Mentor Graphics Corporation v. Quickturn Design Systems, Inc.

728 A.2d 25 (1998)

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Nature of the Case

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Facts

Mentor (P) sold an emulator to Quickturn (D) in 1992. P then decided to re-enter the emulation business and began to market a product from a French company called Meta. D then commenced a proceeding before the ITC claiming that Meta and P were infringing on D’s patents. D prevailed, and P was barred from competing with D. P then began to look at acquiring D. If P owned D, it could also own the patents and could then seek to vacate D’s injunctive order against P in the patent litigation. P then hired Arthur Anderson to get advice on how to compete in the emulation marketplace. The report identified advantages and benefits P would get if it acquired D. The bottom line was that if P acquired D, it could realize about $610 million in value and should probably bid $300 million for D. P retained Salomon Smith Barney to act as its financial advisor. Salomon’s study said that D’s price was so high that a takeover bid was not feasible. Later that year the stock price of D declined, and P decided to make a public bid to purchase D. The evening before the bid, the chairman of P informed D’s chairman that he would be launching a hostile tender offer the next morning. At no prior time did P ever attempt to contact D to negotiate a consensual deal. P then announced its unsolicited offer at $12.125 per share, which was a 50% premium over D’s immediate pre-offer price but a 20% discount from D’s February 1998 stock levels. P also announced its intent to solicit proxies to replace the board at a special meeting. P began soliciting agent designations from D shareholders to satisfy D’s by-law’s stock ownership requirement for such a meeting. D’s board determined, after three meetings, that P’s offer was inadequate and recommended to reject. At an August 21^st meeting, the board adopted two defensive measures. The board amended Article II, which allowed for a stockholder holding 10% or more of D’s stock to call a special meeting of the stockholders. The Amendment provided that if any such meeting was requested, D would fix the record date, and it must take place within 90-100 days after a valid determination of the request. The board also eliminated its dead hand feature and replaced it with a Deferred Redemption Plan (DRP) under which no newly elected board could redeem the Rights Plan for six months after taking office if the purpose or effect would be to facilitate a transaction with an interested person (one who proposed, nominated or financially supported the election of the new directors to the board). P would be just such a person. The combined effect would be to delay any acquisition of D by P for nine months. P filed an action for declaratory relief to hold that these new measures were invalid and for an injunction to dismantle them. D moved for summary judgment, and the court denied that motion. A trial was held on October 19-28, 1998. After the trial, P announced that it had received tenders of D shares, which with the shares that P already owned, represented over 51% of the outstanding stock of D. The court concluded that the bylaw amendment was valid but held that DRP was not.