In re CNX Gas Corporation Shareholders Litigation

CONSOL Energy (CONSOL) (defendant) owned 83.5 percent of CNX Gas Corp. (CNX) (defendant). After an unsuccessful attempt at acquiring CNX’s outstanding shares, CONSOL eliminated CNX’s board committees and decreased the number of directors. Only one director, John Pipski, was independent. CONSOL negotiated with T. Rowe Price (Price), an institutional investor that held 6.3 percent of CNX’s stock and 6.5 percent of CONSOL’s on an acceptable tender offer. CONSOL commenced a two-step freeze-out merger, offering $38.25 per share for its tender offer and planning a short-form merger afterward. The offer was conditional on a majority of the minority shares being tendered. CNX’s board authorized a special committee consisting of Pipski to consider the merger and complete a Section 14D-9 form for the Securities and Exchange Commission. The board refused to add an additional director or authorize the committee to negotiate. Pipski nevertheless tried to get CONSOL to up its offer. The CNX board retroactively authorized the committee to negotiate, but CONSOL refused to raise the price. The committee did not give an opinion on the offer, but suggested that CONSOL’s agreement with Price, whose interests were different than other minority shareholders’, assured the tender offer’s success and nullified the majority-of-the-minority condition. CNX’s minority shareholders (plaintiffs) sued in the Delaware Court of Chancery to challenge the tender offer.