Delaware Law of Tender Offer and the Duties of Officers
This paper will discuss the duties of directors and officers under the Delaware law of tender offer. The first part of the paper will describe the general problems facing directors considering a hostile tender offer, the history of Delaware law in this area, and its development up to the present. The second part of the paper will describe the business judgment rule, which normally guides the actions of the directors and protects them from shareholder lawsuits over management decisions. It will also show how this rule is affected by the duties of loyalty, care, and maximizing shareholder value. The third part of the paper will examine Paramount Communications, Inc. v. QVC Network, Inc. This will provide the main focus of the paper, since this is the most recent and comprehensive statement of the Delaware Supreme Court on the subject. The fourth part of the paper will look at the pending case of In re Santa Fe Pacific Shareholder Litigation, which presents the Delaware Supreme Court with some new problems in the area. In this part, the Santa Fe case will be compared with the QVC case in order to analyze possible outcomes.
No situation exhibits the conflict between the shareholders and the board of directors better than a proposed buyout or merger. Both groups have a lot at stake: the shareholders have placed their personal finances in the company in the expectancy that they will get a return. The directors, on the other hand, have placed their livelihoods in the company. The salaries upon which they live come from the company, or the shareholders. A proposed buyout by another entity poses a choice for the shareholders and a potential threat to the directors. The shareholders must decide whether they will receive a greater return on their investment by selling their stock or by keeping their investment in the company. The directors realize that if control of th...