Gilbert v. El Paso Company

In December 1982, Burlington Northern, Inc. (Burlington) (defendant) made an offer to purchase over 25 million shares of El Paso Company (El Paso) (defendant) at $24 per share, with the purpose of gaining over 51% of all outstanding shares of El Paso. Burlington’s December offer was conditioned on the nonoccurrence of six events, which, if any of the events occurred, would ostensibly change the risk profile of the deal for Burlington. For instance, Burlington’s offer was conditioned on there not being governmental interference in the deal, El Paso’s business or assets staying substantially and materially the same, and El Paso’s maintaining the same bylaws and categories of stock. The December offer did not contain any provision for purchasing the remaining 49% of shares after Burlington acquired a majority. El Paso’s board of directors unanimously voted to reject Burlington’s December offer, believing the offer was too low in price and would adversely impact non-tendering shareholders. In an effort to thwart the December offer, El Paso made substantial changes to its business and amended its bylaws, and each of the six events in Burlington’s offer eventually occurred. In January 1983, Burlington and El Paso negotiated an agreement to resolve their apparent takeover dispute, which resulted in Burlington terminating the December offer and making a new tender offer. Most of the shares owned by El Paso’s directors (defendants) were tendered in response to the January offer. El Paso shareholders who tendered their shares in response to the December offer (the shareholders) (plaintiffs) filed suit against El Paso, its directors, and Burlington. Among various claims, the shareholders contended that Burlington breached its contractual obligation to complete the December offer. The trial court dismissed the shareholders’ breach-of-contract and implied-covenant claims against Burlington, and the shareholders appealed.