Wednesday, April 8, 2009

Delaware Supreme Court news

In an important decision last month, the Delaware Supreme Court rejected post-merger
stockholder claims that directors failed to act in good faith in selling the company.

Delaware, unfortunately, is living down to its reputation as an entrenched management's favorite state, and this decision -- Lyondell Chemical v. Ryan -- will compound that.

The decision, written by Justice Berger, rejects attempts to impose personal liabiolity on directors EVEN on the assumption that they did nothing to prepare for an imnpending offer and upon receiving the offer entered into a merger agreement with a no-shop provision and a 3.2% break-up fee.

Lyondell had moved for summary judgment in the Court of Chancery. That court had refused to grant summary judgment, setting the stage for a trial. But the state's highest court has now short-circuitesd any trial, holding that "the directors are entitled to the entry of summary judgment."

This is precisely the sort of decision that ticks me off, and that has me convinced there has to be a serious shareholder-rights movement, which would among other goals put pressure upon managements to incorporate in places other than Delaware. For the record, you can find the decision yourself here.

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