Brief Fact Summary. Defendant, Unocal Corp., appealed the lower court decision that prevented Unocal from excluding Plaintiff, Mesa Petroleum Co., from participating in Defendant’s self-tender for its own shares.
Synopsis of Rule of Law. Directors have a duty to protect the corporation from injury by third parties and other shareholders, which grants directors the power to exclude some shareholders from a stock repurchase.
Issue. The issue is whether Defendant can exclude Plaintiff from participating in Defendant’s self-tender.
Held. The court held that Defendant could exclude Plaintiff from its repurchase of its own shares. The directors for Defendant corporation have a duty to protect the shareholders and the corporations, and one of the harms that can befall a company is a takeover by a shareholder who is offering an inadequate offer. The directors’ decision to prevent an offer such as the one at issue should be subjected to an enhanced scrutiny since there is a natural conflict when the directors are excluding a party from acquiring a majority control. In this case the directors met the burden. There was evidence to support that the company was in reasonable danger: the outside directors approved of their self-tender, the offer by Plaintiff included the junk bonds, the value of each share was more than the proposed $54 per share, and Plaintiff was well-known as a corporate raider.
If the board of directors is disinterested, has acted in good faith and with due care, its decision in the absence of an abuse of discretion will be upheld as a proper exercise of business judgment.View Full Point of Law