Judge Delays Private Buyouts
Two deals to sell public companies to private investors have hit a wall in the form of Delaware Judge Leo E. Strine Jr.
In two recent opinions, the chancery court judge required companies to disclose more information to shareholders about provisions of buyout deals that favored company managers, the Wall Street Journal reports (sub. req.).
Strine said Topps Co. should have revealed more about an agreement by the purchaser to retain managers of the trading-card company. And he said Lear Corp. should have disclosed a pension issue that could give the company’s chief executive a reason to favor the deal.
Most large companies are incorporated in Delaware. As a result, the chancery court often holds sway in buyout disputes, the Journal explains. The recent opinions come at a time of increasing lawsuits by shareholders who claim company managers are profiting in private buyouts while shareholders are not properly compensated.
Law professor Robert Thompson of Vanderbilt University told the newspaper that companies considering similar buyouts should take note. “If you give incomplete information to shareholders, the court will hold up your deal, or worse, make you go back to the drawing board and redo it,” he said.