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Business Organizations Keyed to Allen
Smith v. Van Gorkom
Citation:488 A.2d 858 (Del. 1985).
Trans Union was a holding company primarily in the business of railcar leasing. In 1980, the company found that it was having difficulty generating taxable income to offset its large investment tax credits (ITC). Thus, on September 5, 1980, senior management met to discuss the possibility of a leveraged buyout to solve it ITC problem. Management determined they would need between $50-$60 per share to solve the cash flow problem. They did not determine a fair price for the company at that meeting. Van Gorkom stated he personally would take $55 per share for his 75,000 shares, but vetoed the idea of a leveraged buyout. Thereafter, Van Gorkom approached Jay A. Pritzker, a corporate takeover specialist, with a proposed price of $55 per share as well as a prepared financing structure. Van Gorkom did not consult with the board or management prior to this meeting, except to have Trans Union’s controller calculate the feasibility of a $55 per share leveraged buyout. Van Gorkom and Pritzker met on September 13 where the latter, through his company Marmon, made a cash offer of $55 per share with the offer to remain open for 90 days as a “market test.”
On September 19, Van Gorkom called a special board meeting and gave an oral presentation regarding the offer. Copies of the proposed Merger Agreement were not provided in time for the board‘s review. Van Gorkom also did not disclose the methodology for reaching the $55 per share price, nor that he himself had proposed the price to Pritzker. On September 22, Trans Union issued a press release regarding the Merger Agreement and, after dissent from Senior Management, issued another press release on October 9 stating that Trans Union was actively seeking other offers. However, Marmon’s October 10 amendments to the Merger Agreement placed constraints on Trans Union’s ability to negotiate a better deal and ability withdraw from the Merger Agreement. Trans Union was ultimately unable to pursue its one other serious suitor.
On January 26, the Trans Union board met for a final time to discuss the Merger Agreement, at which time it finally reviewed the “entire sequence of events” leading to the proposal. Ultimately, the board approved the merger and, on February 10, Trans Union stockholders also voted in favor of the merger.
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