August 6, 2009
Landry's Failed Buyout
Vice Chancellor Lamb, in his last written opinion before retiring, refused a motion to dismiss in the Landry's litigation over a busted buyout. The facts are a bit odd. The CEO had proposed a going private transaction in a cash-out merger between the company and an entity he controlled. The price, in the low 20s, was a 41% premium over market. Hurrican Ike hit Texas and damaged a number of Landry's holdings. The lenders threatened to walk. The CEO bought stock, increasing his holdings from 36% to 57%, at an average of round $13.50 a share before the lenders' threat was revealed publicly. The special committe negotiating the deal on behalf of Landry's complained but did not stop the purchases. Then the CEO and special committe renegotiated the buyout price at $13.50 (the CEO would have broke even on his share purchases, after all he was selling shares to himself here) and negotiated a "fall back" loan to the company if the deal failed (so as to stave off bankruptcy due to a cash shortage). The lenders again balked, for other reasons, and the company agreed to cancel the deal and enjoy the benefit of the "fall back" loan. No termination or reverse termination fees were paid. The minority shareholders who wanted the cash for their shares in the deal sued. Lamb held that the complaint stated a cause of action against the board for breach of a duty of loyalty and waste (for the loss of the reserve termination fee). The complaint also state a cause of action against the CEO for dominating the board and mixing buyer and CEO roles in negotiating the refinancing buyout commitment letter with the alternative "fall back" loan. It is hard to see how the minority shareholders were injured here.
August 6, 2009 | Permalink
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