Barnes & Noble settlement talks

Settlement talks between the parties in the fight over the famous bookstore chain seemed promising early last week. Talks went late into the night on Wednesday. But by week's end, things had fallen apart.

In a brief statement B&N said that it and Yucaipa "were unable to conclude an agreement on mutually acceptable terms."

Yucaipa is an investment company alter ego for Ron Burkle. According to scuttlement, a tentative deal had emerged in which B&N would expand the size of its board of directors by three seats and let Burkle name directors to the new seats. In return, Burkle would support the candidates director nominees for this meeting and the next. He would also stop litigating to try to have B&N's poison pill plan invalidated, thereby allowing B&N to continue in effect to limit the size of his investment in their company.

On Thursday, that tentative agreement unravelled. The parties communicated that to the chancery court in Delaware, and that court issued its ruling on the pending motion to dismiss. Barnes & Noble won the litigation -- or at least this round of it -- in a ruling by Judge Leo Strine.

The "rights plan" a/k/a the poison pill, by the way, provides that if an outside acquires 20 percent or more of the company's stock, other investors get to buy common shares at a 50 percent discount. So Burkle can only pass the 20 percent threshold if he is willing to accept enormous dilution in stock value thereafter.

"The defendants have shown that their adoption and use of the rights plan was a good, fair, reasonable response to a threat to Barnes & Noble and its stockholders," Strine said, dismissing Burkle's lawsuit.

The name of the decision is: Yucaipa American Alliance Fund II LP v. Riggio, CA5465, Delaware Chancery Court.

More than just not taking personal advantage

The Harvard Program on Corporate Governance has issued a discussion paper entitled, "Loyalty's Core Demand: The Defining Role of Good Faith in Corporation Law."

The authors predict that "the legal standards used to evaluate whether directors have complied with their fiduciary duties will be a subject of growing international policy interest" -- not a lot of risk to that call, IMHO.

The abstract of the paper says this: We conclude, consistent with the Delaware Supreme Court’s recent decision in Stone v. Ritter, that in the American corporate law tradition, the basic definition of the duty of loyalty is the obligation to act in good faith to advance the best interests of the corporation. What this article also shows is that the duty of loyalty has traditionally been conceived of as being much broader than the duty to avoid acting for personal financial advantage. The duty of loyalty also precludes acting for unlawful purposes, and affirmatively requires directors to make a good faith effort to monitor the corporation’s affairs and compliance with law.

The authors? Lawrence Hamermesh, R. Franklin Balotti, Jeffrey M. Gorris, and (surely the most newsworthy so I saved it for last) Leo E. Strine Jr.

Strine's views will have extra weight with many readers because he is Vice Chancellor, Delaware Court of Chancery.

Enjoy the read.