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 shareholders.
    • 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 derivative lawsuit.
    • 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 judgment.
  • 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 price.
  • 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.