Court of Chancery Defines Coercion
Gradient OC Master Ltd. v. NBC Universal Inc., C.A. No. 3021-VCP (July 12, 2007).
A line of Delaware decisions recognizes that it is improper to coerce stockholders into accepting a transaction. What exactly is coercive, however, is not well defined. After all, almost any transaction that offers a choice has incentives built into it to induce taking the deal, but that cannot be improperly coercive. Here the Court of Chancery summarizes the prior decisions and articulates helpful standards to determine when there is actionable coercion.
While the decision is complex, the bottom line appears to be whether the Court is convinced the terms offered make economic sense. Thus, in this case it made sense to ask stockholders to give up some of the restrictive covenants that went with their preferred stock to achieve a successful restructuring. In contrast, when in another case a self-tender was seen as an unjustified attempt to fight off a competing offer, the Court held the too high tender price was an unlawful attempt to coerce stockholders to take the offer or be left with an over-leveraged company in the hands of the same directors.Share