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Samjens Partners I v. Burlington Indus., Inc. - 663 F. Supp. 614 (S.D.N.Y. 1987)

Rule:

In order to obtain a preliminary injunction, a plaintiff must show: (1) irreparable harm and (2) either (a) likelihood of success on the merits, or (b) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief.

Facts:

Plaintiff Samjens Partners I (Samjens) is a partnership which as of May 5, 1987 owned approximately 13 percent of Burlington's outstanding common stock. On May 6, 1987, Samjens commenced a tender offer for all shares of Burlington common stock at $67 per share. Subsequently, Samjens has raised its offer twice: to $72 and then $77 per share. Defendants BI/MS Holdings, Inc. and BII Acquisition Corp. are subsidiaries of Morgan Stanley Group, Inc. (Morgan). While the Samjens offer was pending, Morgan entered into a merger agreement (Merger Agreement) with Burlington pursuant to which it has commenced a $76 per share and later at $78 per share tender offer for all outstanding shares of Burlington common stock.

Samjens brought nine claims for relief. In Counts I through IV, Samjens asserted that various defendants violated Sections 13(e), 14(d), and 14(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m(e)78n(d), and 78n(e). Plaintiffs allege that defendants made various material omissions and misrepresentations in: 1) the Burlington Schedule 14D-9 filed in response to Samjens' first tender offer; 2) a May 13, 1987 letter from Greenberg to Burlington stockholders with respect to Samjens' offer; 3) Burlington's May 14, 1987 tender offer for up to eight million shares of its common stock (the "self-tender offer") at $ 80 per share; and 4) Morgan's offer to purchase Burlington's common shares and Burlington's Schedule 14D-9 recommending acceptance of the offer. Counts V through IX allege various state law violations including: 1) breach of fiduciary duty by approving the merger agreement, refusing to negotiate with plaintiffs, and disseminating false and misleading information to stockholders; 2) using corporate assets to pay the fees and expenses of Morgan, agree to pay a $ 25 million fee (the "break-up fee") to Morgan should its offer fail, and refusing to pay the fees and expenses of other bona  fide offerors; and 3) interfering with plaintiffs' business advantage.

This case is presently before the Court upon Samjens’ motion, pursuant to Rule 65 of the Federal Rules of Civil Procedure, for a preliminary injunction prohibiting the defendants from: 1) implementing the merger agreement or accepting shares tendered pursuant to Morgan's tender offer until defendants have either terminated the break-up fee and expense reimbursement provision of the merger agreement or granted other competitive bidders the same terms as offered to Morgan; 2) pursuing Burlington's May 14, 1987 self-tender offer; 3) accepting for payment or paying for any shares tendered into the self-tender offer; and 4) pursuing the merger agreement or the Morgan tender offer until they have filed corrective disclosures.

Issue:

Was Samjens able to show that a preliminary injunction was warranted?

Answer:

No

Conclusion:

The federal district court found that Samjens failed the two prong test of preliminary injunction because: (1) it failed to prove irreparable injury as it was not deemed a competing offeror as it had been preliminary enjoined from pursuing its tender offer by the North Carolina court; and (2) Samjens’ claims were not likely to succeed on the merits. Particularly, the claim that the board violated its duty to the shareholders was not likely to succeed because there was no evidence of self-dealing or bad faith on the part of the board, the board's failure to contact the hostile offeror was justified, and the board was entitled to act in a defensive posture to ward off an inadequate tender offer.

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