Sunday, November 24, 2013

Omnicare, Inc. v. NCS Healthcare, Inc. case brief

Omnicare, Inc. v. NCS Healthcare, Inc. case brief summary
818 A.2d 914 (Del. 2003)

Plaintiff suitor sued for a preliminary injunction to stop the merger between defendant target and defendant acquirer corporations. The Court of Chancery, New Castle County, Delaware, denied the injunction. The suitor's appeal was consolidated with plaintiff target's shareholders' appeal of the Court of Chancery's denial of their action to enjoin the merger in their class action against defendants target, its directors, and acquirer.

The target was financially recovering after it received the suitor's first offer. The target accepted the acquirer's better offer but entered into two defensive measures the acquirer requested: (1) to include a voting trust in which the two major shareholders agreed to vote for the merger, and (2) to omit a "fiduciary out" clause: the board agreed not to consider other merger offers, to put the merger to a shareholder vote, and to allow minority shareholders to have appraisal rights. The acquirer then declined the suitor's second, better offer because of the defensive measures.


  • The case addressed tests of the extent to which the board was to exercise, not abrogate, its continuing fiduciary duties. 
  • The board combined two otherwise valid actions (stockholder voting agreements and the authority of directors to insert a Del. Code Ann. tit. 8, § 251(c) provision) in the merger agreement and caused them to operate in concert as an absolute lock up. 
  • The board should have contracted for an effective fiduciary out clause. 
  • The acquirer's contract expectations had to yield to the supervening responsibility of the directors to discharge their fiduciary duties on a continuing basis.

The supreme court (1) reversed the judgment denying the suitor's application for a temporary injunction and issued an immediate mandate for a temporary injunction to prevent the merger, (2) reversed a decision to the extent it permitted the implementation of a voting agreement contrary to the supreme court's ruling on fiduciary duty claims, and (3) declared moot a holding that the suitor lacked standing to assert certain fiduciary claims.

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