Opinion ID: 1952521
Heading Depth: 1
Heading Rank: 6

Heading: Burden of Proof Shifted Court of Chancery's Finding

Text: The Court of Chancery began its factual analysis by noting that Kahn had attempted to shatter the image of the Independent Committee's actions as having appropriately simulated an arm's length, third-party transaction. The Court of Chancery found that to some extent, [Kahn's attempt] was successful. The Court of Chancery gave credence to the testimony of Kertz, one of the members of the Independent Committee, to the effect that he did not believe that $15.50 was a fair price but that he voted in favor of the merger because he felt there was no alternative. The Court of Chancery also found that Kertz understood Alcatel's position to be that it was ready to proceed with an unfriendly tender offer at a lower price if Lynch did not accept the $15.50 offer, and that Kertz perceived this to be a threat by Alcatel. The Court of Chancery concluded that Kertz ultimately decided that, although $15.50 was not fair, a tender offer and merger at that price would be better for Lynch's stockholders than an unfriendly tender offer at a significantly lower price. The Court of Chancery determined that Kertz failed either to satisfy himself that the offered price was fair or oppose the merger. In addition to Kertz, the other members of the Independent Committee were Beringer, its chairman, and Wineman. Wineman did not testify at trial. [7] Beringer was called by Alcatel to testify at trial. Beringer testified that at the time of the Committee's vote to recommend the $15.50 offer to the Lynch board, he thought that under the circumstances, a price of $15.50 was fair and should be accepted (emphasis added). Kahn contends that these circumstances included those referenced in the minutes for the November 24, 1986 Independent Committee meeting: Mr. Beringer added that Alcatel is `ready to proceed with an unfriendly tender at a lower price' if the $15.50 per share price is not recommended to, and approved by, the Company's Board of Directors. In his testimony at trial, Beringer verified, albeit reluctantly, the accuracy of the foregoing statement in the minutes: [Alcatel] let us know that they were giving serious consideration to making an unfriendly tender (emphasis added). The record reflects that Alcatel was ready to proceed with a hostile bid. This was a conclusion reached by Beringer, the Independent Committee's chairman and spokesman, based upon communications to him from Alcatel. Beringer testified that although there was no reference to a particular price for a hostile bid during his discussions with Alcatel, or even specific mention of a lower price, the implication was clear to [him] that it probably would be at a lower price. [8] According to the Court of Chancery, the Independent Committee rejected three lower offers for Lynch from Alcatel and then accepted the $15.50 offer after being advised that [it] was fair and after considering the absence of alternatives. The Vice Chancellor expressly acknowledged the impracticability of Lynch's Independent Committee's alternatives to a merger with Alcatel: Lynch was not in a position to shop for other acquirors, since Alcatel could block any alternative transaction. Alcatel also made it clear that it was not interested in having its shares repurchased by Lynch. The Independent Committee decided that a stockholder rights plan was not viable because of the increased debt it would entail. Nevertheless, based upon the record before it, the Court of Chancery found that the Independent Committee had appropriately simulated a third-party transaction, where negotiations are conducted at arms-length and there is no compulsion to reach an agreement. The Court of Chancery concluded that the Independent Committee's actions as a whole were sufficiently well informed... and aggressive to simulate an armslength transaction, so that the burden of proof as to entire fairness shifted from Alcatel to the contending Lynch shareholder, Kahn. The Court of Chancery's reservations about that finding are apparent in its written decision.