Page 125 - מיזוגים ורכישות - פרופ' אהוד קמר תשפב

duties required it to entertain a third-party proposal. The court explained that the "no
shop" provision was better read as leaving the ultimate "good faith" determination about
whether the board’s fiduciary duties required it to enter discussions with XL Capital to the
board itself. Though the board must "base" its judgment on the "written advice" of
outside counsel, the language of the contract does not preclude the board from
concluding, even if its outside counsel equivocates (as lawyers sometimes tend to do) that
such negotiations are fiduciarilly mandated.

The court found that the Capital Re board had a basis for believing that
consummation of the ACE merger in the face of the XL Capital offer was "adverse to the
interests of the Capital Re stockholders. . . . [T]he board had a good faith basis for
determining that it must talk with XL Capital and not simply let the Capital Re stockholders
ride the merger barrel over the financial falls.” The court also noted that, even if the
merger agreement were read as ACE suggested it should be read, the written advice of
outside counsel, when coupled with such counsel’s oral advice, might well be found to be
a sufficient basis for a good faith decision by the board of directors.

Subsequent to the court’s decision, ACE and Capital Re signed an amended merger
agreement on economic terms at least as favorable as XL Capital’s last offer. XL Capital
did not make a higher bid, and Capital Re stockholders subsequently approved the
ACE/Capital Re merger agreement.

The ‘IXC’ Litigation

On July 20, 1999, after IXC’s board of directors spent approximately six months
exploring different strategic alternatives and conducting in-depth discussions with several
potential acquirors, IXC entered into a merger agreement with Cincinnati Bell, Inc. The
merger agreement contained a variety of defensive mechanisms including mutual "no
talk" provisions, which, like the Phelps Dodge "no talk" provision, prohibited any
discussion with third parties unless the merger agreement was terminated.

After the Phelps Dodge decision, the parties subsequently amended the "no talk"
provisions to allow either party to consider third-party bids that were deemed to be
"superior proposals.” The plaintiff, a stockholder of IXC, unsuccessfully sought to enjoin
the IXC stockholder vote on the proposed merger on the basis that in agreeing to the "no
talk" provision the IXC board of directors breached its duties of care and loyalty, thus
denying the IXC stockholder a fully informed, fair vote.

In rejecting the plaintiff’s argument that heightened scrutiny should apply to the
actions of the IXC board, the court found no evidence that that board had acted in either
an uninformed or disloyal manner. To the contrary, the court noted that IXC had made a
public announcement that it was seeking strategic alternatives, the no solicitation

121