Epstein v. Mca Corp.

50 F.3d 644 (1995)

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Nature of the Case

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Facts

In 1990, Matsushita Electrical Co. Ltd. (Matsushita) acquired MCA, Inc. (D) for $ 6.1 billion. The acquisition was accomplished through a tender offer of $ 1 per share of D common stock. The transaction began when Matsushita phoned D’s financial advisor and expressed an interest to acquire D. At negotiations, Matsushita made it clear that it had to have Wasserman’s and Sheinberg’s shares to commit their shares in advance and to remain in D’s employment for 5 years. Lew Wasserman, D's chairman and chief executive officer, owned 4,953,927 shares of D common stock worth $351,728,817 at the $71 price. His cost basis was 3 cents per share. Wasserman entered into a separate agreement with Matsushita, known as the 'Capital Contribution and Loan Agreement.' pursuant to which Wasserman exchanged his shares for preferred stock in a wholly-owned Matsushita subsidiary called 'MEA Holdings.' Matsushita agreed to fund MEA Holdings by contributing 106% of the tender price multiplied by the number of MCA shares Wasserman exchanged. The preferred stock Wasserman received pays a dividend of 8.75% annually, is secured by letters of credit, and is redeemable upon the death of either Wasserman or his wife, but in no event earlier than five years from the date of the exchange. Wasserman was 77 at the time. Sidney Sheinberg, MCA's chief operating officer, owned approximately 1,179,635 shares of MCA common stock. He tendered these shares pursuant to Matsushita's $71 per share offer and received in exchange consideration worth approximately $83,754,085. Two days after Matsushita accepted all tendered shares, Sheinberg received an additional $21 million in cash, ostensibly in exchange for unexercised MCA stock options. Immediately after Wasserman’s and Sheinberg’s transactions were signed, D announced the offer. The shareholders were given 1 month to tender. Ninety-one percent tendered and Matsushita paid. Ninety minutes later Matsushita executed the Wasserman deal. D then merged MEA into D as a wholly owned subsidiary. Ps sued Ds claiming that Wasserman and Sheinberg got excessive compensation in violation of Rule 14d-10. Rule 14d-10, known as the 'all-holder, best-price' rule, requires bidders to treat all shareholders on equal terms. The district court granted Matsushita's motion for summary judgment on this claim. Ps appealed.