Williams v. Geier
| Decision Date | 28 November 1995 |
| Docket Number | 1994,No. 380,380 |
| Parties | Josephine L. WILLIAMS, Plaintiff Below, Appellant, v. James A.D. GEIER, Gilbert Geier McCurdy, Daniel J. Meyer, C. Lawson Reed, Joseph A. Steger, Neil A. Armstrong, Edward A. Asplin, Clark Daugherty, Lyle Everingham, and Cincinnati Milacron, Inc., Defendants Below, Appellees. . Submitted: |
| Court | United States State Supreme Court of Delaware |
Upon appeal from the Court of Chancery. AFFIRMED.
Court Below: Court of Chancery of the State of Delaware in and for New Castle County; C.A. No. 8456.
Norman Monhait of Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington; William T. Jacobs (argued), of Strauss & Troy, Cincinnati, for appellant.
Martin P. Tully, Richard L. Sutton and Thomas C. Grimm of Morris, Nichols, Arsht & Tunnell, Wilmington; Rory O. Millson (argued), of Cravath, Swaine & Moore, New York City, for appellees.
Before VEASEY, C.J., WALSH and HARTNETT, JJ., HORSEY, J. (Retired), and RIDGELY, President Judge, constituting the Court en Banc. *
In this appeal, we consider whether defendant below-appellee, Cincinnati Milacron ("Milacron"), may validly implement a recapitalization plan (the "Recapitalization") resulting from an amendment to Milacron's certificate of incorporation (the "Amendment"). The Amendment was recommended by resolution of the Milacron Board of Directors (the "Board") and approved by the requisite stockholder vote. Plaintiff below-appellant, Josephine L. Williams ("Williams"), an individual minority stockholder, brought suit in the Court of Chancery against Milacron and certain members of the Board, challenging the validity of the Amendment and Recapitalization.
The essence of the Recapitalization is to provide for a form of "tenure voting" whereby holders of common stock on the record date would receive ten votes per share. Upon sale or other transfer, however, each share would revert to one-vote-per-share status until that share is held by its owner for three years. The Recapitalization applied to every stockholder, whether a stockholder was a minority stockholder or part of the majority bloc. Williams argues that the Recapitalization disproportionately and invalidly favors stockholders who are part of the majority bloc and disfavors the minority stockholders. Williams further contends that the sole purpose of the Recapitalization was to entrench Milacron management in office and allow the majority bloc to sell a portion of its holdings while retaining control of the company.
The Court of Chancery granted summary judgment in favor of defendants, holding that Milacron's adoption of the Amendment and Recapitalization was valid. Specifically, the court held that Unocal 1 applied, and found that the Board had reasonable grounds to believe that a corporate threat existed and that the Recapitalization was a reasonable response to that threat, there being no improper action or motive. In this appeal, Williams claims that the Court of Chancery erred in analyzing the Recapitalization under Unocal rather than Blasius. 2 Williams also contends that the trial court incorrectly found that the Board satisfied its burden under Unocal. Finally, Williams contends that the stockholder vote approving the Amendment does not validate the Amendment or the Recapitalization.
We AFFIRM the judgment of the Court of Chancery, but on the following grounds: (1) the instant factual situation implicates neither Unocal nor Blasius; (2) the business judgment rule applies to the action of the independent majority of the Board in recommending the advisability of the Amendment to the Milacron stockholders; and (3) since a fully informed majority of the stockholders voted in favor of the Amendment pursuant to the statutory authority of 8 Del.C. § 242 ("Section 242"), the stockholder vote is dispositive.
Milacron is a Delaware corporation that manufactures machine tools, plastics machinery, computer controls and various other industrial machinery and tools. During the time period relevant to this suit, the Board consisted of ten members--seven independent, disinterested directors 3 who collectively owned less than 1 percent of the common shares outstanding, and three inside directors (deemed not to be independent or disinterested for this purpose) who collectively owned approximately 12.6 percent of the common shares outstanding. 4 With regard to overall share ownership, the Geier family (including the two Geier directors, in-laws and family trusts), together with employee benefit plans owned or controlled in excess of 50 percent of the total voting power of Milacron. We assume, without deciding, therefore, that this group represents a controlling bloc for purposes of this decision. 5 Hence, we will refer to the Geier family and the employees and benefit plans collectively as the "Family Group." 6
Toward the end of 1985, Meyer determined that it would be in Milacron's best interests to develop a recapitalization plan. With that goal in mind, he pursued talks with the First Boston Corporation ("First Boston"). On December 10, 1985, Meyer, along with Geier and several Milacron officers, met with First Boston and Milacron's outside legal counsel, Cravath, Swaine & Moore ("Cravath"), to communicate Milacron's goals and analyze its options. Another meeting followed on January 8, 1986, at which First Boston identified Milacron's objectives as follows:
Maintain ability to maximize long-term value for shareholders.
Provide for ability to meet financing needs of corporation without impairing ability of management to maintain focus on long-term values rather than short-term business cycles.
Protect long-term commitment to continued growth and investment in machine tool business.
Reduce level of exposure to raiders seeking to capitalize on corporate vulnerability due to short-term business cycles.
Continue process of diversification away from primary reliance on machine tool business to mix of 1/3 of revenue and income from machine tools and 2/3 from other sources.
Provide Board of Directors with a corporate structure which gives the Board the best opportunity to fairly evaluate and negotiate, in the best interests of all shareholders, any proposal to acquire control of the Company.
In light of these goals, First Boston recommended pursuing a "tenure voting plan," loosely based on the "Smuckers" 7 recapitalization, whereby all shares would be granted multiple votes which would be lost at transfer and then regained by the transferee after holding the shares for a certain period of time.
Pursuant to First Boston's recommendation, Article Fourth of Milacron's Restated Certificate of Incorporation would be amended so that all stockholders owning common stock on the effective date would be entitled to ten votes per share. Upon sale or other transfer of ownership, the voting rights of each share would revert to a single vote per share until such time as the new stockholder held the share for thirty-six consecutive months. If Milacron issued new shares after the effective date, these shares would be treated the same as pre-Recapitalization shares that had been sold or transferred--they would be entitled to only one vote until held for thirty-six consecutive months by the same stockholder. Milacron's officers ultimately decided to pursue the Recapitalization and instructed First Boston to prepare a presentation to be made to the Board.
On January 24, 1986, Milacron management and First Boston presented the Recapitalization to the Board at a special board meeting. 8 First Boston provided the directors with detailed materials focusing on the benefits long-term investors would realize under the Recapitalization, as well as analyses of several other possible recapitalization plans. The Board decided to postpone action concerning the Recapitalization, and agreed to discuss the subject further at its next meeting on February 11, 1986. On March 21, 1986, the Board ultimately adopted a resolution proposing the Amendment and Recapitalization, determining that the Amendment and Recapitalization are "in the best interests of the Company and its shareholders" and recommending a favorable vote by stockholders at the April 22, 1986 Annual Meeting.
Pursuant to 8 Del.C. § 242(b)(1), effectuation of the Amendment required both the Board resolution recommending advisability and approval by the affirmative vote of a majority of the outstanding stock entitled to vote thereon. 9 Accordingly, Milacron sent to stockholders a Notice of Annual Meeting of Shareholders and accompanying Proxy Statement for the April 22, 1986 meeting. The Proxy Statement (the "Proxy") explained that the Board believed the Recapitalization was in the best interests of the stockholders and had the threefold effect of: (1) providing existing and long-term stockholders with a greater voice in the company; (2) permitting issuance of additional shares of common stock with minimal dilution of voting rights; and (3) discouraging hostile takeovers.
In addition to informing the stockholders of the benefits of the Recapitalization, the Proxy also informed them of possible disadvantages:
(1) if passed, the Recapitalization would "concentrate voting power in the hands of long-term shareholders" including the "descendants of the Company's founder, their in-laws and trusts established by them," Proxy at 16-17; 10
(2) "the Recapitalization may make [Milacron] a less attractive target for a takeover bid or share accumulation ..." and, as a result, "approval of the Recapitalization may deprive shareholders of an opportunity to sell their shares at a price higher than that prevailing in the market ...," Proxy at 15-16; (3) "[i]f the Recapitalization is approved by the shareholders, the same shareholders who voted to approve the Recapitalization may have insufficient voting power to amend or repeal the Recapitalization at a future date," Proxy at 17; and
(4)...
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