970 A.2d 235, 242 n.10 (Del. 2009)
Lyondell Chemical Company was the third largest independent, publicly traded chemical company in North America prior to the merger at issue.1 Dan Smith served as its Chairman and CEO while its remaining ten directors were independent and many had experience as CEOs of other large publicly traded companies.2 Basell AF, a privately held Luxembourg company owned by Leonard Blavatnik through Access Industries, operated in the polyolefin technology, production, and marketing business.3
In April 2006 Blavatnik informed Smith of Basell's interest in acquiring Lyondell.4 Several months later Basell offered between $26.50 and $28.50 per share, an offer Lyondell rejected as inadequate.5 During the following year Lyondell prospered without any other potential acquirors expressing interest.6 In May 2007 an Access affiliate filed a Schedule 13D disclosing its right to acquire an 8.3 percent block of Lyondell stock owned by Occidental Petroleum Corporation along with Blavatnik's interest in possible transactions with Lyondell.7
The Lyondell board immediately convened a special meeting in response to the Schedule 13D filing.8 The directors recognized that the filing signaled the company was in play but decided to take a wait and see approach.9 A few days later Apollo Management contacted Smith regarding a management-led LBO which Smith rejected.10 In late June 2007 Basell announced a merger agreement with Huntsman Corporation but later faced competition from Hexion Specialty Chemicals.11
On July 9, 2007 Blavatnik met with Smith to discuss an all-cash deal at $40 per share.12 Smith indicated the price was too low and Blavatnik raised the offer to $44 to $45 per share before ultimately proposing $48 per share.13 The proposal required no financing contingency but included a $400 million break-up fee and a requirement that the merger agreement be signed by July 16, 2007.14 Smith called a special board meeting on July 10 to review the offer.15
The board met for less than one hour on July 10 and again on July 11.16 It authorized retention of Deutsche Bank Securities as financial advisor and instructed Smith to negotiate with Blavatnik.17 Between July 12 and July 15 the parties negotiated terms while Basell conducted due diligence and Deutsche Bank prepared a fairness opinion.18 On July 16 the board met to consider the merger agreement and after presentations from management and advisors voted to approve it. Stockholders approved the merger on November 20, 2007 by more than 99 percent of the voted shares.19
Stockholders first filed suit in Texas on July 23, 2007.20 Walter E. Ryan, Jr. participated in the Texas litigation and filed suit in Delaware on August 20, 2007.21 The Texas court denied a preliminary injunction application on November 13, 2007.22 The Court of Chancery issued its opinion on July 29, 2008 denying summary judgment on the Revlon and deal protection claims.23 This Court accepted the directors' application for certification of an interlocutory appeal on September 15, 2008.24
Whether the directors failed to act in good faith in conducting the sale of their company?25
Bad faith encompasses intentional dereliction of duty or a conscious disregard for one's responsibilities, requiring a showing that the directors knew they were not discharging their fiduciary obligations.26 Revlon duties to seek the best available price arise only when a company embarks on a transaction that will result in a change of control, not merely when the company is in play, and there is no single blueprint that directors must follow to fulfill those duties.27
No. The Lyondell directors were disinterested and independent. The record shows they responded to the May 2007 Schedule 13D filing by promptly convening a special meeting and electing a wait-and-see approach that constituted a valid exercise of business judgment. When Basell made its $48 per share offer on July 9, the directors held multiple meetings on July 10, 11, and 16. They retained Deutsche Bank as financial advisor.
They instructed Smith to negotiate better terms. They evaluated valuation materials and the Huntsman situation. They obtained a fairness opinion describing the price as an absolute home run before approving the merger. These actions demonstrate that the directors did not utterly fail to attempt to obtain the best sale price.
Any arguable shortcomings amount at most to a breach of the duty of care that is exculpated by the charter provision under 8 Del. C. § 102(b)(7). The trial court's focus on two months of pre-offer inaction misapplied Revlon by imposing duties before a sale became inevitable and by requiring specific steps such as an auction or market check that the law does not mandate.28
The directors did not fail to act in good faith in conducting the sale of their company.29