In Re Dollar Thrifty Shareholder Litigation
2010 WL 5648895, 2010 Del. Ch. LEXIS 192, 14 A.3d 573 (2010)
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Rule of Law:
A board of directors can satisfy its Revlon duty to maximize shareholder value through a single-bidder negotiation process, rather than a pre-signing auction, so long as the board's actions are reasonable under the circumstances and the resulting agreement allows for an effective post-signing market check.
Facts:
- In 2007 and 2008, Dollar Thrifty Automotive Group, Inc. engaged in separate, unsuccessful merger discussions with its two main rivals, Hertz Global Holdings, Inc. and Avis Budget Group, Inc., with both potential suitors ultimately walking away.
- Under new CEO Scott Thompson, Dollar Thrifty executed a major financial turnaround, causing its stock price to rise from under $1 per share in March 2009 to nearly $27 by December 2009.
- In December 2009, Hertz once again approached Dollar Thrifty to discuss a merger.
- The Dollar Thrifty board decided to negotiate exclusively with Hertz, fearing that a public auction would scare away the historically skittish Hertz, disrupt employees, and damage the company's value if it failed.
- The board also had concerns about Avis's financial capacity to make a firm offer and perceived greater antitrust risks with an Avis deal.
- During months of difficult negotiations, Dollar Thrifty's negotiators shut down talks to extract better terms from Hertz, eventually pushing Hertz from an initial expression of interest at $30 per share to a final price of $41 per share.
- Just before the Hertz deal was finalized, Avis's CEO made an oblique and unclear overture to Dollar Thrifty's CEO for a dinner meeting, without explicitly stating an interest in acquiring the company.
- Dollar Thrifty and Hertz executed a merger agreement that included a termination fee and matching rights, but also allowed Dollar Thrifty to consider and accept superior post-signing offers.
Procedural Posture:
- Shareholders of Dollar Thrifty filed a class action lawsuit against the company's board of directors and Hertz in the Delaware Court of Chancery.
- The complaint alleged that the board breached its fiduciary duties in negotiating the merger with Hertz and that Hertz aided and abetted that breach.
- The plaintiffs filed a motion for a preliminary injunction to prevent the consummation of the Hertz-Dollar Thrifty merger.
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Issue:
Does a target company's board breach its fiduciary duty under Revlon to maximize shareholder value by negotiating exclusively with a single suitor and entering a merger agreement without a pre-signing auction, when the board has legitimate concerns about the suitor's reliability and the viability of other potential bidders?
Opinions:
Majority - Strine, Vice Chancellor
No, the Dollar Thrifty board did not breach its fiduciary duties. A board's decision to pursue a single-bidder process with a post-signing market check is a reasonable path to value maximization when made by a well-motivated, independent, and diligent board facing specific circumstances. The court reasoned that Revlon does not prescribe a single blueprint, such as a mandatory auction, for selling a company. The key inquiry is whether the board's actions were reasonable. Here, the board was independent and well-motivated, with no conflicts of interest. Its decision to negotiate exclusively with Hertz was a reasonable strategic choice based on legitimate concerns that Hertz might walk away and that Avis was not a reliable or viable alternative at the time. The board bargained aggressively to increase Hertz's offer and secured important deal certainty provisions, such as a reverse termination fee. Furthermore, the resulting merger agreement was not preclusive; the deal protections were reasonable and did not prevent Avis from making a topping bid, which it in fact did after the agreement was announced. The board's strategy effectively created a floor price for the company while prompting its chief rival to finally make a concrete offer.
Analysis:
This case provides significant guidance on the scope of a board's Revlon duties, reinforcing that there is no single required method for maximizing shareholder value in a sale. The opinion affirms that a single-bidder negotiation, coupled with a post-signing market check, can be a reasonable alternative to a full pre-signing auction, particularly when the board is independent and makes a well-reasoned strategic choice. This decision gives well-motivated boards more flexibility in structuring sale processes, allowing them to weigh the risks of a public auction against the benefits of securing a firm offer from a single suitor. It also highlights the legal importance of deal certainty, permitting boards to consider factors like antitrust risk and reverse termination fees, not just the headline price, when evaluating competing bids.
