Top Law Schools

Short: In the takeover context we look at Unocal, and the business judgment rule/duty of care analysis doesn't apply. But can I still look at duty of loyalty in the takeover context?

Long: Shareholder derivative in DE. Assume that we got past the demand system and are going to the merits of a Board rejecting a takeover offer. We obviously consider Unocal and Revlon. Would it be wrong of me to also introduce a duty of loyalty analysis (i.e. looking at Marciano)

Considering the rationale behind Unocal (heightened FD in the context of a takeover) and business judgment not applying, it seems like it would make sense but I'm not sure.

From what I understand, the duty of loyalty is only implicated when there's a "self dealing transaction." So if the takeover doesn't present any self dealing issues, the duty of loyalty analysis may be improper...

I might be wrong about this though.

reformed calvinist wrote:Short: In the takeover context we look at Unocal, and the business judgment rule/duty of care analysis doesn't apply. But can I still look at duty of loyalty in the takeover context?

Long: Shareholder derivative in DE. Assume that we got past the demand system and are going to the merits of a Board rejecting a takeover offer. We obviously consider Unocal and Revlon. Would it be wrong of me to also introduce a duty of loyalty analysis (i.e. looking at Marciano)

Considering the rationale behind Unocal (heightened FD in the context of a takeover) and business judgment not applying, it seems like it would make sense but I'm not sure.

Here is my rule for hostile takeovers from last semester. Hope it helps.

ii. Rule: before a hostile takeover attempt the business judgment rule applies to a board’s adaptation of defensive measure. Once a hostile action is taken, the burden lies with the board to prove (a) reasonable grounds for believing that a threat existed; and (b) that the defensive measures adopted were reasonable in relation to the threat posed.
1. Directors satisfy (a) by demonstrating good faith and reasonable investigation. (result enhanced by outside directors).
a. Factors Directors may consider when evaluating a threat: the indadequacy of price, nature and timing of the offer, questions of illegality, impact on constituencies other than SHs, the risk of nonconsumation, and quality of securities being offered in exchange.

2. If you find a threat, are the defenses draconian? I.e. are they preclusive (preclude any realistic opportunity for SHs to get a tender offer or vote on a merger) or coercive (if board is cramming down its decision)?
a. If yes, defenses are illegal.
3. If no, are these defenses within a range of reasonableness? (proportionate).
a. If defenses are not within a range of reasonableness, they can’t stand.
i. This depends on the seriousness of the threat.