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In re The Topps Company Shareholders Litigation | 926 A.2d 58 (2007)
The landmark case of Revlon, Incorporated versus MacAndrews and Holdings, Incorporated, established that directors selling companies owe shareholders a fiduciary duty to secure the best available price. In In re The Topps Company Shareholders Litigation, the Delaware Court of Chancery considered whether a baseball-card company breached this duty by rejecting a bid from its chief business rival.
Arthur Shorin was CEO of The Topps Company, a baseball-trading-cards industry leader. Unfortunately, financial losses from a steadily declining sports-card market forced Topps to restrategize. Michael Eisner approached Shorin to propose that his private equity firm acquire Topps. Eisner expressed his intention to continue employing Topps’s current managers. After negotiations, the Topps board approved a merger agreement for Eisner to acquire Topps for $9.75 per share. A go-shop provision allowed Topps 40 days to solicit rival bids. If Topps received a superior offer, Eisner had the right to match it. If he declined, Topps could accept the offer subject to paying Eisner a termination fee.
During the go-shop period, The Upper Deck Company, Topps’s biggest competitor, requested corporate disclosures to formulate a bid. Topps required Upper Deck to sign a confidentiality agreement containing a standstill provision prohibiting Upper Deck from making public disclosures about proposed transactions or the standstill provision. The provision also barred Upper Deck from communicating with Topps’s shareholders or from making a tender offer to acquire Topps shares without the board’s approval. Upper Deck subsequently submitted an offer for $10.75 per share. However, Upper Deck refused to provide financial information, which raised concerns about its ability to fund the merger. Topps concluded it wasn’t a superior offer and planned to present Eisner’s merger proposal for shareholder vote. Upper Deck resubmitted its proposal without the finance restrictions, but Topps didn’t consider it.
In statements to the shareholders, Topps made omissions and misrepresentations about the proposals. Topps didn’t disclose Eisner’s employment assurances and discredited Upper Decks as a disingenuous bidder taking advantage of an opportunity to access competitor information. The standstill provision prevented Upper Deck from refuting this misinformation.
Upper Deck and several Topps shareholders sued Topps for breach of fiduciary duty and moved for a preliminary injunction to enjoin the merger vote.
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