In Re The Limited, Inc. Shareholders Litigation

Facts

On May 3, 1999, The Limited announced that the Board had authorized the repurchase of up to 15 million shares of the Company’s outstanding common stock’ through a Dutch auction tender offer. The company agreed to repurchase those shares at a premium over their pre-announcement closing price. Mr. Wexner who owned 25% of the share of the company agreed that neither he nor any of his affiliates would participate in the tender. The Board concluded that the stock repurchase was the most attractive method for utilizing the Company’s excess cash and would demonstrate to the stockholders how much confidence it had in The Limited’s business. Shortly after the expiration of the self-tender, The Limited announced that it had acquired 15,000,000 shares at a total cost to the Company of $750 million, $90 million more than the $660 million of cash and cash equivalents it had on hand. When it made public its decision to conduct a self-tender offer, The Limited also announced that it had agreed to rescind a Redemption Agreement, it had entered into in 1996 with Mr. Wexner in both his individual capacity and as trustee of The Wexner Children’s Trust. Under the Redemption Agreement, the Children’s Trust acquired the right, through January 30, 2006, to require the Company to redeem all or a portion of the 18.75 million shares of common stock it held at $18.75 per share, a put option. The Redemption Agreement also provided the Company with a six-month window, commencing on July 3 1, 2006, to redeem all or part of the remaining shares still held by the Children’s Trust at $25.07 per share, a call option.” During the term of the Redemption Agreement, The Limited was required to retain $350 million in a restricted cash account in order to satisfy its obligations under the agreement should either of the options be triggered. The $350 million was to remain in this restricted account until the year 2006 to cover The Limited’s potential obligations under the Redemption Agreement. Ps assert corporate waste and breaches of the fiduciary duties of loyalty and due care in connection with the challenged transactions described above. Ps allege that the only reason for structuring the transactions in this manner was to enable Mr. Wexner to avoid the terms of the Redemption Agreement which, they assert, had become particularly unfavorable to him. They contend that these transactions lacked any legitimate business purpose other than to benefit Mr. Wexner at the Company’s expense and came without a corresponding benefit to the Company. Plaintiffs also allege a breach of the fiduciary duty of loyalty on the basis that at least half of the Board had a disqualifying self-interest in the transactions or lacked independence in approving the challenged transactions due to their personal or professional relationships with Mr. Wexner. Plaintiffs claim that the absence of impartiality on the part of a majority of the Board rendered any demand futile. Ps contend that the price of the Company’s stock was trading at more than $40 per share, significantly higher than the call price that the Company could have paid during the six-month window to exercise its option in 2006. Had the Company been empowered in May 1999 to force the Trust to sell it its shares, the Company could have purchased the Trust’s 18.75 million shares for approximately $25 per share, thus realizing a savings of more than $15 per share from its then over $40 trading price. This equates to roughly $280,000,000. Ds argue that Ps have failed to meet the pre-suit demand requirements of Court of Chancery Rule 23.1. Ps have failed to plead particularized facts as to why demand on the Board should be excused. Second, Ds argue that P have not sufficiently alleged an actionable corporate waste claim or a breach of fiduciary duty claim and that the Complaint should be dismissed under Court of Chancery Rule 12(b)(6) for failure to state a claim for which this Court can grant relief.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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