Delaware business courts to take up Equity Buyouts

If you are a stakeholder and your top managment is going to get a huge payday by selling your publicly held company to an equity investor – do you thinbk they are going to keep  your best interests at heart?   SHyeah.  Don’t make me laugh.
WILMINGTON, Del. —Judges in Delaware’s famed business court are keeping a close eye on legal issues cropping up amid the recent wave of private equity buyouts of public corporations.

In recent rulings, Court of Chancery judges have signaled that Delaware, corporate home to more than half of the Fortune 500, plans to take the lead in disputes arising from the buyouts.

A key issue surrounding the acquisitions is whether managers negotiating deals in which they would keep their jobs after helping take companies private are diligent enough in trying to maximize shareholder value by finding other bidders.

“In a buyout, the shareholder is out completely,” noted Charles Elson, director of the University of Delaware’s Center for Corporate Governance. “If management stays, the idea is that there will be profits to be had down the road. … It’s the price the shareholder is getting, that’s the bottom line.”

Vice Chancellor Leo Strine Jr. refused earlier this month to dismiss or stay a consolidated shareholder lawsuit involving a proposed $385 million buyout of baseball card maker Topps Co. by a group that includes former Disney Chief Executive Michael Eisner. A hearing is scheduled for June 11 on a preliminary injunction to halt the deal.

The plaintiffs allege that Topps directors failed to fulfill their fiduciary duties by agreeing to sell the company at a bargain price and by signing off on measures designed to ward off other bidders. They also raise concerns about potential conflicts of interest for Topps officials negotiating the deal.

Strine said the issues surrounding private equity buyouts are too important for him to defer to a New York court where a Topps shareholder filed suit one day before the first of five similar lawsuits were filed in Delaware.

“Although our courts have deferred to clearly first-filed actions in corporation cases involving settled questions of law, … our courts have long been chary about doing so when a case involves important questions of our law in an emerging area,” Strine wrote.