Mendel v. Carroll

651 A.2d 297 (Del.Ch. 1994)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

P sought an order that would direct the Board of Katy Industries, Inc. to grant an affiliate of Pensler Capital, an option to purchase 20% of Katy's outstanding common stock at $27.80 per share. The granting of such an option was a condition of an offer for a $27.80 per share cash merger extended by Pensler to Katy. The board rejected the transaction because of the objection of the Carroll family as this would deprive them of their legitimate and dominant voice in corporate affairs and would constitute a breach of fiduciary duty. Ps contend that when an earlier offer of a $25.75 cash-out merger was proposed by the Carroll Family; the company was put up for sale. Thus, the only duty of the board was to maximize value to the stockholders. Ps contend that rejection of the Pensler deal was not consistent with that goal. Exercise of the option would dilute the Carroll family voting block to 40% from 50.6% and thus make the sale to Pensler feasible. The option was rejected by the board. On March 8, 1994, the Special Committee recommended that the board approve a special cash dividend of $14.00 per share of Katy common stock.