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C & J Energy Services, Inc. v. City of Miami General Employees’ Retirement Trust

Delaware Supreme Court
107 A.3d 1049 (2014)

Written by Sean Carroll, JD

Facts

C & J Energy Services, Inc. (defendant) agreed to merge with a subsidiary of Nabors Industries Ltd. Under the agreement, Nabors, a Bermudian entity, would maintain a controlling interest in the new entity, which would be domiciled in Bermuda. The transaction would benefit C & J stockholders in the form of tax benefits worth $200 million in net present value. Those tax benefits could not be realized if Nabors did not maintain its controlling interest. To offset their decreased control, the transaction guaranteed C & J stockholders a pro rata share of any future sale of the new entity. Finally, the agreement enabled C & J to rescind the deal if a better offer emerged. The City of Miami General Employees’ Retirement Trust (plaintiff), a C & J stockholder, brought suit challenging the transaction. The Chancery Court of Delaware issued a preliminary injunction enjoining a stockholder vote on the merger, pending the C & J board shopping the company. The court ruled there was a plausible showing that the C & J board violated its duties under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), by neglecting to actively shop the company before agreeing to the transaction. C & J appealed.

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