Tuesday, February 26, 2013

Unocal Corp. v. Mesa Petroleum Co. case brief

Unocal Corp. v. Mesa Petroleum Co. case brief summary
493 A.2d 946

PROCEDURAL POSTURE: Defendant corporation appealed from decision of the Court of Chancery (Delaware) granting a preliminary injunction to plaintiffs and enjoining an exchange offer of defendant for its own stock.

-Mesa Petroleum had made a front-end loaded two-tiered hostile bid for Unocal in which the front end was $54 in cash, and the back end of the deal was $54 in junk bonds.
-Because most shareholders would prefer to receive the cash instead of the bonds, shareholders were expected to tender their shares into the deal, even if they did not think $54 was a fair price.
-If a shareholder declined to tender, that shareholder risked being cashed-out for $54 dollars in risky debt instruments instead of cash.
-In response to the Mesa tender offer, Unocal made a self-tender at $72 for all but the Mesa shares. -The Unocal board attempted to launch a self-tender offer to combat an unsolicited tender offer by Mesa Petroleum (Mesa).[2] The self-tender offer would be triggered upon Mesa acquiring sixty-four million shares of Unocal, and would mean that Unocal itself would buy-back 49% of the outstanding shares of Unocal - but none of the shares to be bought-back could be shares held by Mesa.

OVERVIEW: The lower court granted a preliminary injunction to plaintiffs, enjoining an exchange offer of the defendant for its own stock, concluding that such an offer was legally impermissible. The court on appeal was faced with the issue of whether defendant board of directors had the power and duty to oppose a takeover threat it reasonably perceived as being harmful to the corporate enterprise, and, if so, whether the action taken was entitled to protection of business judgment rule.

The court held that there was directorial power to oppose plaintiffs' tender offer and to undertake a selective stock exchange made in good faith and upon a reasonable investigation pursuant to a clear duty to protect the corporate enterprise.

The court further held that the repurchase plan chosen by defendant was reasonable in relation to the perceived threat and was entitled to be measured by business judgment rule.

OUTCOME: The court reversed the judgment and vacated the preliminary injunction vacated.
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