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In re Pennaco Energy Shareholders Litigation

2001 Del. Ch. LEXIS 19 (2001)

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In re Pennaco Energy Shareholders Litigation

Delaware Court of Chancery
2001 Del. Ch. LEXIS 19 (2001)

RW

Facts

The directors (defendants) of Pennaco Energy, Inc. (Pennaco) put the company up for sale. Based on their knowledge of the oil industry, the directors decided that it made more sense to negotiate with one bidder at a time than to solicit bids from the market in general. The directors struck a deal with Marathon Oil (Marathon), a major oil company that agreed to pay Pennaco’s shareholders substantially more than the pre-agreement trading value of Pennaco’s stock. Marathon agreed to let Pennaco walk away from the deal and accept any better offer from a subsequent bidder, with only a 3 percent termination fee. Dissident Pennaco shareholders (plaintiffs) accused the directors of having breached their Revlon duties by not soliciting bids from a wider range of potential buyers. The shareholders petitioned the Delaware Court of Chancery for a preliminary injunction blocking the Marathon merger.

Rule of Law

Issue

Holding and Reasoning (Strine, J.)

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Casebooks

Mergers and Acquisitions

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