Unilever Acquisition v. Richardson-Vicks, 85 Civ. 7239 (RO).

• Decision Date: 27 September 1985
• Docket Number: No. 85 Civ. 7239 (RO).,85 Civ. 7239 (RO).
• Citation: 618 F. Supp. 407
• Parties: UNILEVER ACQUISITION CORP., Plaintiff, v. RICHARDSON-VICKS, INC., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

618 F. Supp. 407

UNILEVER ACQUISITION CORP., Plaintiff, v. RICHARDSON-VICKS, INC., et al., Defendants.

No. 85 Civ. 7239 (RO).

United States District Court, S.D. New York.

September 27, 1985.

Cravath, Swaine & Moore, New York City, for plaintiff; David Boies, Max Shulman, Stephen D. Poss, New York City, of counsel.

Skadden, Arps, Slate, Meagher & Flom, New York City, for defendants; Vaughn C. Williams, James C. Freund, Edward P. Welch, Margaret Enloe, New York City, of counsel.

OPINION AND ORDER

OWEN, District Judge.

Richardson-Vicks Inc., the makers of Vicks Vaporub and other well known products, is resisting a takeover attempt by the Unilever Acquisition Corp., a newly-formed subsidiary of Unilever United States, Inc., owners of, among others, Lever Bros., a household products company, and Thomas J. Lipton, Inc., the tea and soup manufacturer. Richardson-Vicks is a publicly-held Delaware corporation, with some one-third or more of its stock controlled or held by various Richardsons.

After earlier feelers in the summer of 1985, Unilever in early September sent a letter to the board of directors of Richardson-Vicks proposing to acquire all the shares of Richardson-Vicks at $54 per share. This offer was refused. On September 16, Unilever, which owns 100,000 shares of Richardson-Vicks stock, brought this suit alleging both Williams Act, 15 U.S.C. § 78n(e), et seq., and state and common law violations, and almost simultaneously publicly announced a tender offer for all outstanding shares of Richardson-Vicks common stock, at a cash price of $56 per share if the Richardson-Vicks board of directors approved the offer and $48 if it did not.

Thereafter on September 17, the Richardson-Vicks board of directors voted and announced the issuance of a "Series A $4.00 Participating Cumulative Convertible Preferred Stock" to be distributed as a stock dividend to common stockholders of record as of September 27, 1985. Under the proposal, one share of the new preferred stock is to issue for each 5 shares of common. Among other benefits, each preferred share will entitle the holder to cast 25 votes on all issues on which the common can vote. However, if the preferred share is transferred, the new holder may exercise only 5 of those 25 votes for the first 36 months the stock is held. Thus, if the stock dividend is made as planned, the result will be that while each common stockholder will have the same voting power as theretofore, that stockholder will be unable to transfer those voting rights, since two-thirds will be unexercisable for 36 months following the transfer. This, it appears, would make it impossible for Unilever to acquire Richardson-Vicks at this time, for without the consent of the Richardson group, even were Unilever to succeed in purchasing all non-Richardson shares, the effect would be to increase the Richardson group's command of the total exercisable vote from about one-third to an absolute majority for the following 36 months.

Unilever, believing this new stock dividend to be an illegal interference both with its rights as a stockholder and with its attempt to acquire the company in violation of its rights under Delaware law, moved for an order temporarily restraining said dividend. I granted this relief in an oral opinion on September 19. The same issue is now before me now on Unilever's motion for a preliminary injunction enjoining the issuance of the stock dividend pending trial.

As hardly needs restating, in this Circuit, before a preliminary injunction will issue, a plaintiff must show, first, irreparable harm and, second, either likelihood of success on the merits or both sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. Dallas Cowboy Cheerleaders, Inc. v. Pussycat Cinema, Ltd., 604 F.2d 200 (2d Cir.1979).

Certain principles are basic. Thus, a board of directors, having in good faith and after reasonable deliberation determined that a tender offer is not in the company's best interest, may resist the offer by any legal means available. Crouse-Hinds Co. v. Internorth, Inc., 518 F.Supp. 390, 408 (N.D.N.Y.1980), reversed on other grounds, 634 F.2d 690 (2d Cir.1980). However, the business judgment rule does not protect actions taken in bad faith or in self-interest such as resisting a take-over solely to entrench the directors' control. Crouse-Hinds, 634 F.2d at 702. Further, under Delaware law, action of the board which is calculated to alter the structure of the corporation and results in a fundamental transfer of power from one corporate constituency to another, is not shielded by the business judgment rule. Moran v. Household International, Inc., 490 A.2d...