Thomas & Betts Corp. v. Leviton Mfg. Co., Inc.
| Decision Date | 06 October 1995 |
| Docket Number | No. 14069,14069 |
| Citation | 685 A.2d 702 |
| Court | Court of Chancery of Delaware |
| Parties | 21 Del. J. Corp. L. 794 THOMAS & BETTS CORPORATION, Plaintiff, v. LEVITON MANUFACTURING CO., INC., Defendant. Civil Action . Submitted: |
JACOBS, Vice Chancellor.
This is an action brought by Thomas & Betts Corporation ("Thomas & Betts") pursuant to 8 Del.C. § 220, to inspect certain books and records of Leviton Manufacturing Co., Inc. ("Leviton"). Leviton is a Delaware corporation engaged in the business of manufacturing electronics and electrical wiring devices. Thomas & Betts is a New Jersey corporation listed on the New York Stock Exchange and that is also engaged in the electronics business. Thomas & Betts owns a 29% interest in Leviton, represented by a combination of Leviton Class A Common Stock, Class B Common Stock and Preferred Stock.
On February 8, 1995, Thomas & Betts delivered to Leviton a formal demand to inspect a detailed list of Leviton's books and records for four purposes. First, Thomas & Betts seeks a stockholder list to communicate with Leviton stockholders on matters of mutual concern regarding the corporation's "underperformance." Second, Thomas & Betts needs the books and records (a) to value its investment; (b) to account properly to its own shareholders for its investment in Leviton; and (c) to investigate allegations of waste and mismanagement on the part of Leviton's directors and officers.
By letter dated February 17, 1995, Leviton rejected Thomas & Betts' demand. Following expedited discovery, this action was tried between June 5 through June 15, 1995. This is the decision of the Court, following post-trial briefing, on the merits of Thomas & Betts' § 220 inspection claims.
Both before and after Thomas & Betts became a minority shareholder, Leviton has been a private corporation owned, controlled and operated by the Leviton family. Leviton has two wholly-owned subsidiaries, Pacific Electrorod Company and American Insulated Wire Corporation, that represent about one half of Leviton's consolidated revenue and profits. Leviton's dominant shareholder, President, and Chief Executive Officer is Mr. Harold Leviton, who, together with his wife currently holds 76.45% of Leviton Class A (voting) stock in a voting trust of which he is the trustee. Before Thomas & Betts entered upon the scene, all of Leviton's stockholders were members of the Leviton family and affiliated persons. Included in that latter category was Thomas Blumberg ("Blumberg"), Leviton's former Group Vice President, who is married to Harold Leviton's niece.
For several years, Thomas & Betts had expressed an interest in acquiring Leviton. Both companies had shared numerous common distributors, and Thomas & Betts had been a fairly significant Leviton customer. During the summer months in 1993, Kevin Dunnigan, Thomas & Betts' Chief Executive Officer ("Dunnigan"), and Clyde Moore, its President and Chief Operating Officer ("Moore"), met with Harold Leviton to explore possible joint venture opportunities as well as a friendly acquisition of Leviton. No agreement was ever reached, however.
In April 1994, without Harold Leviton's knowledge or authorization, Mr. Blumberg approached Thomas & Betts to explore a possible merger between Leviton and Thomas & Betts, or, alternatively, an acquisition by Thomas & Betts of the Blumbergs' Leviton stock. The Blumberg family owned approximately 29.1% of Leviton's outstanding shares, including 23.55% of Leviton's Class A (voting) stock. Over several confidential discussions, the parties negotiated a sale.
Thomas & Betts wanted to purchase the Blumbergs' interest to establish a "beachhead" toward acquiring all of Leviton. Mr. Dunnigan stated as much to the Blumbergs' financial adviser:
Our (Thomas & Betts') key driving force is ... to acquire the complete company, and not simply to put Leviton in play so as to achieve a onetime financial gain, which would do little for the long term interests of our shareholders versus the substantial risks we would be taking.
During their negotiations, Blumberg furnished Thomas & Betts with confidential financial information regarding Leviton and its operations. Included were the contents of a twelve month management statement containing non-public financial information (including confidential material disclosing the cost of certain Leviton operations); information concerning the value of Leviton's wholly-owned subsidiary, American Insulated Wire Corporation; a confidential strategic planning document; a corporate personnel data base; updated Leviton income figures; and other information of a similar character derived from internal financial statements of Leviton and its subsidiaries.
Based upon that information, Thomas & Betts calculated a price that it was willing to pay for the Blumbergs' 29.1% minority stock interest. Mr. Dunnigan then recommended that the Board authorize the purchase of the Blumbergs' minority interest. At that time Dunnigan sought Board authorization, he knew that Leviton did not pay dividends and that it did not follow generally accepted accounting principles ("GAAP") in consolidating the quarterly financial statements for Leviton and its wholly-owned subsidiaries. He also knew that Harold Leviton had the controlling stock position in Leviton and that the corporation was run as a privately owned family business. Blumberg did not, nor could he, assure Thomas & Betts that Leviton would change any of its management or accounting policies if Thomas & Betts became a Leviton minority shareholder, and Thomas & Betts did not seek such assurances.
As earlier noted, Thomas & Betts considered the purchase of the Blumbergs' 29.1% interest as a first step towards eventually acquiring all of Leviton. Consistent with that objective, on June 27, 1994, Dunnigan wrote a memorandum advising the Thomas & Betts Board of Directors that:
In general, the terms of the purchase of the initial interest of 29.1% are a $50 million initial payment in stock ... and when we complete the purchase, we would pay [to Blumberg] up to an additional $20 million depending on the purchase price for the balance of the company.
At a special Board meeting, the directors authorized Mr. Dunnigan to proceed with the Blumberg purchase, as the initial step of an eventual acquisition of Leviton. On July 12, 1994, Thomas & Betts entered into a formal agreement with the Blumbergs to purchase their 29.1% stock interest for $50 million dollars. The purchase agreement provided that the Blumbergs would be paid an additional $20 million if Thomas & Betts acquired control of, or sold its interest in, Leviton. That same day the purchase was consummated.
The following day, Dunnigan informed Harold Leviton that Thomas & Betts had purchased the Blumbergs' minority interest. At a meeting held at Leviton's offices in Long Island, Dunnigan suggested to Mr. Leviton that the two companies explore certain joint business ventures, as well as a friendly acquisition of Leviton by Thomas & Betts. Harold Leviton rebuffed that suggestion, offering instead to buy out Thomas & Betts' stock position in Leviton.
The revelation that the Blumbergs had sold their 29.1% stock interest to Thomas & Betts came as a complete--and unpleasant--surprise to Harold Leviton. Angered at Thomas Blumberg's disloyalty, Harold Leviton fired him on the spot, then rehired him, and then days later, fired Blumberg (and his children) again, this time permanently.
On July 15, 1994, Thomas & Betts issued a press release announcing that it had purchased the Blumbergs' interest in Leviton and that it intended to account for that investment on an equity basis. 1 To employ equity accounting, Thomas & Betts would need up-to-date financial information regarding Leviton and its subsidiaries. 2
From July 1994 through February 1995, Mr. Moore of Thomas & Betts and Ralph DeBiasi, Leviton's Group Vice President of Finance ("DeBiasi"), met several times to discuss the new relationship between the two companies. Harold Leviton, who remained upset about Thomas & Betts' unwanted presence as a stockholder, did not participate in those discussions. Included among the matters discussed was the internal financial information to which Thomas & Betts wanted access on a periodic basis.
On October 6, Mr. Dunnigan sent to Thomas & Betts' Board of Directors a memorandum apprising them of his negotiations with Leviton. Mr. Dunnigan stated that he intended to attempt to persuade Harold Leviton to negotiate a possible acquisition of Leviton. One of the contemplated forms of "persuasion" would be a formal demand to inspect Leviton's books and records:
On the Leviton front, we are moving to the next phase. I will write to Harold Leviton next week to give him a rationale on why it is in everyone's best interests to start a dialogue. We will follow this up with a legal request to review all the books and records of Leviton which will start either a dialogue or a lawsuit.
(emphasis added).
On October 17, 1994, Mr. DeBiasi responded to Mr. Dunnigan, reaffirming Harold Leviton's unalterable position that he was not interested in pursuing a negotiated acquisition of Leviton.
Near the end of October, Messrs. DeBiasi and Moore met again, and agreed that Leviton would furnish its annual financial statement and its unaudited quarterly reports to Thomas & Betts. After the meeting, Mr. Moore then asked that that information be provided earlier than had been previously agreed. He also requested that the...
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