Omnicare, Inc. v. NCS Healthcare, Inc.
| Decision Date | 04 April 2003 |
| Docket Number | No. 605, No. 2002., No. 649, No. 2002 |
| Citation | 818 A.2d 914 |
| Parties | OMNICARE, INC., Plaintiff Below, Appellant, v. NCS HEALTHCARE, INC., Jon H. Outcalt, Kevin B. Shaw, Boake A. Sells, Richard L. Osborne, Genesis Health Ventures, Inc., and Geneva Sub, Inc., Defendants Below, Appellee. Robert M. Miles, Guillerma Marti, Anthony Noble, Jeffrey Treadway, Tillie Saltzman, Dolphin Limited Partnership I, L.P., Ramesh Mehan, Renee Mehan, Renee Mehan Ira, Saroj Mehan, Maneesh Mehan, Rahul Mehan, Joel Mehan, Lajia Mehan, Darshan Mehan Ira, Danshal Mehan (Rollover Ira), Arsh N. Mehan, Arsh N. Mehan (Roth Ira), Ashok K. Mehan, and Ashok K. Mehan Ira, Ira, Plaintiffs Below, Appellants, v. Jon H. Outcalt, Kevin E. Shaw, Boake A. Sells, Richard L. Osborne, Genesis Health Ventures, Inc., Genesis Sub, Inc., and NCS Healthcare, Inc., Defendants Below, Appellees. |
| Court | Supreme Court of Delaware |
Donald J. Wolfe, Jr. (argued), Kevin R. Shannon, Michael A. Pittenger, John M. Seaman, Richard L. Renck, of Potter, Anderson & Corroon, LLP, Wilmington, Robert C. Myers, Seth C. Farber, James P. Smith III, David F. Owens, Melanie R. Moss, of Dewey Ballantine, LLP, New York City, for appellant.
Edward P. Welch (argued), Edward B. Micheletti, Katherine J. Neikirk, James A. Whitney, of Skadden, Arps, Slate, Meagher & Flom, Wilmington, Mark A. Phillips, of Benesch, Friedlander, Coplan & Aronoff, Cleveland, OH, for appellees, NCS HealthCare, Inc., Boake A. Sells and Richard L. Osborne.
David C. McBride (argued), Bruce L. Silverstein, Christian Douglas Wright, Adam W. Poff, of Young, Conaway, Stargatt & Taylor, Wilmington, Paul Vizcarrondo, Jr., Theodore N. Mirvis (argued), Mark Gordon, John F. Lynch, Lauryn P. Gouldin, of Wachtell, Lipton, Rosen & Katz, New York City, for Genesis Health Ventures, Inc. and Geneva Sub, Inc.
Edward M. McNally, Michael A. Weidinger, Elizabeth A. Brown, of Morris, James, Hitchens & Williams, Wilmington, Timothy G. Warner, and James R. Bright, of Spieth, Bell, McCurdy & Newell Co., Cleveland, OH, for defendant, Kevin B. Shaw.
Jon E. Abramczyk, Brian J. McTear, of Morris, Nichols, Arsht & Tunnell, Wilmington, Frances Floriano Goins, and Thomas G. Kovach, of Squire, Sanders & Dempsey, Cleveland, OH, for defendant, Jon H. Outcalt.
Joseph A. Rosenthal (argued), Carmella P. Keener, of Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington, Daniel A. Osborn of Beatie and Osborn, LLP, New York City and Richard B. Bemporad, Lowey, Dannenberg, Bemporad & Selinger, LLP, White Plains, NY, for plaintiffs.
Robert J. Kriner, Jr., of Chimicles & Tikellis, LLP, Wilmington, liaison counsel for plaintiffs.
Before VEASEY, Chief Justice, WALSH, HOLLAND, BERGER and STEELE, Justices, constituting the Court en Banc. HOLLAND, Justice, for the majority:
NCS Healthcare, Inc. ("NCS"), a Delaware corporation, was the object of competing acquisition bids, one by Genesis Health Ventures, Inc. ("Genesis"), a Pennsylvania corporation, and the other by Omnicare, Inc. ("Omnicare"), a Delaware corporation. The proceedings before this Court were expedited due to exigent circumstances, including the pendency of the stockholders' meeting to consider the NCS/Genesis merger agreement. The determinations of this Court were set forth in a summary manner following oral argument to provide clarity and certainty to the parties going forward. Those determinations are explicated in this opinion.
The board of directors of NCS, an insolvent publicly traded Delaware corporation, agreed to the terms of a merger with Genesis. Pursuant to that agreement, all of the NCS creditors would be paid in full and the corporation's stockholders would exchange their shares for the shares of Genesis, a publicly traded Pennsylvania corporation. Several months after approving the merger agreement, but before the stockholder vote was scheduled, the NCS board of directors withdrew its prior recommendation in favor of the Genesis merger.
In fact, the NCS board recommended that the stockholders reject the Genesis transaction after deciding that a competing proposal from Omnicare was a superior transaction. The competing Omnicare bid offered the NCS stockholders an amount of cash equal to more than twice the then current market value of the shares to be received in the Genesis merger. The transaction offered by Omnicare also treated the NCS corporation's other stakeholders on equal terms with the Genesis agreement.
The merger agreement between Genesis and NCS contained a provision authorized by Section 251(c) of Delaware's corporation law. It required that the Genesis agreement be placed before the corporation's stockholders for a vote, even if the NCS board of directors no longer recommended it.1 At the insistence of Genesis, the NCS board also agreed to omit any effective fiduciary clause from the merger agreement. In connection with the Genesis merger agreement, two stockholders of NCS, who held a majority of the voting power, agreed unconditionally to vote all of their shares in favor of the Genesis merger. Thus, the combined terms of the voting agreements and merger agreement guaranteed, ab initio, that the transaction proposed by Genesis would obtain NCS stockholder's approval.
The Court of Chancery ruled that the voting agreements, when coupled with the provision in the Genesis merger agreement requiring that it be presented to the stockholders for a vote pursuant to 8 Del. C. § 251(c), constituted defensive measures within the meaning of Unocal Corp. v. Mesa Petroleum Co.2 After applying the Unocal standard of enhanced judicial scrutiny, the Court of Chancery held that those defensive measures were reasonable. We have concluded that, in the absence of an effective fiduciary out clause, those defensive measures are both preclusive and coercive. Therefore, we hold that those defensive measures are invalid and unenforceable.
The defendant, NCS, is a Delaware corporation headquartered in Beachwood, Ohio. NCS is a leading independent provider of pharmacy services to long-term care institutions including skilled nursing facilities, assisted living facilities and other institutional healthcare facilities. NCS common stock consists of Class A shares and Class B shares. The Class B shares are entitled to ten votes per share and the Class A shares are entitled to one vote per share. The shares are virtually identical in every other respect.
The defendant Jon H. Outcalt is Chairman of the NCS board of directors. Outcalt owns 202,063 shares of NCS Class A common stock and 3,476,086 shares of Class B common stock. The defendant Kevin B. Shaw is President, CEO and a director of NCS. At the time the merger agreement at issue in this dispute was executed with Genesis, Shaw owned 28,905 shares of NCS Class A common stock and 1,141,134 shares of Class B common stock.
The NCS board has two other members, defendants Boake A. Sells and Richard L. Osborne. Sells is a graduate of the Harvard Business School. He was Chairman and CEO at Revco Drugstores in Cleveland, Ohio from 1987 to 1992, when he was replaced by new owners. Sells currently sits on the boards of both public and private companies. Osborne is a full-time professor at the Weatherhead School of Management at Case Western Reserve University. He has been at the university for over thirty years. Osborne currently sits on at least seven corporate boards other than NCS.
The defendant Genesis is a Pennsylvania corporation with its principal place of business in Kennett Square, Pennsylvania. It is a leading provider of healthcare and support services to the elderly. The defendant Geneva Sub, Inc., a wholly owned subsidiary of Genesis, is a Delaware corporation formed by Genesis to acquire NCS.
The plaintiffs in the class action own an unspecified number of shares of NCS Class A common stock. They represent a class consisting of all holders of Class A common stock. As of July 28, 2002, NCS had 18,461,599 Class A shares and 5,255,210 Class B shares outstanding.
Omnicare is a Delaware corporation with its principal place of business in Covington, Kentucky. Omnicare is in the institutional pharmacy business, with annual sales in excess of $2.1 billion during its last fiscal year. Omnicare purchased 1000 shares of NCS Class A common stock on July 30, 2002.
This is a consolidated appeal from orders of the Court of Chancery in two separate proceedings. One proceeding is brought by Omnicare seeking to invalidate a merger agreement between NCS and Genesis on fiduciary duty grounds. In that proceeding, Omnicare also challenges Voting Agreements between Genesis and Jon H. Outcalt and Kevin B. Shaw, two major NCS stockholders, who collectively own over 65% of the voting power of NCS stock. The Voting Agreements irrevocably commit these stockholders to vote for the merger. The Omnicare action was C.A. No. 19800 in the Court of Chancery and is No. 605, 2002, in this Court.
The other proceeding is a class action brought by NCS stockholders. That action seeks to invalidate the merger primarily on the ground that the directors of NCS violated their fiduciary duty of care in failing to establish an effective process designed to achieve the transaction that would produce the highest value for the NCS stockholders. The stockholder action was C.A. No. 19786 in the Court of Chancery and is No. 649, 2002 in this Court.
In Appeal No. 605, 2002 (the "Omnicare appeal") the Court of Chancery entered two orders. The first decision and order (the "Standing Decision"), dated October 25, 2002, dismissed Omnicare's fiduciary duty claims because it lacked standing to assert those claims. The Court of Chancery refused to dismiss Omnicare's declaratory judgment claim, holding that Omnicare had standing, notwithstanding the timing of its purchase of NCS stock to assert its claim, as a bona fide bidder for control, that the NCS charter should be interpreted...
To continue reading
Request your trial
-
Loughlin v. Goord
... ... libel against Glenn Goord ("Defendant"), a director of Rekor Systems, Inc. ("Rekor" or the "Company"), a Delaware corporation. Dkt. No. 10 ("Amended ... plaintiff and the defendants at the time of the alleged breach." Omnicare, Inc. v. NCS Healthcare, Inc. , 809 A.2d 1163, 1169 (Del. Ch. 2002), ... ...
-
In re MFW Shareholders Litig.
... ... , Delaware, Attorneys for Defendants MacAndrews & Forbes Holdings Inc., Ronald O. Perelman, Barry F. Schwartz, and William C. Bevins. Stephen P ... 173. E.g., Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del.2003), rev'g 825 A.2d ... ...
-
Schroeder v. Pinterest Inc.
... ... plaintiffs must show an actual, existing fiduciary relationship between the plaintiff and the defendants at the time of the alleged breach ( Omnicare, Inc. v. NCS Healthcare, Inc., 809 A.2d 1163, 1169 [Del.Ch. 2002], appeal dismissed in part, revd. in part 818 A.2d 914 [Del. 2003] ). Thus, for ... ...
-
Johnson & Johnson v. Guidant Corp.
... ... [] all reasonable inferences in the plaintiff's favor." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 97-98 (2d Cir.2007). "In addition, ... See Omnicare, Inc. v. NCS Healthcare Inc., 818 A.2d 914, 938-939 (Del.2003) ... ...
-
Delaware Court Cites Board's 'Impeccable Knowledge' Of Target's Business In Declining To Enjoin Merger Under Revlon
...Ch. Sept. 30, 2011). 2 Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986). 3 Omnicare vs. NCS Healthcare, 818 A.2d 914 (Del. 4 Plaintiff's additional claim that the board breached its duty of disclosure by omitting material information from its proxy materials wa......
-
Five Significant Delaware Corporate Governance Opinions In 2011
...the target to accept a superior offer after the original deal is signed but before it is closed. Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your......
-
A divided court in more ways than one: the Supreme Court of Delaware and its distinctive model for judicial efficacy, 1997-2003.
...Mut. Auto. Ins. Co. v. Peebles, 688 A.2d 1374 (Del. 1997). Business Organizations Cases: Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003); Cerberus Int'l v. Apollo Mgmt., 794 A.2d 1141 (Del. 2002); Brehm v. Eisner, 746 A.2d 244 (Del. 2000); Stegemeier v. Magness, 728 A.2d 55......
-
Lock-up creep.
...65-68 and accompanying text for a further discussion of this issue. (10.) See infra Part II. (11.) Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. (12.) Sean J. Griffith, The Omnipresent Specter of Omnicare, 39 J. Corp. L. 753, 759 (2013). (13.) E.g., Phelps Dodge Corp. v. Cyprus......
-
Corporate policy and the coherence of Delaware takeover law.
...Inc., S'holders Litig., 825 A.2d 240, 254-55 (Del. Ch. 2002), rev'd on other grounds sub nom Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003) (refusing to apply Revlon duties in connection with a stock-for-stock merger in which the stockholders would receive shares of an iss......
-
STEALTH GOVERNANCE: SHAREHOLDER AGREEMENTS AND PRIVATE ORDERING.
...to a shareholder agreement owe other shareholders fiduciary duties?"). (108.) See, e.g., Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914, 936-39 (Del. 2003) (concluding that voting agreement entered into by controlling stockholders had preclusive effect on merger to the detriment of mi......