University:
Columbus State University
Course:
BUSA 3126 | Business Law
Academic year:

2022
Views:

90

Pages:

1
Author:

Nesbyenvkk

Omnicare, Inc. v. NCS Healthcare, Inc. Issue: Are deal-protection devices enforceable if they are designed to force the completion of a merger and preclude consideration of any superior transaction? Rule: Preclusive and coercive deal-protection devices that seek to force the completion of a merger and preclude consideration of any superior transaction are unenforceable. Application: Preclusive and coercive deal-protection devices that seek to force the completion of a merger and preclude consideration of any superior transaction are unenforceable. A board of directors may enter into a transaction to respond to and defeat a reasonably perceived threat to the corporation's business under Unocal Corporation v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), and its progeny, so long as the board's response is reasonable in relation to the threat posed and not coercive or preclusive. Coercive responses force stockholders to accept a "management-sponsored alternative to a hostile offer," while preclusive responses prevent stockholders from hearing and voting on all available tender offers. In this case, the Outcalt/Shaw voting agreement, the Genesis merger terms, and the omission of a fiduciary out clause amounted to a lock-up that prevented any other merger proposal, including Omnicare's, from succeeding, regardless of how much better it was for NCS and its stockholders. This response to Genesis' merger proposal is coercive and preclusive, and it falls outside the range of reasonable responses to the threat of losing Genesis' offer. Furthermore, NCS's defensive measures are invalid and unenforceable because they prevented the NCS board from performing its fiduciary duties to the corporation. As a result, the court rules in Omnicare's favor. Conclusion: The majority opinion effectively discourages bidders from engaging in merger negotiations with corporations by requiring a fiduciary out, which will inevitably reduce the pool of potential bidders that would benefit stockholders in corporate transactions. The NCS board of directors made a good-faith decision to agree to the lock-up provisions, and the court should generally respect the "reasonable judgment" of corporate boards of directors and majority stockholders. The court should not impose prescriptive rules that prohibit negotiation strategies used by a corporation's board of directors in the belief that such strategies are the best way to maximize the corporation's benefit.