Lynch v. Vickers Energy Corp.

• Decision Date: 22 January 1976
• Citation: 351 A.2d 570
• Parties: Libby G. LYNCH, Plaintiff, v. VICKERS ENERGY CORPORATION et al., Defendants.
• Court: Court of Chancery of Delaware

Page 570

351 A.2d 570

Libby G. LYNCH, Plaintiff, v. VICKERS ENERGY CORPORATION et al., Defendants.

Court of Chancery of Delaware, New Castle County.

Jan. 22, 1976.

Final judgment for defendants after trial.

Irving Morris of Morris & Rosenthal, Wilmington, and Sidney B. Silverman, Joan T. Harnes, and Martin H. Olesh of Silverman & Harnes, New York City, for plaintiff.

Louis J. Finger of Richards, Layton & Finger, Wilmington, and Robert L. Stern, Leo Herzel, George W. Hamman, and Susan Getzendanner of Mayer, Brown & Platt, Chicago, Ill., for defendants Vickers Energy Corp., Esmark Inc., Richard J. Boushka, Donald P. Kelly, Robert D. Phillips and Jack A. Vickers.

David A. Drexler of Morris, Nichols, Arsht & Tunnell, Wilmington, and William Key Wilde of Bracewell & Patterson, Houston, Tex., for defendants Stormy F. Smith, William A. Alexander and Edward J. Hudson.

MARVEL, Vice Chancellor.

On October 11, 1974, plaintiff, in response to a September 30, 1974 offer of the defendant Vickers Energy Corporation to purchase any and all of the outstanding shares of common stock of its subsidiary, TransOcean Oil, Inc., tendered to the would-be buyer her one hundred shares of common stock of such corporation. At the time such offer was made Vickers was the holder of 53.5% Of the issued and outstanding shares of common stock of TransOcean, Vickers being in turn a wholly-owned subsidiary of Esmark, Inc., the board of which, headed by Donald Kelly, its president, had earlier in 1974 decided on a course of action designed to acquire for Vickers as many of the outstanding minority shares of common stock of TransOcean as possible.

Plaintiff now seeks relief for the damages allegedly suffered by her and others of her class as a result of the sale of their TransOcean stock to Vickers, complaining that the individual defendant directors of TransOcean, who were allegedly under the control of their corporation's majority stockholder, the defendant Vickers, and who made no recommendation as to acceptance or rejection of the offer in issue, breached their fiduciary duty to plaintiff and other minority stockholders of her class who tendered their shares by not actively opposing the Vickers' offer, an offer which plaintiff claims to have been made for a grossly inadequate consideration, namely $12 ¹ per share, an offering price suggested by Goldman, Sachs & Company, whose services as dealer manager of the offer had been engaged by Esmark, representing a premium of from $4 to $5 per share over the market price for such stock prior to September 24, 1974. In response to such offer, the holders of 4,460 of the 7,250 minority stockholders of TransOcean chose not to tender their shares. However, as a result of the Vickers' offer the latter became the holder of approximately 87% Of TransOcean common stock.

TransOcean has, until the recent past, been engaged directly and through subsidiaries almost exclusively in the business of offshore exploration followed by exploitation of discovered profitable sources of petroleum and natural gas for the most part in the Gulf of Mexico. However, such corporation has a substantial interest in petroleum and gas drilling rights in the North Sea off Great Britain and has recently also devoted some of its drilling activities to areas ² within the land boundaries of the continental United States and Canada.

At the inception of this litigation this Court declined to restrain the carrying out of the September 30, 1974 offer here in issue, and this is the opinion of the Court after final hearing.

Plaintiff's complaint charges that the offer in issue was not only made for a grossly inadequate price based on a fraudulent concealment of the actual value of shares of common stock of TransOcean but in addition contained statements which tended to compel selling in response to the offer in that the circular, which contained such offer to purchase all tendered shares of stock held by the minority stockholders of TransOcean, stated that in the event that a substantial number of such stockholders of such corporation were to tender their shares, the result could be an inactive market ³ for such corporation's remaining shareholders and that if fewer than three hundred such stockholders should remain after the completion of the Vickers offer, then such stock would be deregistered, as permitted by the Securities Act of 1934, and that in the event of deregistration, TransOcean would not be required to issue financial reports or proxy solicitation material to its shareholders. Finally, it was reported to the minority stockholders that in the event of deregistration that the officers and directors of TransOcean would not be subject to the proxy rules of § 14 or the short-swing profit provisions of § 16(c) of the Securities Act of 1934, Sonesta International Hotels Corporation v. Willington Associates (C.A.2) 483 F.2d 247 (1973). Plaintiff concedes that federal law requires that such disclosures must be made in an offer for tenders of stock but contends that in purportedly making required disclosures only half-truths were in fact revealed. As matters transpired, however, a more than substantial number of holders of stock of TransOcean, including several of its own directors, declined to sell their shares, and an available market for TransOcean shares continued to exist after expiration of the extended period for the purchase of tendered shares pursuant to the September 30, 1974 offer.

Thus, plaintiff in effect argues that caught in mid-stream between two unattractive alternatives, she did not have a free and meaningful choice of a course of action to take compatible with the advancement of her own best interests in response to the offer here in issue and was thereby coerced along with other members of her class into electing to embrace one of two alternatives, neither of which she claims served properly to protect her equity in her common stock of TransOcean and that of her similarly situated fellow stockholders.

Plaintiff accordingly contends that by reason of the unopposed over-reaching by the directors and officers of Esmark and of Vickers, the holder, as noted above, of a majority of the shares of common stock of TransOcean, all of the shares of which in turn are held by a third dominant corporation, namely Esmark, that she and others of her class are entitled to an award of damages in an amount equivalent to the difference between the stipulated offering price contained in the Vickers September 30, 1974 offer for tenders of TransOcean stock and the fair or intrinsic value of the TransOcean stock tendered in response to such offer, a form of relief, which, if granted, would be comparable to that afforded an objecting stockholder entitled to an appraisal of the intrinsic value of his shares of stock after a corporate merger.

Turning again to the offer for tenders here in issue, it is plaintiff's contention that in late September, 1974, at a time when the market price of TransOcean stock was abnormally depressed due to general unhealthy economic conditions, the defendant Vickers, by means of its control of the voting stock of TransOcean, seized the opportunity thereby presented to force the minority stockholders of such corporation into making what can be informally termed Hobson's choice,...