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P. 83
C & J Energy Services, Inc. v. City of Miami General Employees’ and Sanitation
Employees’ Retirement Trust
107 A.3d 1049 (Del. 2014)
STRINE, Chief Justice:
I. INTRODUCTION
This is an expedited appeal from the Court of Chancery’s imposition of an unusual
preliminary injunction. City of Miami General Employees’ and Sanitation Employees’
Retirement Trust ("the plaintiffs") brought a class action on behalf of itself and other
stockholders in C & J Energy Services, Inc. ("C & J") to enjoin a merger between C & J and
a division of its competitor, Nabors Industries Ltd. ("Nabors"). The proposed transaction
is itself unusual in that C & J, a U.S. corporation, will acquire a subsidiary of Nabors, which
is domiciled in Bermuda, but Nabors will retain a majority of the equity in the surviving
company. To obtain more favorable tax rates, the surviving entity, C & J Energy Services,
Ltd. ("New C & J"), will be based in Bermuda, and thus subject to lower corporate tax
rates than C & J currently pays.
To temper Nabors’ majority voting control of the surviving company, C & J
negotiated for certain protections, including a bye-law2 guaranteeing that all stockholders
would share pro rata in any future sale of New C & J, which can only be repealed by a
unanimous stockholder vote. C & J also bargained for a "fiduciary out" if a superior
proposal was to emerge during a lengthy passive market check, an unusual request for
the buyer in a change of control transaction. And during that market check, a potential
competing bidder faced only modest deal protection barriers.
Although the Court of Chancery found that the C & J board harbored no conflict
of interest and was fully informed about its own company’s value, the court determined
there was a "plausible" violation of the board’s Revlon duties because the board did not
affirmatively shop the company either before or after signing. On that basis, the Court of
Chancery enjoined the stockholder vote for 30 days, despite finding no reason to believe
2 Under Bermuda law, by-laws are spelled "bye-laws."
79
Employees’ Retirement Trust
107 A.3d 1049 (Del. 2014)
STRINE, Chief Justice:
I. INTRODUCTION
This is an expedited appeal from the Court of Chancery’s imposition of an unusual
preliminary injunction. City of Miami General Employees’ and Sanitation Employees’
Retirement Trust ("the plaintiffs") brought a class action on behalf of itself and other
stockholders in C & J Energy Services, Inc. ("C & J") to enjoin a merger between C & J and
a division of its competitor, Nabors Industries Ltd. ("Nabors"). The proposed transaction
is itself unusual in that C & J, a U.S. corporation, will acquire a subsidiary of Nabors, which
is domiciled in Bermuda, but Nabors will retain a majority of the equity in the surviving
company. To obtain more favorable tax rates, the surviving entity, C & J Energy Services,
Ltd. ("New C & J"), will be based in Bermuda, and thus subject to lower corporate tax
rates than C & J currently pays.
To temper Nabors’ majority voting control of the surviving company, C & J
negotiated for certain protections, including a bye-law2 guaranteeing that all stockholders
would share pro rata in any future sale of New C & J, which can only be repealed by a
unanimous stockholder vote. C & J also bargained for a "fiduciary out" if a superior
proposal was to emerge during a lengthy passive market check, an unusual request for
the buyer in a change of control transaction. And during that market check, a potential
competing bidder faced only modest deal protection barriers.
Although the Court of Chancery found that the C & J board harbored no conflict
of interest and was fully informed about its own company’s value, the court determined
there was a "plausible" violation of the board’s Revlon duties because the board did not
affirmatively shop the company either before or after signing. On that basis, the Court of
Chancery enjoined the stockholder vote for 30 days, despite finding no reason to believe
2 Under Bermuda law, by-laws are spelled "bye-laws."
79
