Excerpts: Mills Acquisition Co. v. Macmillan, Del.Supr., 559 A.2d 1261 (1989).
- In this interlocutory appeal from the Court of Chancery, we review the denial of injunctive relief to Mills Acquisition Co., a Delaware corporation, and its affiliates Tendclass Limited and Maxwell Communications Corp., PLC, both United Kingdom corporations substantially controlled by Robert Maxwell. Plaintiffs sought control of Macmillan, Inc. (“Macmillan” or the “company”), and moved to enjoin an asset option agreement — commonly known as a “lockup” — between Macmillan and Kohlberg Kravis Roberts Co. (“KKR”), an investment firm specializing in leveraged buyouts. The lockup was granted by Macmillan’s board of directors to KKR, as the purported high bidder, in an “auction” for control of Macmillan.
- Although the trial court found that the conduct of the board during the auction was not “evenhanded or neutral,” it declined to enjoin the lockup agreement between KKR and Macmillan. That action had the effect of prematurely ending the auction before the board had achieved the highest price reasonably available for the company. Even though the trial court found that KKR had received improper favor in the auction, including a wrongful “tip” of Maxwell’s bid by Macmillan’s chairman of the board and chief executive officer, and that Macmillan’s board was uninformed as to such clandestine advantages, the Vice Chancellor nevertheless concluded that such misconduct neither misled Maxwell nor deterred it from submitting a prevailing bid.
- Given our scope and standard of review under Levitt v. Bouvier, Del.Supr., 287 A.2d 671, 673 (1972), we find that the legal conclusions of the trial court, refusing to enjoin the KKR lockup agreement, are inconsistent with its factual findings respecting the unfairness of the bidding process. Our decision in Revlon, Inc. v. MacAndrews Forbes Holdings, Inc., Del.Supr., 506 A.2d 173 (1986), requires the most scrupulous adherence to ordinary standards of fairness in the interest of promoting the highest values reasonably attainable for the stockholders’ benefit. When conducting an auction for the sale of corporate control, this concept of fairness must be viewed solely from the standpoint of advancing general, rather than individual, shareholder interests. Here, the record reflects breaches of the duties of loyalty and care by various corporate fiduciaries which tainted the evaluative and deliberative processes of the Macmillan board, thus adversely affecting general stockholder interests. With the divided loyalties that existed on the part of certain directors, and the absence of any serious oversight by the allegedly independent directors, the governing standard was one of intrinsic fairness.
- The lengthy factual background and evolution of the present battle for control of Macmillan are found in earlier opinions of the trial court. See Robert M. Bass Group, Inc. v. Evans, Del. Ch. , 552 A.2d 1227 (1988) ( Macmillan I); Mills Acquisition Co. v. Macmillan, Inc., C.A. No. 10168, 1988 WL 108332 (October 17, 1988) (Macmillan II). However, a detailed review of certain major and other salient facts is essential to a proper understanding and analysis of the issues, and the context in which we address them.
- On October 21, 1987, the Robert M. Bass Group, Inc., a Texas corporation controlled by Robert M. Bass, together with certain affiliates (hereafter collectively, “the Bass Group” or “Bass”), emerged as a potential bidder. By then, Bass had acquired approximately 7.5% of Macmillan’s common stock. Management immediately called a special board meeting on October 29, where a rather grim and uncomplimentary picture of Bass and its supposed “modus operandi” in prior investments was painted by management. Bass was portrayed, among other things, as a “greenmailer.” Id. at 1232. At the meeting, the previously adopted poison pill was modified to reduce the “flip-in” trigger from 30% to 15%. Id.
- Macmillan’s financial advisors valued the recapitalization at $64.15 per share. Lazard valued Macmillan at $72.57 per share, on a pre-tax basis, but advised the “independent” directors that it found the restructuring, valued at $64.15 per share, to be “fair.” Lazard also recommended rejection of the $64 Bass offer because it was “inadequate.” Wasserstein, Perella valued Macmillan at between $63 and $68 per share and made the same recommendations as Lazard concerning the restructuring and the Bass offer. All of these valuations will gain added significance in Macmillan II.
- After receiving this information on September 24, Robert Pirie, Maxwell’s financial advisor, once again expressed concern to Macmillan that KKR would be favored in the auction process, and would receive “break up” fees or a lockup agreement without Maxwell first being allowed to increase its bid. Perhaps as a result of this concern, Robert Maxwell stated unequivocally in a September 25 letter to Macmillan that he was prepared, if necessary, to exceed a higher competing offer from KKR.
- Thereafter, in the presence of Reilly and Charles J. Queenan, a Pittsburgh lawyer previously mentioned in note 10, supra., but who did not appear before us in this action, Evans telephoned a KKR representative and “tipped” Maxwell’s bid to him. In this call, Evans informed KKR that Maxwell had offered “$89, all cash” for the company and that the respective bids were considered “a little close.” After a few minutes of conversation, the KKR representative realized the impropriety of the call and abruptly terminated it.
- In fairness to KKR even Maxwell concedes that but for the integrity of KKR’s counsel, it is unlikely that Evans’ tip would have been publicly disclosed. See transcript of oral argument at 1 Mergers Acquisitions L.Rep. 855, 867, 903 (Dec. 1988). It also appears that counsel, who appeared in this action for the defendants, were unaware of the “tip” until it was disclosed by KKR.
- At approximately 10:00 p.m., near the auction deadline of midnight, Pirie on behalf of Maxwell telephoned Wasserstein to inquire whether Macmillan had received a bid higher than the Maxwell offer. During the call, Pirie flatly stated that upon being informed that a higher bid had been received by Macmillan, Maxwell would promptly notify the company whether it would increase its standing offer. Pirie also said that if Maxwell had already submitted the highest bid for the company, he would not “bid against himself” by increasing his offer.
- From the bulk of these conversations, Maxwell and Pirie reasonably, but erroneously, concluded that Wasserstein was attempting to force Maxwell to bid against itself, and that its offer was indeed higher than the competing KKR bid. Furthermore, the record is clear that Wasserstein, who later acknowledged this fact to the Macmillan board, knew that Pirie mistakenly believed that Maxwell was already the high bidder for the company. Yet, despite his responsibilities as “auctioneer” for the company, Wasserstein never sought to correct Maxwell’s mistaken belief that it had prevailed in the auction. The cumulative effect of all this was that Maxwell did not increase its bid before the Macmillan board met on the next day, September 27.
- The fiduciary nature of a corporate office is immutable.
- Corporate officers and directors are not permitted to use their position of trust and confidence to further their private interests. While technically not trustees, they stand in a fiduciary relation to the corporation and its shareholders . . . This rule, inveterate and uncompromising in its rigidity, does not rest upon the narrow ground of injury or damage to the corporation resulting from a betrayal of confidence, but upon a broader foundation of a wise public policy that, for the purpose of removing all temptation, extinguishes all possibility of profit flowing from a breach of the confidence imposed by fiduciary relation.
- Under Delaware law this concept of fairness has two aspects: fair dealing and fair price. Weinberger, 457 A.2d at 711. “Fair dealing” focuses upon the actual conduct of corporate fiduciaries in effecting a transaction, such as its initiation, structure, and negotiation. This element also embraces the duty of candor owed by corporate fiduciaries to disclose all material information relevant to corporate decisions from which they may derive a personal benefit. See 8 Del. C. § 144. “Fair price,” in the context of an auction for corporate control, mandates that directors commit themselves, inexorably, to obtaining the highest value reasonably available to the shareholders under all the circumstances. Weinberger, 457 A.2d at 711.
- At a minimum, Revlon requires that there be the most scrupulous adherence to ordinary principles of fairness in the sense that stockholder interests are enhanced, rather than diminished, in the conduct of an auction for the sale of corporate control. This is so whether the “sale” takes the form of an active auction, a management buyout, or a “restructuring” such as that which the Court of Chancery enjoined in Macmillan I. Revlon, 506 A.2d at 181-82.
- We do not intend to limit the broad negotiating authority of the directors to achieve the best price available to the stockholders. To properly secure that end may require the board to invoke a panoply of devices, and the giving or receiving of concessions that may benefit one bidder over another. See e.g., In re J.P. Stevens Co., Inc. Shareholders Litigation, Del. Ch. , 542 A.2d 770, 781-784 (1988); appeal refused, 540 A.2d 1088 (1988).
- For the foregoing reasons, the judgment of the Court of Chancery, denying Maxwell’s motion for a preliminary injunction, is REVERSED.