Mills Acquisition Co. v. Macmillan, Inc

Facts

D wanted to protect itself from hostile takeovers. D restructured the company by transferring control to management that did not require them to invest new capital. This strategy was blocked by the Chancery Court when it ruled that the $73 per share offer from the Bass group was superior to restructuring. D began holding talks with KKR. P then intervened in the Bass-P bidding contest by proposing as structured merger between D and P at $80 per share. D was silent but continued the management buyout discussions with KKR. Three weeks later, P made an $80 all-cash offer conditioned on P receiving the same nonpublic information KKR had been given. When KKR presented just part of its proposal, Evans, and senior management from D expressed that they were going to endorse the buyout from KKR even though KKR has not yet disclosed the price of its bid. P kept bidding, and the board abandoned the idea of the KKR transaction to simply see what it could get an effort to maximize value to the shareholders. When a final bidding process was announced, there was concern by many involved that the process would be rigged in favor of KKR. KKR wanted a no-shop clause with any disclosure by D of the contents of the bid would void the bid. D was aware that KKR would do everything to hinder an open auction process. P submitted an all-cash bid of $89. KKR submitted a blended bid of $89.50 with $82 in cash and the balance in subordinated securities but with three restrictions; no shop, a lock-up option to purchase 8 D subsidiaries for $950 million, and the execution of the agreement by noon the next day. D’s financial advisors wanted the auction to continue. Evans then telephoned KKR and tipped P’s bid to them, and even KKR realized that the call was improper and terminated it. D wanted to do another round of bidding but did not know about Evans’ intentional indiscretion. New instructions were prepared, but KKR was instructed to go as high as it could go and that if KKR wanted a lock up, it would have to go significantly higher or reduce the assets of a lockup. For various reasons, P did not increase its bid because it was under the impression that D was having it bid against itself. KKR submitted a final offer of $90 with the same three prior conditions but with only the lock-up of four of the subsidiaries at $775 million. As part of the structure of the KKR lockup, D would get a $250 million current tax liability which would operate as a poison pill to P. When the D board reviewed the bidding, it was falsely informed that there had been a level playing field in the bidding. The financial advisors told the board the $90.05 bid from KKR was the better and explained the tax ramifications of the $250 million tax liability. None of the directors were informed of the back-door tipping that was going on. The board gave KKR the merger lockup option agreements. P immediately sought to enjoin the lock-up agreement. KKR then disclosed the Evans’ tip. P then amended his bid to $90.25 contingent on invalidating the lock up and an offer to purchase the 4 subsidiaries for $125 million more than KKR. The board looked at the facts and rejected the P offer and considered Evans’ tip immaterial and got a $90 million concession from KKR on the 4 lock up companies. The Chancery Court denied P’s motion but ruled that the D shareholders should consider an alternative offer for the company, and it enjoined the operation of the poison pill shareholder’s rights plan. Everybody appealed this limited injunction. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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