Vice Chancellor Leo Strine last week produced another wonderfully detailed and thoughtful opinion, this time in In re The Topps Company Shareholders Litigation, the case challenging the proposed sale of Topps (think baseball cards) to a private equity firm run by Michael Eisner (think Disney).  There are already a number of descriptions and comments on the opinion (see, for example, here and here), and this case surely is significant even in its obvious ways.  While the Vice Chancellor grants a preliminary injunction halting the transaction in order to permit additional disclosure–a remarkably common remedy of late, as in Netsmart and Caremark, covered here and here–it takes the further and notable step of requiring the Topps board to free a competing bidder (Upper Deck, think baseball cards again) from a standstill agreement it had entered into with Topps during the go-shop period following execution of the Eisner merger agreement.

The Vice Chancellor is particularly critical of the board’s failure to pursue negotiations with Upper Deck once it became clear that Upper Deck could offer a transaction that would be significantly superior to the Eisner deal.  The court evidently concluded that this failure was likely driven–at least in part–by the fact that Eisner had given assurances that Topps’s incumbent managers (including the son of its founder) would continue in office after the merger, while the new bidder, Upper Deck, had made no such assurances.  On the other hand, Vice Chancellor Strine found that the original agreement with Eisner was a reasonable step for the board to take–a step that involved a 40-day go-shop period, a match right, a 3% termination fee for a superior bid accepted during the go-shop period, and a 4.6% termination fee for bids accepted after the go-shop period.  Most notably, the Eisner merger agreement permitted the board to pursue negotiations, even after the go-shop period, with a person the board concluded offered a reasonable probability of presenting a superior bid.

The lessons for M&A practitioners, however, aren’t what caught my attention here.  I was taken, rather, by the interesting and not altogether flattering light shed on the role of dissident directors.  In an environment in which proxy access tops the charts for corporate governance issues, a real-life example of how dissident directors actually performed in the heat of exploring a merger may say a great deal about the desirability of enhancing proxy access.  And the story in the Topps case, at least as told in the Vice Chancellor’s opinion, is not a strong testimonial in support of proxy access.  That story, and my analysis of its implications, follow below.

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