Nature of the Case
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Facts
P is an investment firm, which often seeks to cause changes in the business policies or capital structure of the companies it invests in. P was joined by the Employees Retirement System of the City of St. Louis and Louisiana Municipal Employees Retirement System. Ps are and have been stockholders of D. D is a global art business and primarily focuses on acting as an agent for high-end art sales. There are three key factors that drive D's business: (1) relationships with owners of fine art and their heirs; (2) financial discipline that allows the Company to offer sufficiently attractive price and marketing guarantees to potential sellers when important lots become available; and (3) the ability to attract and retain sought after art world experts and relationship specialists who work to obtain consignments of important collections and to interest potential buyers. D is led by an unstaggered board consisting of twelve directors. Ten of the eleven other directors are 'independent' within the meaning of the NYSE listing standards. The directors own approximately 0.87% of D's outstanding shares. D's directors have served as directors for 7.1 years, compared to an average of 10.1 years for the S&P 500 and 10.8 years for the S&P 1500. P began acquiring shares in D. Ruprecht (D), the only person in management who was a director, informed the Board that trouble was on the horizon from P. Morgan Stanley recently had announced a 'passive' 5.1% stake in D, but that such a stake might be a front for one or more funds, including P and those associated with Peltz or Bill Ackman, another well-known activist investor, wishing to obtain as large an interest as possible in the Company 'before announcing their intentions, probably through a 13D filing.' Another activist fund, Marcato Capital Management LLC (Marcato), filed a Schedule 13D disclosing its acquisition of 6.61% of D's common stock. P's internal memos showed it was considering predatory actions such as taking D private and monetizing its real estate. P wanted a sit down with management. A regular board meeting was held, and the directors were briefed on what might happen with P. D met with both activist companies separately. After the meeting P and others continued to acquire stock in D at a rapid pace. D began preparing for the next board meeting and began discussing strategies to ward off P and the others. At the September meeting, the Board was advised of what the activists were planning and how it might be countered. P raised its stake to 9.4% of the Company. P then attacked D's management and its lack of alignment with shareholders including Ruprecht's (D) 'generous package of cash, pay, perquisites, and other compensation,' 'a sleepy board and overpaid executive team,' and 'lack of expense discipline.' In response D's board held a special meeting and debated and adopted a Rights Plan. At the Board's regular meeting, it unanimously approved the adoption of the Rights Plan. The Rights Plan expires in one year unless it is approved by a stockholder vote. D adopted a two-tiered structure. Those who report their ownership in D pursuant to Schedule 13G may acquire up to a 20% interest. All those who purchased under Schedule 13D, such as P and Marcato, are limited to a 10% stake in the Company before triggering the Rights Plan or 'poison pill.' P and Marcato decided not to do anything to trigger the pill. After the next board meeting, D announced a special dividend of $300 million and a $150 million share repurchase. P and D began negotiating in earnest in an attempt to avoid a proxy contest. P then intended to run a director slate of three directors - Loeb, Harry J. Wilson, and Olivier Reza to be voted on at D's upcoming annual meeting. P's shares had increased to 9.62% and asked D for a waiver from the Rights Plan's 10% trigger, and allow it to purchase up to a 20% stake. The Board refused to grant a waiver to P. Ps filed this complaint and then moved for a preliminary injunction.
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