Professors Brudney and Chirelstein urge a new approach to judicial supervision of mergers between parent and subsidiary corporations. They argue that a fair merger requires that gains generated by the combination should be shared by the two corporations rather than wholly absorbed by either, and they posit a sharing formula to provide fair treatment to all parties to the merger. Rather than attempting to intuit or deduce the result of an arm's-length bargain that does not and cannot exist in the parent-subsidiary context, the authors emphasize the joint obligation of management to the public stockholders of both companies. The sharing formula for mergers may be used to determine the fairness of other decisions made by the parent during the period of affiliation. Finally, the authors suggest a somewhat different sharing formula for mergers which are the contemplated second step following an acquisition of control. W HAT legal standards should the courts apply in testing the "fairness" of a merger between a parent corporation and a subsidiary, where the parent owns a controlling interest in the subsidiary's stock and the remaining shares are held by public stockholders? This problem, which is one of long standing in the field of fiduciary obligation, has gained importance in recent years because of the increasing incidence of partial takeovers of public companies by other firms. Typically, the takeover process begins with a corporation's acquiring (by public tender offer, market purchases, private negotiation, or a combination of these) a controlling, but not a Ioo percent, stock interest in what is then the target company. In some instances partial ownership is merely a transitory step towards full ownership; acquisition of control is followed within a short time by merger of the new subsidiary into the acquiring company. In others, the status of parent and subsidiary is preserved for an extended period; the parent operates the subsidiary as such through a board of directors composed of the parent's nominees, but ultimately elects to *Professor of Law, Harvard University. B.A., C.C.N.Y., 1937; LL.B., Columbia University, I940. 297 This content downloaded from 130.132.173.215 on Sat, 31 Aug 2013 16:13:43 PM All use subject to JSTOR Terms and Conditions HARVARD LAW REVIEW [Vol. 88:297 This content downloaded from 130.132.173.215 on Sat, 31 Aug 2013 16:13:43 PM All use subject to JSTOR Terms and Conditions 1974] CORPORATE FAIR SHARES 299II, in which we attempt to develop a sharing formula for mergers which occur after an extended period of affiliation between parent and subsidiary. Finally, in Part III we examine mergers which take place immediately, or shortly, after control of the subsidiary has been acquired by the parent -that is, prior to any substantial intervening period of combined operations.By way of limitation, we emphasize that our aim is to explore investor protection schemesthat is, to examine and reformulate certain aspects of the corporate law of mergerand not to decide whether corporate combinations ...