UNOCAL CORP. V. MESA PETROLEUM CO.
493 A.2d 946 (1985)
NATURE OF THE CASE: This a resolution of the issue of a self-tender which excludes
participation. Unocal (D) appealed from a decision granting a preliminary injunction to Mesa
(P) and enjoining an exchange offer of D for its own stock.
FACTS: On April 8, 1985, Mesa, the owner of approximately 13% of D stock, commenced a
two-tier format loaded cash tender offer for 64 million shares, or approximately 37% of D's
outstanding stock at a price of $54 per share. The back end was designed to eliminate the
remaining publicly held shares by an exchange of securities purportedly worth $54 per share.
However pursuant to an order of the District Court, P issued a supplemental proxy statement
to D's stockholders disclosing that the securities offered in the second-step merger would
be highly subordinated, and that D's capitalization would differ significantly from its
present structure. D's board met to consider the proposal. They were not given any agenda or
written reports beforehand, only a detailed presentation at the meeting. The board received
a presentation from one Sachs who discussed the basis for their opinions that the P proposal
was wholly inadequate. He presented the board with various defense strategies available to
them. The eight outside directors met in private to discuss matters with D's financial
advisors and attorney. They agreed to reject the offer. The board then reconvened and
unanimously adopted a resolution rejecting as grossly inadequate P's offer. On April 15, the
board met again with four of the directors on the phone and one absent. The board's
resolution provided that if P acquired 64 million shares of D's stock through its own offer,
D would buy the remaining 49% outstanding for an exchange of debt securities having an
aggregate par value of $72 per share. It also stated that the offer would be subject to
other conditions that had been described to the board at the meeting, or which were deemed
necessary by D's officers, including the exclusion of P from the proposal. D's exchange
offer was commenced on April 17 and P promptly responded by filing this suit in the Court of
Chancery. The board met again and the directors were advised to waive the P purchase
condition as to 50 million shares. Another point was the exclusion. D's attorney advised
that board that under Delaware law, P could only be excluded for what the directors
reasonably believed to be a valid corporate purpose. On April 24, 1985, D issued a
supplement to the exchange offer describing the partial waiver of the Mesa Purchase
Condition. On May 1, 1985, in another supplement, D extended the withdrawal, proration and
expiration dates of its exchange offer to May 17, 1985. Meanwhile, on April 22, 1985, P
amended its complaint in this action to challenge P's exclusion. On April 23, P moved for a
temporary restraining order in response to D's announcement that it was partially waiving
the P's Purchase Proposal. D was temporary restrained. D sought certification of
interlocutory appeal and the Vice Chancellor denied to certify the appeal on the grounds
that the decision granting a temporary restraining order did not decide a legal issue of
first impression, and was not a matter to which the decisions of the Court of Chancery were
in conflict. However, On May 2, 1985, we concluded that the temporary restraining order was
an appealable decision. However, because the Court of Chancery was scheduled to hold a
preliminary injunction hearing on May 8 at which there would be an enlarged record on the
various issues, action on the interlocutory appeal was deferred pending the outcome of those
proceeding. On the May 8th hearing, P were granted a temporary injunction. On May 13, 1985,
the Court of Chancery certified this interlocutory appeal to us as a question of first
impression, and we accepted it on May 14. The Court of Chancery granted a preliminary
injunction to the Mesa Petroleum CO., Mesa Asset Co., Mesa Partners II and Mesa Eastern,
Inc. (Ps), enjoining an exchange offer of the Unocal Corp. (D) for its own stock. The trial
court concluded that a selective exchange offer, excluding P was legally impermissible.
ISSUE:
RULE OF LAW:
HOLDING AND DECISION:
LEGAL ANALYSIS:
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