Dalton v. American Investment Co.
Delaware Court of Chancery, 1985.
490 A.2d 574.
FACTS
-Acquisition of AIC by subsidiary of Leucadia.
-AIC had 5.5M common shares outstanding and 2 issues of preferred.
-P held noncallable 5.5 percent series B having a stated redemption and liquidation value of $25.
-Increases in interest rates: stock, which had no trading market, had market value of less than $9/share at this time.
-Prior to Leucadia, “HFC” had offered to acquire America by offering $12 per common and $25 per preferred. The justice department objected based on antitrust grounds
-P alleges that Board of Directors (BoD) took the HFC offer and used it as a “basis” for Leucadia offer for common and in doing so kept wanted to leave preferred holders stuck.
ANALYSIS
-P contends that failure of BoD to treat interest of preferred evenly with interest of common stock damaged preferred by leaving them as minority Shareholder in a de-listed corp as owners of unmarketable preferred.
-That BoD knowingly acted in a way as to lock preferred in when BoD had a fiduciary duty of fair dealing to extricate preferred at a fair price as well.
-BoD answers: L viewed preferred as cheap debt and that L knew it could acquire American w/out purchasing the preferred leaving BoD w/ no leverage. That any attempt of BoD to attempt and persuade L to reduce offer to common and use difference to cash out preferred could have led to them facing suit for breach of fiduciary duty owed to common. (L could have also simply viewed it as weakness and cut offer for common and still ignored preferred).
RULE
-It is improper for those in a fiduciary position to utilize the merger process solely to promote the interests of one class of shareholders to the detriment, and at the expense, of the members of a minority class of shareholders.
RESULT
-Court ultimately found against plaintiffs finding that L’s offer was based on L’s business interest and had not been made result of a solicitation by American’s BoD.
Delaware Court of Chancery, 1985.
490 A.2d 574.
FACTS
-Acquisition of AIC by subsidiary of Leucadia.
-AIC had 5.5M common shares outstanding and 2 issues of preferred.
-P held noncallable 5.5 percent series B having a stated redemption and liquidation value of $25.
-Increases in interest rates: stock, which had no trading market, had market value of less than $9/share at this time.
-Prior to Leucadia, “HFC” had offered to acquire America by offering $12 per common and $25 per preferred. The justice department objected based on antitrust grounds
-P alleges that Board of Directors (BoD) took the HFC offer and used it as a “basis” for Leucadia offer for common and in doing so kept wanted to leave preferred holders stuck.
ANALYSIS
-P contends that failure of BoD to treat interest of preferred evenly with interest of common stock damaged preferred by leaving them as minority Shareholder in a de-listed corp as owners of unmarketable preferred.
-That BoD knowingly acted in a way as to lock preferred in when BoD had a fiduciary duty of fair dealing to extricate preferred at a fair price as well.
-BoD answers: L viewed preferred as cheap debt and that L knew it could acquire American w/out purchasing the preferred leaving BoD w/ no leverage. That any attempt of BoD to attempt and persuade L to reduce offer to common and use difference to cash out preferred could have led to them facing suit for breach of fiduciary duty owed to common. (L could have also simply viewed it as weakness and cut offer for common and still ignored preferred).
RULE
-It is improper for those in a fiduciary position to utilize the merger process solely to promote the interests of one class of shareholders to the detriment, and at the expense, of the members of a minority class of shareholders.
RESULT
-Court ultimately found against plaintiffs finding that L’s offer was based on L’s business interest and had not been made result of a solicitation by American’s BoD.
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