Opinion ID: 1952721
Heading Depth: 1
Heading Rank: 23

Heading: Merger Decision Review Standard

Text: The first issue decided by the Court of Chancery addressed the standard of judicial review that should be applied to the decision by the NCS board to merge with Genesis. This Court has held that a board's decision to enter into a merger transaction that does not involve a change in control is entitled to judicial deference pursuant to the procedural and substantive operation of the business judgment rule. [18] When a board decides to enter into a merger transaction that will result in a change of control, however, enhanced judicial scrutiny under Revlon is the standard of review. [19] The Court of Chancery concluded that, because the stock-for-stock merger between Genesis and NCS did not result in a change of control, the NCS directors' duties under Revlon were not triggered by the decision to merge with Genesis. [20] The Court of Chancery also recognized, however, that Revlon duties are imposed when a corporation initiates an active bidding process seeking to sell itself. [21] The Court of Chancery then concluded, alternatively, that Revlon duties had not been triggered because NCS did not start an active bidding process, and the NCS board abandoned its efforts to sell the company when it entered into an exclusivity agreement with Genesis. After concluding that the Revlon standard of enhanced judicial review was completely inapplicable, the Court of Chancery then held that it would examine the decision of the NCS board of directors to approve the Genesis merger pursuant to the business judgment rule standard. After completing its business judgment rule review, the Court of Chancery held that the NCS board of directors had not breached their duty of care by entering into the exclusivity and merger agreements with Genesis. The Court of Chancery also held, however, that even applying the more exacting Revlon standard, the directors acted in conformity with their fiduciary duties in seeking to achieve the highest and best transaction that was reasonably available to [the stockholders]. [22] The appellants argue that the Court of Chancery's Revlon conclusions are without factual support in the record and contrary to Delaware law for at least two reasons. First, they submit that NCS did initiate an active bidding process. Second, they submit that NCS did not abandon its efforts to sell itself by entering into the exclusivity agreement with Genesis. The appellants contend that once NCS decided to initiate a bidding process seeking to maximize short-term stockholder value, it cannot avoid enhanced judicial scrutiny under Revlon simply because the bidder it selected [Genesis] happens to have proposed a merger transaction that does not involve a change of control. The Court of Chancery's decision to review the NCS board's decision to merge with Genesis under the business judgment rule rather than the enhanced scrutiny standard of Revlon is not outcome determinative for the purposes of deciding this appeal. We have assumed arguendo that the business judgment rule applied to the decision by the NCS board to merge with Genesis. [23] We have also assumed arguendo that the NCS board exercised due care when it: abandoned the Independent Committee's recommendation to pursue a stalking horse strategy, without even trying to implement it; executed an exclusivity agreement with Genesis; acceded to Genesis' twenty-four hour ultimatum for making a final merger decision; and executed a merger agreement that was summarized but never completely read by the NCS board of directors. [24]