Opinion ID: 1959481
Heading Depth: 1
Heading Rank: 7

Heading: Care Allegations

Text: Under 8 Del C. § 251, a director is required to act in an informed and deliberate manner in determining whether to approve an agreement of merger before submitting the proposal to the stockholders. [44] A director's duty to exercise an informed business judgment implicates the duty of care. [45] Director liability for breaching the duty of care is predicated upon concepts of gross negligence. [46] McMullin's Amended Complaint alleges that ARCO initiated and timed the Transaction to benefit itself because ARCO needed cash to fund the $3.3 billion cash acquisition of Union Texas Petroleum Holdings that ARCO announced on May 4, 1998. [47] McMullin alleges that the Chemical Board authorized ARCO to unilaterally negotiate the merger agreement without establishing any procedural safeguards to protect the interests of the minority shareholders. [48] According to the Amended Complaint, ARCO not only conducted the negotiations but also placed its own cash restrictions on potential bidders. [49] McMullin alleges that ARCO gained financial advantage from the immediate all-cash Transaction with Lyondell, at the expense of the minority shareholders, by sacrificing some of the value of Chemical, which might have been realized in a differently timed or structured agreement. [50] The Amended Complaint alleges that the Chemical Board met only once to consider the Transaction negotiated by ARCO with Lyondell. At that meeting, ARCO's financial advisor, Salomon Smith Barney, made a presentation to the Chemical Board regarding the terms of Lyondell's proposal and the sale process conducted by ARCO. [51] The Chemical Board approved the Transaction with Lyondell at that one meeting on the basis of the disclosures made to them by ARCO's financial advisor. The business judgment rule is rebutted if the plaintiff shows that the directors failed to exercise due care in informing themselves before making their decision. [52] The imposition of time constraints on a board's decision-making process may compromise the integrity of its deliberative process. [53] History has demonstrated boards that have failed to exercise due care are frequently boards that have been rushed. [54] The Amended Complaint alleges that on June 3, 1998, ARCO was asking the Chemical Board to repurchase some of its 80% holdings [55] and on June 18 was asking the Chemical board to sell the entire corporation to Lyondell. [56] One can reasonably infer from the factual allegations in McMullin's Amended Complaint that the Chemical Board compromised its deliberative process by seeking to accommodate ARCO's immediate need for cash. [57] The Chemical Directors were obligated to determine whether the third-party Transaction with Lyondell that was being advanced by the majority shareholder, would maximize value for the minority shareholders in the sale of Chemical. The specific allegations contained in McMullin's Amended Complaint, if true, suggest that the directors of Chemical breached their duty of care by approving the merger with Lyondell without adequately informing themselves about the transaction and without determining whether the merger consideration equaled or exceeded Chemical's appraisal value as a going concern.