Nature of the Case
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Facts
D was comprised of local telephone companies and cellular phone systems. The cellular-phone business was hot, and the local-telephone business cool. D's board believed that the combination was unlovely to investors and that the firm's assets would be worth more if the company was sold either as a unit (presumably to a telecommunications firm whose assets would make a good fit with D's assets) or in pieces. A merger would avoid taxes. D decided to organize an auction at which bidders could bid on the whole company or parts of it as they wished. D announced on January 23, 1992, that it had hired two prominent investment banks to 'explore strategic alternatives to maximize shareholder value, including the possible sale of the company.' On the day of the announcement, shares rose from $37 to almost $48. The investment bankers got the cold shoulder from all the Baby Bells and GTE. On February 17 D confirmed its intention to conduct an auction, announcing that its board of directors had 'decided to solicit proposals for the purchase of all or part of the company as a result of the indications of interest received since the company's January 23 announcement.' On March 5, GTE announced that it would not participate in the auction. D responded by claiming that 'we believe that this [GTE's statement] has no impact on our process [and w]e continue to move along.' A week later the investment bankers considered the viability of a 'survivor entity' consisting of those assets of D that would not fetch an attractive price at the auction. They concluded that any such entity would very clearly bear the taint of a nonsalable telco property which has been aggressively (and publicly) marketed to the world. On March 25, Pacific Telesis announced that it wouldn't bid for them after all. D reacted with a public statement that 'the bidding process continues to go very well' and 'very smoothly.' D was beginning to suspect that it would receive fewer bids than it had expected. The price of its stock had drifted lower than its peak on January 23, but it was still above $40. On April 13, D's chief executive officer announced publicly that there was 'widespread interest almost down to every [Centel telecommunications] exchange,' and the next day the Chicago Tribune reported that 'people involved in the auction of D said Monday [April 12] that as many as 35 to 40 parties have explored submitting bids for the Chicago company or its pieces by Thursday's deadline. An investment banker for D provided the number of parties that have conducted so-called due-diligence reviews of the company's books.' The auction was held on April 16, and it was a bust. Only seven bids were submitted, none for the whole company. D quickly negotiated a sale of the entire company to Sprint at a price equivalent to only $33.50 a share, which was $9 below the then-current market price and roughly 10 percent below the market price before the auction was first intimated. On May 27, 1992, the value of D's shares plummeted, from $42.50 a share to $32. Ps are investors who bought between the formal announcement of the auction on February 17 and just before the announcement of the purchase of the company by Sprint. Some of these investors lost as much as $15 a share. The court granted summary judgment for D. Ps appealed.
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