British Printing & Communication Corp. PLC v. Harcourt Brace Jovanovich, Inc.

British Printing & Communication Corp. PLC (BPCC) (plaintiff) owned the majority of convertible debentures issued by Harcourt Brace Jovanovich, Inc. (Harcourt) (defendant). First Boston Corporation was Harcourt’s principal financial advisor. In 1987 Robert Maxwell, the chairman and chief executive officer of BPCC, proposed a merger of BPCC with Harcourt. In exchange, BPCC would pay $44 per share of Harcourt’s common stock. Executives from Harcourt and First Boston met five times over the next week to discuss the proposed merger. After extensive reviews of Harcourt’s business outlook and Maxwell’s proposed merger, Harcourt and First Boston decided that Maxwell’s offer was inadequate and insincere. Executives from Harcourt and First Boston proposed an alternate recapitalization plan under which Harcourt would pay a special dividend of $40 per share to its common shareholders and increase ownership of Harcourt stock by its employees. First Boston would finance the recapitalization plan, and in exchange, Harcourt would give First Boston enough shares of Harcourt common stock to allow First Boston to participate in the running of Harcourt. Harcourt and First Boston believed the recapitalization plan would benefit Harcourt’s shareholders more than Maxwell’s proposed merger would, allowing the shareholders to receive an immediate payment while realizing Harcourt’s potential future growth, and incentivizing Harcourt’s employees to work more productively. BPCC sued Harcourt in federal district court, arguing that Harcourt’s board of directors breached their duties of care and loyalty by rejecting the proposed merger and adopting the recapitalization plan instead. BPCC filed a motion for a preliminary injunction to enjoin Harcourt’s recapitalization plan, arguing that the plan would cause irreparable harm to Harcourt’s shareholders.