It appears that shareholders have found a friend in Vice Chancellor Leo Strine.
Strine recently issued back-to-back opinions that criticized two companies, Topps Co. and Lear Corp., for not disclosing enough information about deals in which the companies had agreed to be sold to private investors.
In the recent flurry of private buyout deals, many buyout firms are using enticing pay packages and other perks to entice management to agree to their offers. Shareholders have complained that these perks taint managements’ decision-making, getting them to agree to deals based on factors other than the best-available price.
Such was the case with the Lear and Topps deals. Apparently, the companies had failed to disclose certain incentives that management had received to agree to the deals. In the case of Lear Corp., which is being sought by Carl Icahn, the company had not disclosed enough about a proposed pension plan for the CEO that gave him an incentive to agree to the buyout that shareholders didn’t share. And in the Topps case, the company didn’t let shareholders know enough about a deal that its top management had cut with the acquiror that would let them keep their jobs. In both cases, the companies were ordered to give additional disclosures so that shareholders could make fully informed decisions.
The Delaware decisions, which are discussed at length in today’s Wall Street Journal, provide fuel for the growing shareholder activism in corporate deals, which we hope will gain even more momentum with time.
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