Lyondell Chemical Co. v. Ryan
970 A.2d 235 (Del.Supr. 2009)
Basell was a corporation that
was interested in buying a corporation called Lyondell. They made an
offer, but Lyondell's directors refused, saying that they were not
interested in selling.
Basell eventually raised their
offer price from $26.50 a share to $48 a share. Lyondell's directors met
several times to consider the offer and voted to recommend the merger to
The directors hired a
financial analyst who found $48 to be a great deal for Lyondell.
The shareholders voted to
approve the merger. Some shareholders who didn't like the deal started a
The shareholders, led by
Ryan, argued that the directors had breached their fiduciary duties by
not attempting to obtain the best possible price for the corporation.
While the directors
certainly drove a hard bargain with Basell, they never solicited offers
from anyone else. That might have bid up the price.
See Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc. (506 A.2d 173 (1985)), which said that when a corporation is
definitely up for sale, the directors are under an obligation (aka Revlon
duties) to get the best possible price.
The directors argued that
their actions were covered by the business judgment rule.
The directors had a
provision Lyondell's charter that exculpated them from breaches of the duty
of care (see 8 Del. C. §102(b)(7)),
so Ryan would have to show that they breached the duty of loyalty. That requires a showing that they were
motivated by self-interest or ill will and failed to act in good faith.
The Trial Court found for
Ryan, Lyondell appealed.
The Trial Court found that,
based on the Revlon duties, Ryan
had established enough of a case that Lyondell was denied summary
The Delaware Supreme Court
reversed and found for Lyondell in summary judgment.
The Delaware Supreme Court
found that Revlon duties do not
require the directors to seek out competing bids, only that they
"get the best price."
The Court found that the
directors had a good idea of what their corporation was worth, and drove
a hard bargain with the buyer. They acted in good faith to get what they
believed was the best price. Therefore, under the business judgment
rule the court shouldn't second guess
how the directors came to their decision.
The directors felt that
Basell was making them an offer that was too good to pass up, so taking
it immediately was a better option than trying to shop the company
around to a bunch of other people to see if they could get a higher
Note that because there was a exculpation
clause, Ryan would have to show that
the directors had breached their duty of loyalty, which is a relatively high bar.