430 U.S. 462 (1977)
In 1936 Santa Fe Industries, Inc. acquired control of 60 percent of the stock of Kirby Lumber Corp., a Delaware corporation.1 Through a series of purchases between 1968 and 1973 Santa Fe raised its ownership to 95 percent at prices ranging from $65 to $92.50 per share.2
In 1974 Santa Fe decided to obtain 100 percent ownership.3 It invoked Delaware's short-form merger statute.4 The statute allows a parent owning at least 90 percent of a subsidiary to merge upon board approval and pay cash to the remaining shareholders without their consent or advance notice.5
Santa Fe obtained independent appraisals valuing Kirby's physical assets at $320 million, or $640 per share.6 It retained Morgan Stanley & Co. to appraise the stock.7 Morgan Stanley valued the shares at $125 each.8 Santa Fe offered the minority $150 per share.9 The merger became effective on July 31, 1974.10 The minority received notice within ten days together with an information statement containing the asset appraisals, Morgan Stanley's valuation, and other financial data.11
The information statement advised minority shareholders of their statutory right to petition the Delaware Court of Chancery for an appraisal of fair value.12 Respondents, minority stockholders of Kirby, filed a petition for appraisal on August 21, 1974. They withdrew it on September 9. The next day they commenced this federal action on behalf of the corporation and other minority shareholders.13
The amended complaint alleged that Kirby stock was worth at least $772 per share based on the pro rata value of physical assets.14 It alleged that the merger lacked any justifiable business purpose. It alleged that the merger occurred without prior notice.15 It alleged that Santa Fe obtained a fraudulent appraisal from Morgan Stanley to lull minority shareholders into accepting an inadequate price.16 The complaint asserted that this conduct violated Rule 10b-5 by employing a device, scheme, or artifice to defraud and by engaging in an act or practice that operated as a fraud or deceit in connection with the purchase or sale of securities.17
The District Court for the Southern District of New York dismissed the complaint for failure to state a claim.18 The Court of Appeals for the Second Circuit reversed.19 The Supreme Court granted certiorari.20
Whether § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 reach breaches of fiduciary duty by majority shareholders in a short-form merger without any misrepresentation or nondisclosure?21
Section 10(b) makes it unlawful for any person to use or employ any manipulative or deceptive device or contrivance in contravention of SEC rules.22 Rule 10b-5 prohibits employment of any device, scheme, or artifice to defraud or engagement in any act, practice, or course of business which operates as a fraud or deceit.23 The language of the statute must control the interpretation of the rule, and it gives no indication that Congress meant to prohibit any conduct not involving manipulation or deception.24
No. The case comes to us on the premise that the complaint failed to allege a material misrepresentation or material failure to disclose.25 The District Court found, and the Court of Appeals did not disturb, that there was no omission or misstatement in the information statement.26 Minority shareholders could either accept the price offered or reject it and seek an appraisal in the Delaware Court of Chancery.27 Their choice was fairly presented, and they were furnished with all relevant information on which to base their decision.28
The alleged conduct consisted of a merger without business purpose and at a low price.29 This conduct does not involve the manipulative or deceptive practices prohibited by the statute.30 Manipulation in the securities context refers to practices intended to mislead investors by artificially affecting market activity, such as wash sales or matched orders.31 It is also readily apparent that the conduct alleged in the complaint was not “manipulative” within the meaning of the statute.32 Therefore the claim does not state a cause of action under Rule 10b-5.33
Section 10(b) and Rule 10b-5 do not reach breaches of fiduciary duty by majority shareholders in a short-form merger without any misrepresentation or nondisclosure.34
Related opinions on this issue
Justice Stevens joined only Parts I, II, and III of the Court's opinion.35 He believed Part IV was unnecessary to the decision of this case.36 He foresaw some danger that Part IV might incorrectly be read as extending the holdings of Blue Chip Stamps and Piper v. Chris-Craft Industries.37
He added further emphasis to the fact that the controlling stockholders in this case did not breach any duty owed to the minority shareholders.38 There was complete disclosure of the facts regarding the asset appraisals and the Morgan Stanley stock valuation.39 The minority are entitled to receive the fair value of their shares.40
The facts alleged in the complaint do not constitute fraud within the meaning of Rule 10b-5.41 The motivation for the merger is a matter of indifference to the minority stockholders because they retain no interest in the corporation after the merger is consummated.42
Justice Blackmun refrained from joining Part IV of the Court's opinion.43 He regarded that part as unnecessary for the decision in the instant case.44 He viewed Part IV as exacerbating the concerns he had expressed in his dissents in Blue Chip Stamps v. Manor Drug Stores and in Ernst & Ernst v. Hochfelder.45
He joined the remainder of the Court's opinion and its judgment.46 He agreed that the transaction did not violate Rule 10b-5 on the facts presented.47
Whether a short-form merger effected without a justifiable business purpose and without prior notice to minority shareholders violates Rule 10b-5?48
Once full and fair disclosure has occurred, the fairness of the terms of the transaction is at most a tangential concern of the statute.49 A private cause of action under the antifraud provisions should not be implied where it is unnecessary to ensure the fulfillment of Congress' purposes in adopting the Act.50 The fundamental purpose of the Act is implementing a philosophy of full disclosure.51
No. The established facts demonstrate that the short-form merger was carried out in full compliance with Delaware law.52 Delaware law does not require a justifiable business purpose or prior notice to minority shareholders.53 The purpose of the merger was to acquire 100 percent ownership.54 The offer was $25 above the Morgan Stanley appraisal.55 Although the complaint alleged the absence of a business purpose and lack of prior notice, these elements do not transform the transaction into a violation of Rule 10b-5 when there is no deception or manipulation.56 The Court held that once full and fair disclosure has occurred, the fairness of the terms is at most a tangential concern of the statute.57
The Delaware Legislature has supplied minority shareholders with a cause of action in the Delaware Court of Chancery to recover the fair value of shares allegedly undervalued in a short-form merger.58 It is entirely appropriate in this instance to relegate respondents to whatever remedy is created by state law.59
A short-form merger effected without a justifiable business purpose and without prior notice to minority shareholders does not violate Rule 10b-5.60