Francis Pileggi has a summary on his blog of the recent Delaware Chancery Court opinion in Oliver v. Boston University (see here).Â He also links to the 105 page opinion.Â I have not read the opinion but intend to because it addresses a number of core corporate law issues including the business judgment rule, duty of loyalty owed by majority to minority shareholders, duty of disclosure, aiding and abetting breaches of duty, equity dilution, voting power dilution, and derivative vs. direct claims.Â So maybe more on it later.
I’ll be curious to see your take on this case. Having represented companies in somewhat analagous situations, it’s not clear what Seragen could have practically done much differently. Certainly BU should have gotten separate counsel, but I highly doubt that would have improved the outcome for the common holders. And who would the Vice Chancellor suggest should represent the interests of the common holders in this type of situation? If there were a large enough common holder to have the interest to participate, my experience suggests that holder would have been trying to cut a better deal for itself and wouldn’t have been particularly interested in seeing that the rest of the common did better. And this nonsense about evaluating the derivative claims…the plaintiffs’ bar has just been given further ammunition. In this case you have a situation where the major stakeholders did everything they could to keep the company alive (except running the business better), gave the common more than they were entitled to upon sale of the company and were liable for over $4 million in damages. Isn’t the end result of this case that counsel will now advise the preferred holders to take what they are entitled to and screw the common, because there is almost no way in these types of situations the board can have a process that will keep it within the business judgment rule, and once you’re into entire fairness, you are at the mercy of the judge.
BTW, footnote 238 is priceless. As I read it, the judge is saying business judgment doesn’t apply because the board’s process was flawed, but they came up with a fair price anyway, but they still fail entire fairness because the process was flawed. I mean, really, how does one advise a board in these circumstances?
Thanks for the hat tip.