
Chief Judge COOKE and Judges JASEN, GABRIELLI, JONES, WACHTLER, FUCHSBERG and MEYER concur in memorandum.
The order of the Appellate Division should be affirmed, with costs.
Plaintiff Zetlin owned approximately 2% of the outstanding shares of Gable Industries, Inc., with defendants Hanson Holdings, Inc., and Sylvestri, together with members of the Sylvestri family, owning 44.4% of Gable's shares. The defendants sold their interests to Flintkote Co. for a premium price of $15 per share, at a time when Gable stock was selling on the open market for $7.38 per share. It is undisputed that the 44.4% acquired by Flintkote represented effective control of Gable.
Recognizing that those who invest the capital necessary to acquire a dominant position in the ownership of a corporation have the right of controlling that corporation, it has long been settled law that, absent looting of corporate assets, conversion of a corporate opportunity, fraud or other acts of bad faith, a controlling stockholder is free to sell, and a purchaser is free to buy, that controlling interest at a premium price (see Barnes v Brown, 80 N.Y. 527; Levy v American Beverage Corp., 265 App Div 208; Essex Universal Corp. v Yates, 305 F.2d 572).
Certainly, minority shareholders are entitled to protection against such abuse by controlling shareholders. They are not entitled, however, to inhibit the legitimate interests of the other stockholders. It is for this reason that control shares usually command a premium price. The premium is the added amount an investor is willing to pay for the privilege of directly influencing the corporation's affairs.
In this action plaintiff Zetlin contends that minority stockholders are entitled to an opportunity to share equally in any premium paid for a controlling interest in the corporation. This rule would profoundly affect the manner in which controlling stock interests are now transferred. It would require, essentially, that a controlling interest be transferred only by means of an offer to all stockholders, i.e., a tender offer. This would be contrary to existing law and if so radical a change is to be effected it would best be done by the Legislature.