Weinberger v. Uop, Inc.

457 A.2d 701 (1983)


Signal sold one of its wholly-owned subsidiaries for $420,000,000 in cash. It became interested in UOP as a possible acquisition. Signal agreed to purchase from UOP 1,500,000 shares of UOP’s authorized but unissued stock at $21 per share. This purchase was contingent upon Signal making a successful cash tender offer for 4,300,000 publicly held shares of UOP, also at a price of $21 per share. Signal was to acquire 5,800,000 shares of stock, representing 50.5% of UOP’s outstanding shares. UOP’s common stock had been trading on the New York Stock Exchange at under $14 per share. UOP’s board consisted of thirteen directors, but Signal nominated and elected only six. The president and chief executive officer of UOP retired during 1975, and Signal caused him to be replaced by James V. Crawford, a long-time employee and senior executive vice president of one of Signal’s wholly-owned subsidiaries. A feasibility study was made concerning the possible acquisition of the balance of UOP’s outstanding shares. It was concluded that it would be a good investment for Signal to acquire the remaining 49.5% of UOP shares at any price up to $24 each. The study was given to all of the Signal directors but was never disclosed to D's non-Signal directors. Nor was it disclosed to the minority stockholders who owned the remaining 49.5%. Signal then offered a cash-out merger in the range of $20 to $21 per share. Crawford was told of the deal and voiced no objection to the $20 to $21 price range, nor did he suggest that Signal should consider paying more than $21 per share for the minority interests. The closing price of UOP's common stock on the day the outline of the deal was announced was $14.50 per share. Lehman Brothers did the work on the fairness opinion which took about one week. They examined relevant documents and information concerning D, including its annual reports and its Securities and Exchange Commission filings from 1973through 1976, as well as its audited financial statements for 1977, its interim reports to shareholders, and its recent and historical market prices and trading volumes. They also performed a “due diligence” visit, during the course of which they interviewed Crawford as well as D's general counsel, its chief financial officer, and other key executives and personnel. They concluded that “the price of either $20 or $21would be a fair price for the remaining shares of UOP”. D's board considered the proposal and discussed the hurriedly prepared fairness opinion letter finding the price of $21 to be fair. The Signal directors never told the other directors of their own study. When put to a vote the minority shareholders approved (56% of those shares voting). Of these, 2,953,812, or 51.9% of the total minority, voted for the merger, and 254,840 voted against it. The merger became effective on May 26, 1978, and each share of D's stock held by the minority was automatically converted into a right to receive $21 cash. Weinberger (P) is a minority stockholder in D filed a class action challenging the fairness of the cash out merger. The Chancellor held in favor of Ds finding that the terms were fair. The Chancellor found that the burden of proof belonged with the majority shareholder to show that the terms were fair to the minority, but the minority shareholder had to first show some basis for invoking this fairness obligation. P appealed.