Ryan v. Lyondell Chemical Co.

In a rare decision on a post-closing motion in Ryan v. Lyondell Chemical Co., the Delaware Court of Chancery addressed the question of whether the independent members of a target company’s board of directors were entitled to summary judgment on claims that they breached their fiduciary duties by conducting an inadequate sale process. Although the court suggested that the transaction’s 45 percent premium was likely to prove exceptional, that the price was certainly “fair” and that the agreed deal protection measures might prove to be “reasonable,” the limited record of a passive board process in a CEO-dominated transaction with no market check likely mandated a trial to assess the open factual matters.

The decision highlights (1) the judicial perception of CEO-dominated M&A processes and the implications of those negative views on the ability of defendants to secure dismissal of claims prior to trial, (2) the critical importance of developing a thorough record of board evaluation (with financial and legal advisors) early in any strategic process, whether company-initiated or defensive, of the most effective means of maximizing shareholder value, and (3) the equal importance of building a record of careful board deliberation, with the assistance of legal and financial advisors, as to the effect of deal protection terms on the likelihood of subsequent bidders emerging and bidding full value.

A memo on the decision is available here, and the court’s opinion may be accessed here.