In re Pure Resources, Inc. Shareholders Litigation

Unocal Corporation (Unocal) (defendant) owned 65.4 percent of Pure Resources, Inc. (Pure) stock. Pure's management controlled between a quarter and a third of Pure stock. There were five Unocal-designated directors, two management-designated directors, and one jointly designated director. Unocal had a business opportunities agreement, which provided that as long as Unocal owned 35 percent of Pure, Pure's business activities would be limited and Unocal could compete with Pure. Pure's management had put agreements with Unocal that provided the managers better incentives than common shareholders when tendering shares. Unocal had access to Pure's non-public information. Unocal made an offer to buy the rest of Pure's stock. The offer contained a non-waivable majority-of-the-minority provision, a waivable condition that the tender give it 90 percent ownership, and a planned second-step, short-form merger. The "minority" included shareholders who were affiliated with Unocal and Pure's management. An independent special committee was formed to consider the offer. The committee retained its own advisors and negotiated the offer price with Unocal. The special committee did not deal with Unocal as aggressively as it would have with a third-party bidder, such as by adopting a poison pill. Unocal refused to raise its price, and the special committee voted against the offer. Pure's minority shareholders (plaintiffs) sought a preliminary injunction. The plaintiffs alleged that the offer was inadequate and should be subject to the entire fairness standard. The defendants argued that the offer should not be subject to the entire fairness standard, but the Solomon standard, which they had met. Solomon v. Pathe Communications Corp., 672 A.2d 35 (Del. 2010).