ACE Ltd. v. Capital Re Corp

In early 1999 Defendant, in need of cash, approached Plaintiff and sold them 12.3% of its outstanding shares for $75 million. When their credit rating slipped, Defendant looked to merge with a company such as Plaintiff. The two parties signed a merger agreement in June of 1999 wherein Defendant received .6 shares of Plaintiff for every one share of Defendant’s stock. The 12.3% holdings, as well as a shareholder agreement with another 33.5% of shareholders, allowed Plaintiff the luxury of having a near guaranty (with 45.8% voting power) of giving shareholder approval to a merger. The merger agreement contained a no-talk agreement that prevented Defendant directors from soliciting higher bids, but the agreement also allowed Defendant’s directors to terminate the agreement if there was a future superior bid. When Plaintiff’s share price fell (which in turn lessened the value paid for Defendant’s shares) and a third party made a better offer, the directors cancelled the agree ment with Plaintiff and gave Plaintiff five days to come up with a better offer than the third party. Plaintiff did so, but was again outbid by the third party. Instead of raising the bid further, Plaintiff sought a restraining order to prevent Defendant from canceling the merger agreement.