Thursday, November 17, 2011

Omnicare Inc. v. NCS Healthcare Inc. case brief


Omnicare Inc. v. NCS Healthcare Inc.
818 A.2d 914 (Del. 2003)
 
FACTS
-NCS shares dropped in value and in 2001, invited Omnicare to discuss with it possible transactions.
-Independent committee was formed to discuss possible transaction options for NCS, wanted to obtain the highest possible value in any transaction.
-In 2001, Genesis proposed a transaction to acquire NCS, and provided an exclusivity agreement.  Wanted to preclude bids from Omnicare.  Omnicare had outbid Genesis at the last minute on another acquisition.
-Omnicare faxed NCS a proposal, NCS used that fax to negotiation with Genesis.
-Genesis improved offer, but stated that transaction had to be approved by next day or would terminate.
“Outstanding voting power would be required by Genesis to enter into stockholder voting arrangements with the signing of the agreement and would agree to vote their shares in favor of the agreement.
This would prevent NCS from engaging in any alternative/superior future transactions.
-Merger did not provide a Fiduciary Out Clause.
Provision in the merger agreement providing that another provision, which restricts the discretion of the board of the corp. that is to be acquired, does not apply if the restriction would result in a breach of the board’s fiduciary duties to corp. or shareholders.
-Entered into voting agreements with Genesis.
-Omnicare had a superior proposal

RULES
-Board management decision to enter into and recommend a merger transaction can become final only when ownership action is taken by a vote of stockholders.
-Merger transactions a shared enterprise, balance between boards/stockholders.
-Conflicts of interest arise when a board of directors acts to prevent stockholders from effectively exercising their right to vote contrary to the will of the board.  
 
ANALYSIS
-Court looks to see if the defensive measures are either preclusive or coercive.
-Here the court said it was both.  
“A stockholder vote may be nullfied by wrongful coercion where the board or some other party takes actions which have the effect of causing the stockholders to vote in favor of the proposed transaction for some reason other than the merits of that transaction.
-Defensive measures cannot limit or circumscribe director’s fiduciary duties.
 
HOLDING
The court holds that the merger agreement is invalid and unenforceable.  
 
DISSENT
-Certainty itself has value.
-Coercion here was meaningless, because controlling votes were already cast.



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