ITT You Teach Romo Corporations Forum

[apl6783]

Above, apl said that BJR does not cover duty of loyalty. In my class we were taught that BJR covers both duty of loyalty and duty of care.

See, I don't see how this is right. The types of Duty of Loyalty breaches we learned were self-dealing, corporate opportunities, and good faith (I guess, if I include it under Loyalty). The BJR doesn't apply to these, except under S 144(a) where the majority of the disinterested directors approve the allegedly self-interested transaction. Very strange.

Or maybe I'm wrong.

You are correct. The duty of loyalty is absolutely not protected by the BJR. It's absolutely not. The BJR says that the court will defer to decisions of the directors, the rationale being that the judge doesn't know anything about business so he can't determine whether a businessman took enough care in making X decision. I can't think of an example, but I would bet that there are a lot of decisions that an experienced CEO would make in about 1 second that would appear to a layman like myself to be really hard decisions that would require more thought.

Anyways, a pre-requisite for BJR protection is that there was no fraud, illegality, or conflict of interest (duty of loyalty breach).

The only time the BJR pops up in the duty of loyalty areas is the situation you mentioned. A director can get the board to ratify an interested director transaction under DE 144. The decision of the board to ratify is protected by the BJR.

[booboo]

Above, apl said that BJR does not cover duty of loyalty. In my class we were taught that BJR covers both duty of loyalty and duty of care.

See, I don't see how this is right. The types of Duty of Loyalty breaches we learned were self-dealing, corporate opportunities, and good faith (I guess, if I include it under Loyalty). The BJR doesn't apply to these, except under S 144(a) where the majority of the disinterested directors approve the allegedly self-interested transaction. Very strange.

Or maybe I'm wrong.

You are correct. The duty of loyalty is absolutely not protected by the BJR. It's absolutely not. The BJR says that the court will defer to decisions of the directors, the rationale being that the judge doesn't know anything about business so he can't determine whether a businessman took enough care in making X decision. I can't think of an example, but I would bet that there are a lot of decisions that an experienced CEO would make in about 1 second that would appear to a layman like myself to be really hard decisions that would require more thought.

Anyways, a pre-requisite for BJR protection is that there was no fraud, illegality, or conflict of interest (duty of loyalty breach).

The only time the BJR pops up in the duty of loyalty areas is the situation you mentioned. A director can get the board to ratify an interested director transaction under DE 144. The decision of the board to ratify is protected by the BJR.

I think the accompanying presumption is that the directors that ratify the decision are also disinterested?

[bk1]

Above, apl said that BJR does not cover duty of loyalty. In my class we were taught that BJR covers both duty of loyalty and duty of care.

See, I don't see how this is right. The types of Duty of Loyalty breaches we learned were self-dealing, corporate opportunities, and good faith (I guess, if I include it under Loyalty). The BJR doesn't apply to these, except under S 144(a) where the majority of the disinterested directors approve the allegedly self-interested transaction. Very strange.

Or maybe I'm wrong.

I'm wrong. I didn't understand what apl meant. I thought that because it required no loyalty breach that what was meant by it being covered.

[bk1]

A director can get the board to ratify an interested director transaction under DE 144. The decision of the board to ratify is protected by the BJR.

I think the accompanying presumption is that the directors that ratify the decision are also disinterested?

It's not a presumption. They have to be disinterested, as well as fully informed and voting in good faith (as per DGCL 144).

[booboo]

A director can get the board to ratify an interested director transaction under DE 144. The decision of the board to ratify is protected by the BJR.

I think the accompanying presumption is that the directors that ratify the decision are also disinterested?

It's not a presumption. They have to be disinterested, as well as fully informed and voting in good faith (as per DGCL 144).

Correct. I had to look at the case again, the disinterested notion seems to be more of a presumption under subsection 2, the part related to the vote by shareholders.

[bk1]

Correct. I had to look at the case again, the disinterested notion seems to be more of a presumption under subsection 2, the part related to the vote by shareholders.

Yeah that makes sense.

[JusticeHarlan]

Above, apl said that BJR does not cover duty of loyalty. In my class we were taught that BJR covers both duty of loyalty and duty of care.

See, I don't see how this is right. The types of Duty of Loyalty breaches we learned were self-dealing, corporate opportunities, and good faith (I guess, if I include it under Loyalty). The BJR doesn't apply to these, except under S 144(a) where the majority of the disinterested directors approve the allegedly self-interested transaction. Very strange.

Or maybe I'm wrong.

Co-signed. Care gets BJR, Loyalty gets entire fairness unless they get "cleansed" under 144, as I learned it.

[romothesavior]

So let's talk M&A boys and girls.

(I'm learning it now so gimme some time)

[JusticeHarlan]

or

[JCougar]

So let's talk M&A boys and girls.

(I'm learning it now so gimme some time)

http://www.paulhastings.com/assets/publ ... s/1605.pdf

This helped me out a lot. Doesn't cover everything, but for whatever reason, it clarified a lot of things.

[JCougar]

This one also helped me out...

http://www.hunton.com/files/News/8ef2dc ... olders.pdf

[apl6783]

Yea sorry I should have included the fact that the vote has to be by disinterested directors or shareholders. If they vote it ok but it's not by disinterested directors then I believe that in court the defendant-director who is being sued would then have to demonstrate the "entire fairness of the deal," which is a hard standard to meet.

[romothesavior]

Okay here I come with a potentially really stupid question.

So Unocal allows boards to take reasonable steps to prevent takeovers where they have reasonable grounds to believe that there is a danger to corporate policy and effectiveness.

In Revlon, the court basically said that if you are involved in an active bidding process, the Board must take the highest bid and maximize profits for the shareholders.

In Paramount, the court said that you don't have to take a higher bid if you already have a long-term plan in place and you are attempting to carry it out. Here, Time had concerns about corporate culture and maintaining their journalistic integrity, so they carefully picked who to merge with. In these situations, Revlon doesn't apply and boards can stave off hostile takeover attempts.

So my question is what happens when you're sort of in the middle area. Let's say the board is accepting bids, but are also concerned about maintaining corporate culture or other important plans or whatever. If they get two bids, one from a good match and one from a higher but shitty bidder, do they have to take the shitty bidder's bid? Seems to me the answer is yes because Revlon (seemingly) applies, but I don't see why the "rationale" of Paramount/Unocal (not letting shitty bidders take over) wouldn't apply.

ETA: Try to keep it short and sweet because my brain is about to shut down for the night and switch into pwning noobs in CoD mode.

[bk1]

ETA: Try to keep it short and sweet because my brain is about to shut down for the night and switch into pwning noobs in CoD mode.

I'm already there.

Also, prof told us takeovers aren't on the final.

[JusticeHarlan]

There's another part of Paramount v. Time beyond the long term plan, or so we were taught. Because the deal was substantially for stock, rather than being all cash, the shareholders had a continued interest in the resulting company. That, coupled with the long term plan, got them out of Revlon obligations and into business judgment. Remember, the idea in Revlon is that because the shareholders are getting cashed out, their interest in the corporation severs, so the board's fiduciary duties demand that they maximize short term profits for the shareholders in the sale. Because that's not the deal in Time because they had stock in the resulting Time-Warner corp, they avoided Revlon. Revlon is triggered when there is a "change of control" of the corporation, which, given the fluid aggregation of stockholders and such, was not the case here.

So to your question, if they're just actively soliciting bids from multiple bidders, it's probably going to be Revlon because being open to selling to anyone who comes along with a bid isn't going to be in line with a long term plan. Initiating an auction is almost automatically in Revlon-land. Time only really applies when 1) it's a long term plan (which would probably involve negotiations with a specific party rather than an auction) and 2) the consideration is substantially for stock rather than cash.

Then you get to the QVC carve out, which is if that even if you hit those to prongs, if the resulting corporation has a control shareholder who can probably just cash them out at will (think Zuckerberg if you mergered with Facebook), it probably triggers Revlon anyways, but I'll let you go off and pwn some noobs first.

[romothesavior]

Okay, so I guess in order to avoid Revlon in my hypo above, the board would have to actually try to seek out a specific company to merge with? But once they make it like a bidding process, they have to go for the highest offer? I think that's how it works, I guess.

Also, someone explain QVC. The hell is that crap?

[Geist13]

So, I think, QVC says that when you're going to change from no majority shareholder to a majority shareholder, Revlon duties apply (you have to act as auctioneer). It then clarifies exactly what the Revlon/auction duties are. I'm just going to quote here because that is what I have in my notes:

"The key features of an enhanced scrutiny test are: (a) a judicial determination regarding the adequacy of the decisionmaking process employed by the directors, including the information on which the directors based their decision; and (b) a judicial examination of the reasonableness of the directors’ action in light of the circumstances then existing. The directors have the burden of proving that they were adequately informed and acted reasonably."

So first you look at the decision making process and then you look at the reasonableness of the directors action. And since this is Revlon, these questions are asked in the context of whether or not the board was going after the best price for the shareholders. This is kind of similar to Unocal, but its a harder standard to meet because as auctioneer (Revlon duty) you have to be going after a specific goal (best price) whereas under Unocal you just have to be pursuing a very general notion of "corporate policy and effectiveness" which can mean a lot of things.

That's what I think anyway, I'm really not too sure.

[JusticeHarlan]

I think Geist is right about QVC, but with the caveat that it doesn't necessarily need to be a majority shareholder, a large plurality shareholder (say 30%) might suffice; it's unclear.

[romothesavior]

BTW, all that stuff we talked about yesterday re: Care/Loyalty and Ritter/Caremark and all that shit, Bainbridge knocks it outta the park in his supplement. So straightforward.

I think maybe, just maybe, there's a chance I could do well on this Corps exam. Thank you based Bainbridge.

[romothesavior]

I'm toast.

[deebs]

I'm toast.

[romothesavior]

I'm toast.

2

[romothesavior]

Well I might need to return to this thread in December, because there's a non-insignificant possibility I have to take a remedial Corporations class in the fall. Just absolutely bombed that shit. I think I did so-so on the multiple choice, so-so on Part II but went really slow, and then wrote about 300 words on Part III, which had a recommended word total of 1500. I would be SHOCKED if I got better than median, and wouldn't be surprised if I got in the 70s.

[bk1]

Well I might need to return to this thread in December, because there's a non-insignificant possibility I have to take a remedial Corporations class in the fall. Just absolutely bombed that shit. I think I did so-so on the multiple choice, so-so on Part II but went really slow, and then wrote about 300 words on Part III, which had a recommended word total of 1500. I would be SHOCKED if I got better than median, and wouldn't be surprised if I got in the 70s.

That sucks bro. Hopefully you're just being hard on yourself and other people probably had trouble with it.

[blurbz]

This thread is helpful. Studying corporations right now...feels like I'm getting reverse-pierced.