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Ruling on Openlane–KAR Offers Guidance on Omnicare
By David Marcus, The Deal, October 28, 2011
The Delaware Supreme Court’s decision in Omnicare Inc. v. NCS Healthcare Inc.
has been strongly criticized ever since it was issued back in 2003. The 3–2 majority in the
case held that a seller must always have an effective fiduciary out in a merger agreement.
Lawyers immediately complained that the holding ignored the reality that a company
might be able to maximize its value only by committing itself irrevocably to a deal. Myron
Steele, who dissented along with then-Supreme Court Chief Justice E. Norman Veasey,
said at a conference later in 2003 that the decision might have the life expectancy of a
fruit fly.
Steele succeeded Veasey as chief justice the next year, but the Supreme Court
never returned to Omnicare, and the Court of Chancery has addressed it rarely and
obliquely. But on Sept. 30, Chancery Vice Chancellor John Noble offered important
guidance on Omnicare and helpful commentary on several other issues in a ruling where
he declined to enjoin the proposed $210 million sale of Openlane Inc. to KAR Auction
Services Inc.1 The deal closed three days after the ruling.
Openlane was a public company, but its board and executive officers owned 68%
of the stock, and the deal was structured like a private-company sale in several respects.
The board didn’t retain an investment bank to provide a fairness opinion, which is very
unusual in public deals, and agreed that $26 million of the merger consideration would
be held in an escrow account for 18 months against certain costs that KAR might incur as
a result of the acquisition.
Most importantly, within 24 hours after the merger agreement was signed,
Openlane’s officers and board members provided written consents in which they agreed
to vote their shares for the deal, which made a topping bid impossible. The Openlane
shareholder plaintiffs claimed the structure ran afoul of Omnicare.
Noble disagreed. In Omnicare, the chairman and the CEO of Omnicare jointly
agreed to vote their controlling stake in the company for a sale to Genesis Health
Ventures Inc. at $1.63 in cash per target share when the deal was signed. NCS then came
1 In re OPENLANE, INC. Shareholders Litigation, C.A. No. 6849–VCN (Del. Ch. Sept. 30,
2011).
128
By David Marcus, The Deal, October 28, 2011
The Delaware Supreme Court’s decision in Omnicare Inc. v. NCS Healthcare Inc.
has been strongly criticized ever since it was issued back in 2003. The 3–2 majority in the
case held that a seller must always have an effective fiduciary out in a merger agreement.
Lawyers immediately complained that the holding ignored the reality that a company
might be able to maximize its value only by committing itself irrevocably to a deal. Myron
Steele, who dissented along with then-Supreme Court Chief Justice E. Norman Veasey,
said at a conference later in 2003 that the decision might have the life expectancy of a
fruit fly.
Steele succeeded Veasey as chief justice the next year, but the Supreme Court
never returned to Omnicare, and the Court of Chancery has addressed it rarely and
obliquely. But on Sept. 30, Chancery Vice Chancellor John Noble offered important
guidance on Omnicare and helpful commentary on several other issues in a ruling where
he declined to enjoin the proposed $210 million sale of Openlane Inc. to KAR Auction
Services Inc.1 The deal closed three days after the ruling.
Openlane was a public company, but its board and executive officers owned 68%
of the stock, and the deal was structured like a private-company sale in several respects.
The board didn’t retain an investment bank to provide a fairness opinion, which is very
unusual in public deals, and agreed that $26 million of the merger consideration would
be held in an escrow account for 18 months against certain costs that KAR might incur as
a result of the acquisition.
Most importantly, within 24 hours after the merger agreement was signed,
Openlane’s officers and board members provided written consents in which they agreed
to vote their shares for the deal, which made a topping bid impossible. The Openlane
shareholder plaintiffs claimed the structure ran afoul of Omnicare.
Noble disagreed. In Omnicare, the chairman and the CEO of Omnicare jointly
agreed to vote their controlling stake in the company for a sale to Genesis Health
Ventures Inc. at $1.63 in cash per target share when the deal was signed. NCS then came
1 In re OPENLANE, INC. Shareholders Litigation, C.A. No. 6849–VCN (Del. Ch. Sept. 30,
2011).
128
