Opinion ID: 1952721
Heading Depth: 1
Heading Rank: 1

Heading: Overview of Opinion

Text: The board of directors of NCS, an insolvent publicly traded Delaware corporation, agreed to the terms of a merger with Genesis. Pursuant to that agreement, all of the NCS creditors would be paid in full and the corporation's stockholders would exchange their shares for the shares of Genesis, a publicly traded Pennsylvania corporation. Several months after approving the merger agreement, but before the stockholder vote was scheduled, the NCS board of directors withdrew its prior recommendation in favor of the Genesis merger. In fact, the NCS board recommended that the stockholders reject the Genesis transaction after deciding that a competing proposal from Omnicare was a superior transaction. The competing Omnicare bid offered the NCS stockholders an amount of cash equal to more than twice the then current market value of the shares to be received in the Genesis merger. The transaction offered by Omnicare also treated the NCS corporation's other stakeholders on equal terms with the Genesis agreement. The merger agreement between Genesis and NCS contained a provision authorized by Section 251(c) of Delaware's corporation law. It required that the Genesis agreement be placed before the corporation's stockholders for a vote, even if the NCS board of directors no longer recommended it. [1] At the insistence of Genesis, the NCS board also agreed to omit any effective fiduciary clause from the merger agreement. In connection with the Genesis merger agreement, two stockholders of NCS, who held a majority of the voting power, agreed unconditionally to vote all of their shares in favor of the Genesis merger. Thus, the combined terms of the voting agreements and merger agreement guaranteed, ab initio, that the transaction proposed by Genesis would obtain NCS stockholder's approval. The Court of Chancery ruled that the voting agreements, when coupled with the provision in the Genesis merger agreement requiring that it be presented to the stockholders for a vote pursuant to 8 Del. C. § 251(c), constituted defensive measures within the meaning of Unocal Corp. v. Mesa Petroleum Co. [2] After applying the Unocal standard of enhanced judicial scrutiny, the Court of Chancery held that those defensive measures were reasonable. We have concluded that, in the absence of an effective fiduciary out clause, those defensive measures are both preclusive and coercive. Therefore, we hold that those defensive measures are invalid and unenforceable.