For Whom Should the Corporation Be Sold? Diversified Investors and Efficient Breach in Omnicare V. NCS

By Foulds, Christopher M. | Journal of Corporation Law, Summer 2013 | Go to article overview

For Whom Should the Corporation Be Sold? Diversified Investors and Efficient Breach in Omnicare V. NCS


Foulds, Christopher M., Journal of Corporation Law


I. Introduction II. Factual and Procedural Background    A. Genesis Offers a "Blowout" Price    B. The Anatomy of a Lock-Up    C. The Termination Provision and Termination Fees    D. Omnicare's "Predatory and Highly Conditional" Bids    E. Genesis Didn't Like Omnicare Either    F. NCS Picks Genesis's "Sure-Thing" Bid    G. Omnicare and NCS Shareholders Start the Litigation    H. The Court Revives the Shareholders' Appeal    I. The Supreme Court Majority Opinion    J. The Dissents III. Omnicare's Duty and Interest Analysis IV. Omnicare and Efficient Non-Breach V. Conclusion 

I. Introduction

For a decade, the Delaware Supreme Court's split decision in Omnicare v. NCS Healthcare1 has generated controversy, criticism and predictions of imminent demise. (2) What often gets lost in this criticism is the extremely difficult practical decision that the Delaware Supreme Court faced. Putting aside the numerous doctrinal issues flowing from the ultimate decision, consider the Supreme Court's unenviable position: if the court allowed the merger of NCS Healthcare, Inc. ("NCS") and Genesis Health Ventures, Inc. ("Genesis") to go through, NCS's stockholders would have received approximately $1.60 per share, as valued on the date of the merger agreement. By contrast, if the Supreme Court enjoined that merger, it was a virtual certainty that NCS's stockholders wo uld have received at least $3.50 per share from the interloping bidder, Omnicare Inc. ("Omnicare"). That decision put the Delaware courts in an awkward position.

Indeed, one can imagine that no one understood just how awkward this position was better than NCS and its board. If NCS and its board prevailed in the litigation, the directors would not have been found to have violated their fiduciary duties, which is an outcome any director ordinarily would welcome. (3) On the other hand, if the directors were found to have breached their duties and the Genesis merger was enjoined as a result, NCS's stockholders would receive more than double the money. (4) It also bears noting that two members of NCS's board were very large stockholders who stood to reap a "windfall" if the court found that they breached their fiduciary duties. (5)

In the trial court's opinion dismissing the breach of fiduciary duty claims, Vice Chancellor Lamb framed this exact issue: "If an injunction issues, it is obvious that the stockholders will wind up with a better deal than the one they will get under the existing merger agreement. The question before this court is not, however, whether one deal is better than the other." (6) "Instead," the Vice Chancellor wrote, "the question is whether there is a reasonable likelihood that, at trial, those directors will be shown to have breached the fiduciary duties they owe to all of the corporation's stakeholders when they approved the merger transaction and the attendant voting agreements." (7) This Article submits that one way (and perhaps the only way) to understand the Delaware Supreme Court's majority opinion is to view it from the perspective that the trial court rejected--i.e., "whether one deal is better than the other."

From this perspective, the majority's fiduciary duty analysis could be seen to have been designed to address the immediate practical problem, which it did. By reversing the Court of Chancery's dismissal of the breach of fiduciary duty claims, NCS was effectively released from its commitment to close, which opened the door to an outcome that mimicked the results of an efficient breach. Despite the criticism of the majority opinion's reasoning, along with its effects on the broader mergers and acquisitions (M&A) market, it nevertheless is undeniable that the Delaware Supreme Court has since avoided facing this particular situation for another decade. Although this perspective has some allure, especially in terms of its parsimony, it also shortchanges the majority opinion's treatment of certain fundamental issues of Delaware corporate law, such as for whom the corporation should be sold and the possibility of efficiently breaching a merger agreement. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

For Whom Should the Corporation Be Sold? Diversified Investors and Efficient Breach in Omnicare V. NCS
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.