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Unocal Corp. v. Mesa Petroleum Co.

Supreme Court of Delaware

May 16, 1985, Submitted ; June 10, 1985, Written Decision

No. 152, 1985


 [*949]  We confront an issue of first impression in Delaware -- the validity of a corporation's self-tender for its own shares which excludes from participation a stockholder making a hostile tender offer for the company's stock.

The Court of Chancery granted a preliminary injunction to the plaintiffs, Mesa Petroleum Co., Mesa Asset Co., Mesa Partners II, and Mesa Eastern, Inc. (collectively "Mesa") 1 [**3] , enjoining an exchange offer of the defendant, Unocal Corporation (Unocal) for its own stock.  [**2]  The trial court concluded that a selective exchange offer, excluding Mesa, was legally impermissible. We cannot agree with such a blanket rule. The factual findings of the Vice Chancellor, fully supported by the record, establish that Unocal's board, consisting of a majority of independent directors, acted in good faith, and after reasonable investigation found that Mesa's tender offer was both inadequate and coercive. Under the circumstances the board had both the power and duty to oppose a bid it perceived to be harmful to the corporate enterprise. On this record we are satisfied that the device Unocal adopted is reasonable in relation to the threat posed, and that the board acted in the proper exercise of sound business judgment. ] We will not substitute our views for those of the board if the latter's decision can be "attributed to any rational business purpose." Sinclair Oil Corp. v. Levien, Del. Supr., 280 A.2d 717, 720 (1971). Accordingly, we reverse the decision of the Court of Chancery and order the preliminary injunction vacated. 2

The factual background of this matter bears a significant relationship to its ultimate outcome.

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493 A.2d 946 *; 1985 Del. LEXIS 482 **; Fed. Sec. L. Rep. (CCH) P92,077

UNOCAL CORPORATION, a Delaware corporation, Defendant Below, Appellant, v. MESA PETROLEUM CO., a Delaware corporation, MESA ASSET CO., a Delaware corporation, MESA EASTERN, INC., a Delaware corporation, and MESA PARTNERS II, a Texas partnership, Plaintiffs Below, Appellees

Prior History:  [**1]  Oral Decision May 17, 1985. Upon appeal from the Court of Chancery.

Disposition:  REVERSED. Preliminary injunction VACATED.


tender offer, stockholders, shareholders, stock, shares, takeover, Merger, good faith, business judgment rule, coercive, two-tier, defeat, corporate enterprise, per share, raider, target, greenmail, bid, preliminary injunction, board of directors, fiduciary duty, best interest, trial court, presentation, contends, parties, oppose, director of a corporation, business judgment, subordinated

Business & Corporate Law, Directors & Officers, Management Duties & Liabilities, General Overview, Civil Procedure, Appeals, Standards of Review, Mergers & Acquisitions Law, Mergers, Duties & Liabilities of Directors & Officers, Corporations, Corporate Finance, Corporate Ownership of Stock, Corporate Existence, Powers & Purpose, Powers, Fiduciary Duties, Business Judgment Rule, Takeovers & Tender Offers, Defenses, Takeovers & Tender Offers, Shareholders, Shareholder Duties & Liabilities, Duty of Loyalty, Terms in Office, Removal & Resignation, Evidence, Burdens of Proof, Duty of Care, Governments, Fiduciaries, Scope of Authority, Discretion, Dividends & Reacquisition of Shares, Cancellation & Redemption, Causes of Action, Fraud & Misrepresentation