A.P. Smith Manufacturing Co. v. Barlow case brief

A.P. Smith Manufacturing Co. v. Barlow

13 N.J. 145 (1953) 

 

OVERVIEW

The New Jersey Supreme Court held that a corporation may make donations

to the public good.

FACTS

A.P. Smith Manufacturing Company made a donation to Princeton University. According to the president of the company, the donation was “good” business” because it helped to produce an educated citizenry from which the company could hire. The president further stated that such donations were a “reasonable and justified public expectation.” The company’s shareholders sued on the ground that the company’s charter allowed no such donations.

ISSUE

May a corporation make donations for the public good?

HOLDING

A corporation may make donations for the public good.

REASONING

The realities of the twentieth century have driven courts to

construe corporate powers more and more broadly. The original restrictions on corporate powers developed in the nineteenth century, when wealth was concentrated in private hands rather than corporations. As corporations became more powerful, new legislation allowed them to donate within broad limits. Since nothing suggests that the donation was made to a pet charity, the donation is valid

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.



---The Most Valuable Study Material You Can Buy This Year!

I have compiled all the information that has helped me excel in law school and I want to share that information with you.  My methods have helped literally hundreds of other law school students, and now they can help you too.  I did not study law before starting law school, nor did I come from a distinguished background.  I was the first in my family to graduate college and I knew virtually nothing about law school before my first day of class.  However, I was able to find success by reading literally hundreds of sources on law school strategies and by applying those methods and others that I have learned throughout life on achieving my dreams.

Success in Law School can be a reality.  Stellar Grades, Transfer Opportunities, The Best Jobs, and More!  There is no reason why you should not consider taking the time to read the method that the top students in your class are undoubtedly using.  Get ahead of the competition!

Even if you are a second or even a third year student, my methods can drastically raise your GPA and greatly improve your marketability.  While some may say that the law school GPA does not matter in the third year, the reality is that employers do take a very serious look at one's law school GPA and in this economy, you need to be as marketable as possible.Do you want to know how to study for a final exam?  Do you want to find the secrets to answering the questions on exams?  What are professors looking for when they grade exams?  Do you want to know how you can find out the questions that your professor will ask?  What are some strategies that a law student can use to find out what a professor is looking for when he/she asks a question that you should be able to know in advance that he/she will ask?

If you want to succeed in law school, if you are serious, than there is no reason why you should not read this book: How to Win at Law School: Setting Goals for Law School Success!

Blasius Industries, Inc. v. Atlas Corp. case brief

Blasius Industries, Inc. v. Atlas Corp.

564 A.2d 651 (Del. 1988)
 

FACTS
-Blasius started buying up shares of Atlas, and ended up with about 9% of the stock. They suggested that Atlas liquidate most of their assets and give the shareholders a large dividend.
-Atlas' management did not like the idea.
-Blasius sent Atlas' management a precatory resolution saying that they should restructure, double the size of the board of directors, and elect Blasius' candidates to those positions.

A precatory resolution, is a letter sent to a board of directors from a powerful shareholder threatening them to acquiesce to a particular policy or else they would try to get their way through a shareholder vote.

-In response, Atlas management held an emergency meeting of the board, amended the by-laws to add a few more directors, and appointed Atlas-friendly people to those new directorships. Blasius sued.

Blasius argued that the directors do not have the authority to act for the primary purpose of thwarting the exercise of a shareholder vote.

Blasius argued that Atlas' action were selfishly motivated in order to protect the incumbent board from a perceived threat to its control.

Atlas argued that the Business Judgment Rule prevented the courts from looking into the reasons for why the management voted to increase the size of the board of directors.

ANALYSIS
The Trial Court found for Blasius and undid the directors' actions.

-The Trial Court found that Atlas' management was not acting selfishly because they were worried they might lose their jobs, but acting in what they perceived to be the best interests of the corporation because they honestly believed that Blasius' goals would harm the corporation.

-However, the Court found that even when an action is taken in good faith, it could constitute an unintended violation of the duty of loyalty that the directors owes to the shareholders.

The directors are in effect agents of the shareholders. If the purpose of an action is to obstruct the shareholders' reasonable control over their business, that is inequitable. Basically, the directors work for the shareholders, so if there is a disagreement between the shareholders and the directors, the directors have to defer to the judgment of the shareholders.

The Court noted that there might be some possible "compelling justification" for the directors' action (so the directors actions aren't necessarily per se forbidden).

-Compelling justification might be:

1.  When stockholders are about to reject a third-party merger proposal that the independent directors believe is in their best interests;

2.  When information useful to the stockholders' decision-making process has not been considered adequately or not yet been publicly disclosed; and

3. When if the stockholders vote no the opportunity to receive the bid will be irretrievably lost.

NOTES
After this case, Blasius sold off their interest in Atlas. A few years later Atlas declared bankruptcy and all the shareholders lost their investments.

Course: Corporations
Subjects: Duty of Loyalty, Business Judgment Rule, threat of control.


Blasius v. Atlas brief

Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. case brief

Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.,
506 A.2d 173 (Del. 1986) 

The Revlon Doctrine:  

"In certain limited circumstances indicating that the "sale" or "break-up" of the company is inevitable, the fiduciary obligation of the directors of a target corporation are narrowed significantly, the singular responsibility of the board being to maximize immediate stockholder value by securing the highest price available."

 
FACTS
-Pantry Pride wanted to acquire Revlon.  Suggested price between $40-50/share, later made hostile tender offer of $45.
-Revlon’s investment banker advised directors that $45/share was grossly inadequate.
-Pantry Pride’s strategy was to acquire Revlon through junk bonds and break up Revlon and distribute assets making a profit.
-Pantry Pride made a series of hostile moves, each rejected.  
-Revlon used defensive measures, “note purchase rights plan” and note covenants.  
-Board eventually agreed to leveraged buyout by Forstmann.  Pantry Pride offered $56.25, and Forstmann offered $57.25 per share (time value of money made it less).
-Pantry Pride asked for an injunction barring the consummation of an option allowing Forstmann from purchasing Revlon (lock-up option) as well as bar a no-shop provision from Revlon to Forstmann, and payment of a $25M cancellation fee to Forstmann if transaction was aborted.  
 

RULES
-Ultimate responsibility for managing the business and affairs of a corporation falls on its board of directors.

Directors owe fiduciary duties of care and loyalty to the corporation and its shareholders.

-When a board implements anti-takeover measures, there arises the omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders.
-The responsive action taken must be reasonable in relation to the threat posed.
 

ANALYSIS
-The court looks at the poison pill, asks if it is reasonable.  At the time it was adopted, the poison pill was said to be reasonable.  It achieved the proper result, which was the raised bidding.  
Poison Pill: a plan by which shareholders receive the right to be bought out by the corporation at a substantial premium on the occurrence of a stated triggering event.  

-Did the board have power to adopt the measure?  (Yes).

-Was the poison pill adoption reasonable and for a sufficient purpose?  (Yes)

-Rights plan, at time of adoption, afforded a measure of protection consistent with director’s fiduciary duty in facing a takeover threat perceived as detrimental to corporate interests.

-Poison Pill spurred bidding to new heights, proper result of implementation.

-The court also looks at the exchange offer for 10 million of its own shares.  

The court here uses Unocal standards:  Requiring directors to determine the best interests of corporation/stockholders, and impose an enhanced duty to abjure any action that is motivated by considerations other than a good faith concern for such interests.  

-Was reasonable in relation to threat perceived until Pantry Pride increased offer to $50/share.  Here it was apparent that breakup was inevitable.  

-Obtaining the highest price for the benefit of the stockholders should have been the central theme guiding director action.

-Board cannot prefer noteholders to stockholders.  “A board may have regard for various constituencies in discharging its responsibilities, provided that there are rationally related benefits accruing to stockholders.”

 
CONCLUSION
-Can not play ‘favorites’ to a white-knight to the total exclusion of a hostile bidder when bidders make similar offers or when dissolution is inevitable.  
-Here there was irreparable harm, Pantry Pride would have lost opportunity to bid unless injunction decreed.



Subject: Corporations
Issues: The Revlon Doctrine, Poison Pill, Acquisitions


Revlon Inc. v. MacAndrews brief