In re Delphi Financial Group Shareholder Litigation

Robert Rosenkranz started Delphi Financial Group (Delphi), a Delaware corporation. Rosenkranz was chief executive officer and chairman of the board. Delphi’s stock was divided into two classes. Class A stock was sold to the public and entitled to one vote per share. Class B stock was retained by Rosenkranz and entitled him to ten votes per share. Because of this structure, Rosenkranz owned 12.9 percent of the company but had 49.9 percent of the voting power. Delphi’s charter guaranteed that in a merger, both share classes would receive the same consideration. The charter allowed for amendment by shareholder vote. TMH, a Japanese company, wanted to acquire Delphi. Rosenkranz negotiated with TMH and secured an offer of $46 a share, or 106 percent over market rate. At the same time, Rosenkranz was threatening to block the acquisition unless he got a premium for his controlling interest. The board appointed a Special Committee to represent class A shareholders. Rosenkranz demanded $59 for his shares and $43 for class A, but the committee negotiated it down to $53.875 for class B and $44.875 for class A. The committee secured a term in the TMH deal requiring majority approval of disinterested class A shareholders, as well as approval for the charter amendment allowing disparate consideration for shares. The committee decided the deal was in the class A shareholders’ best interests, because it was the only way the acquisition could go forward. Shareholders (plaintiffs) moved the Delaware Court of Chancery for a preliminary injunction to block the deal, arguing that Rosenkranz and the other directors (defendants) breached fiduciary and contractual obligations.