Unless it is shown by preponderance of evidence that board decisions were primarily for entrenchment or other breach of fiduciary duty (fraud, lack of good faith, under informed, etc.) the court will not substitute its judgment for that of the board Aftermath SEC Rule 16b: 10%+ SH that buys/sells stock within 6mo must forfeit profits SEC Creates Rule 13e-4(f)(8) No discriminatory self-tenders – Revlon v. MacAndrews and Forbes Holdings Inc. NOTE: Majority of the board not truly independent Pantry Pride attempted take-over of Revlon Board adopts Poison Pill & White Knight (Forstmann) Company does buy-back of shares in exchange for securities High interest, covenants firm’s hands, waive-able by management Forstmann offers cash-out merger for $57.25 and to shore up the market value for notes they traded in the buy-back Lock ups No shop, $25mil cancellation fee, call option on Revlon’s 2 best – subdivisions at a discount Analysis Initial poison pill and share repurchase plans are under Unocal Threat Low bid price cognizable threat – – Investigation Investment banker established price estimate – Proportional Protected SHs from low price Enabled board to bargain and resulted in raising tender offer After Forstmann White Knight deal Break up of firm is inevitable Board’s duty shifts to maximizing SH value no possible threat to – corporate policy/effectiveness no more firm heightened scrutiny at firm dissolution Smith v.Van Gorkom NOTE: No auction requirement Preferential treatment of one bidder is only if necessary to benefit SHs, can’t enforce preferential agreements made in breach of FDs Summary Nature of board’s duty changed when context switches from – corporate to corporate sale/dissolution Two problems: (1) Consideration of interests other than maximizing SH value (protect board from litigation from note holders), (2) Favoritism instead of open auction (lock up meant to deter, one bidder privy to special info to exclusion of other bidders, etc.) (Just say no! You’ve got the right to say no!) Paramount v. Time, Inc. Time-Warner stock-for-stock merger in the works, Warner SHs would own 62% Covered by BJR Not a defense so no doesn’t create CSH – Unocal,
Unless it is shown by preponderance of evidence that board decisions were primarily for entrenchment or other breach of fiduciary duty (fraud, lack of good faith, under informed, etc.) the court will not substitute its judgment for that of the board Aftermath SEC Rule 16b: 10%+ SH that buys/sells stock within 6mo must forfeit profits SEC Creates Rule 13e-4(f)(8) – No discriminatory self-tenders Revlon v. MacAndrews and Forbes Holdings Inc. NOTE: Majority of the board not truly independent Pantry Pride attempted take-over of Revlon Board adopts Poison Pill & White Knight (Forstmann) Company does buy-back of shares in exchange for securities High interest, covenants firm’s hands, waive-able by management Forstmann offers cash-out merger for $57.25 and to shore up the market value for notes they traded in the buy-back Lock ups – No shop, $25mil cancellation fee, call option on Revlon’s 2 best subdivisions at a discount Analysis Initial poison pill and share repurchase plans are under Unocal Threat – Low bid price – cognizable threat Investigation – Investment banker established price estimate Proportional Protected SHs from low price Enabled board to bargain and resulted in raising tender offer After Forstmann White Knight deal Break up of firm is inevitable Board’s duty shifts to maximizing SH value – no possible threat to corporate policy/effectiveness no more firm Smith v.Van Gorkom heightened scrutiny at firm dissolution NOTE: No auction requirement Preferential treatment of one bidder is only if necessary to benefit SHs, can’t enforce preferential agreements made in breach of FDs Summary – Nature of board’s duty changed when context switches from corporate to corporate sale/dissolution Two problems: (1) Consideration of interests other than maximizing SH value (protect board from litigation from note holders), (2) Favoritism instead of open auction (lock up meant to deter, one bidder privy to special info to exclusion of other bidders, etc.) Paramount v. Time, Inc. (Just say no! You’ve got the right to say no!) Time-Warner stock-for-stock merger in the works, Warner SHs would own 62% Covered by BJR – Not a defense so no Unocal, doesn’t create CSH