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City Capital Assocs. Ltd. P'ship v. Interco, Inc. - 551 A.2d 787 (Del. Ch. 1988)

Rule:

The contours of a board of director's duties in the face of a takeover attempt are not, stated generally, different from the duties the board always bears: to act in an informed manner and in the good faith pursuit of corporate interests and only for that purpose. Where the board acts to defeat such an offer, its steps must be reasonable in light of the threat created by the offer. Even when the corporation is clearly "for sale," a disinterested board or committee maintains the right and the obligation to exercise business judgment in pursuing the stockholders' interest.

Facts:

A buyer and stockholder brought an action after a company's board adopted a common stock rights plan and elected to leave the "poison pill" in effect. The stockholder alleged that the board breached its fiduciary duties in failing to redeem stock rights distributed as part of the defense against unsolicited attempts to take control of the company. As an alternative, the board endeavored to implement a major restructuring. 

Issue:

Did the board breach its fiduciary duties in failing to redeem stock rights distributed as part of the defense against unsolicited attempts to take control of the company?

Answer:

No

Conclusion:

The court held that: (1) reasonable minds not affected by an inherent interest in the matter could not reasonably differ with respect to the conclusion that the buyer and stockholder's $74 cash offer did not represent a threat to shareholder interests to justify, in effect, foreclosing shareholders from electing to accept that offer; (2) the board's determination to leave the stock rights in effect was a defensive step that, in the circumstances of the offer and at the stage of the contest for control, could not be justified; (3) the restructuring itself represented a reasonable response to the perception that the offering price was "inadequate;" and (4) the board, in appropriately informing itself, did not breach any duties owed to the stockholder.

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