Law School Case Brief
Ace Ltd. v. Capital Re Corp. - 747 A.2d 95 (Del. Ch. 1999)
A promise by a fiduciary to violate his fiduciary duty or a promise that tends to induce such a violation is unenforceable on public policy grounds.
Plaintiff ACE Limited ("ACE") entered into a merger agreement with defendant Capital Re Corporation ("Capital Re") on June 10, 1999. The terms of the Merger Agreement provided for Capital Re stockholders to receive .6 of a share of ACE stock for each share of Capital Re they hold. On June 10, 1999, the value of .6 of a share of ACE was over $17.00. Since the merger was announced on June 11, 1999, ACE has seen the price of its stock fall significantly. On October 6, 1999, a day before the stockholder vote on the merger, Capital Re's board of directors received an offer from XL Capital Ltd., a Bermuda-based insurer, to purchase 100% of the company's stock for $ 12.50 a share. Based on the price of ACE's stock that day, the market considered the merger significantly less valuable for Capital Re stockholders than the XL Capital offer. Believing that the XL Capital’s offer was financially superior, Capital Re’s board of directors wished to terminate the Merger Agreement. ACE contended that Capital Re could not, under the Merger Agreement's no-talk and termination provisions, validly terminate the Merger Agreement. ACE thereafter filed a motion for a temporary restraining order to enjoin Capital Re’s board of directors to terminate the merger in question.
In a case involving a merger agreement that contained a "no-talk" provision, should plaintiff corporation's motion for a temporary restraining order against defendant corporation be granted?
The Delaware Court of Chancery denied plaintiff's motion for a temporary restraining order because, on its analysis of the merits, Capital Re would not likely prevail in that its interpretation of the "no-talk" provision was disfavored by Delaware law, which disallowed Capital Re’s directors to contract away their fiduciary duty to decide whether they should enter into acquisition/merger discussions with a third party. The Court also denied because while ACE’s showed irreparable harm, that threat did not outweigh the threat to Capital Re’s stockholders if delay caused the "auction" price to spiral down rather than up.
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