Lyondell Chemical Company v. Ryan

Facts

Lyondell Chemical Company was the third largest independent, publicly traded chemical company in North America. Smith was the Chairman and CEO. Lyondell's other ten directors were independent, and many were or had been, CEOs of other large, publicly traded companies. Basell AF ('Basell') is a privately held Luxembourg company owned by Leonard Blavatnik. In April 2006, Blavatnik told Smith that Basell was interested in acquiring Lyondell. Basell sent a letter to Lyondell's board offering $26.50-$28.50 per share. Lyondell determined that the price was inadequate and that it was not interested in selling. In May 2007, an Access affiliate filed a Schedule 13D with the Securities and Exchange Commission disclosing its right to acquire an 8.3% block of Lyondell stock owned by Occidental Petroleum Corporation. The Schedule 13D also disclosed Blavatnik's interest in possible transactions with Lyondell. The Lyondell board immediately convened a special meeting. Apollo Management, L.P. contacted Smith to suggest a management-led LBO, but Smith rejected that proposal. In late June 2007, Basell announced that it had entered into a $9.6 billion merger agreement with Huntsman Corporation. Basell apparently reconsidered, however, after Hexion Specialty Chemicals, Inc. made a topping bid for Huntsman. Faced with competition for Huntsman, Blavatnik returned his attention to Lyondell. On July 9, 2007, Blavatnik met with Smith to discuss an all-cash deal at $40 per share. Smith responded that $40 was too low, and Blavatnik raised his offer to $44-$45 per share. Smith advised Blavatnik to give Lyondell his best offer since Lyondell really was not on the market. When Smith called later in the day, Blavatnik offered to pay $48 per share. There was no financing contingency, but Lyondell would have to agree to a $400 million break-up fee and sign a merger agreement by July 16, 2007. Smith called a special meeting to review and consider the offer. The meeting lasted slightly less than one hour. The board reviewed valuation material that had been prepared by Lyondell management for presentation at the regular board meeting, which was scheduled for the following day. The board also discussed the likelihood that another party might be interested in Lyondell. The board instructed Smith to obtain a written offer from Basell and more details about Basell's financing. Basell had until July 11 to make a higher bid for Huntsman, so Blavatnik asked Smith to find out whether the Lyondell board would provide a firm indication of interest in his proposal by the end of that day. The Lyondell board met on July 11, again for less than one hour. The board decided that it was interested, authorized the retention of Deutsche Bank Securities, Inc. as its financial advisor, and instructed Smith to negotiate with Blavatnik. The Basell-Huntsman deal was off, and the parties negotiated the terms of a Lyondell merger agreement. The board wanted a higher price, a go-shop provision2, and a reduced break-up fee. Blavatnik was 'incredulous.' He had offered his best price, which was a substantial premium, and the deal had to be concluded on his schedule. As a sign of good faith, Blavatnik agreed to reduce the break-up fee from $400 million to $385 million. At a due diligence meeting, valuations yielded a range that did not even reach $48 per share, and Deutsche Bank opined that the proposed merger price was fair. Indeed, the bank's managing director described the merger price as 'an absolute home run.' The merger was approved by more than 99% of the voted shares. Ryan (P) filed this stockholder action. The Court of Chancery issued its opinion on July 29, 2008, denying summary judgment as to the 'Revlon' and the 'deal protection' claims. This Court accepted the Lyondell directors' application for certification of an interlocutory appeal on September 15, 2008. P alleges that the Lyondell directors breached their 'fiduciary duties of care, loyalty and candor . . . and . . . put their personal interests ahead of the interests of the Lyondell shareholders.' The complaint alleges that: 1) the merger price was grossly insufficient; 2) the directors were motivated to approve the merger for their own self-interest; 3) the process by which the merger was negotiated was flawed; 4) the directors agreed to unreasonable deal protection provisions; and 5) the preliminary proxy statement omitted numerous material facts. The trial court rejected all claims except those directed at the process by which the directors sold the company and the deal protection provisions in the merger agreement.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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