Kahn v. United States Sugar Corp.

Charles Mott and his family owned or controlled 72 percent of the United States Sugar Corp. (U.S. Sugar) (defendant). The Motts orchestrated a self-tender offer to reduce their holdings without relinquishing their control. An Employee Stock Ownership Plan (ESOP) (defendant) was formed to borrow and later repay part of the tender costs. U.S. Sugar set a price range of $60 to $70 per share and engaged First Boston Corporation to provide a fairness opinion. U.S. Sugar decided on a per-share price of $68 for the tender offer based on the amount that the company’s directors believed could safely be borrowed and repaid, though the company delayed in communicating this information to First Boston. U.S. Sugar also retained Bear Stearns & Co. for valuation purposes. Bear Stearns gave estimates as high as $78, but this was not communicated to U.S. Sugar’s shareholders in the tender-offering statement. Also omitted from communication to shareholders was information about the book value of U.S. Sugar’s land, the company’s principal asset. Ultimately, more than 93 percent of the outstanding shares were tendered. A class of minority shareholders (plaintiffs), including Ruth Kahn, brought suit against U.S. Sugar, the ESOP, and members of U.S. Sugar’s board (defendants) in the Delaware Court of Chancery. The shareholders alleged that material facts had been omitted from the tender-offer solicitation, resulting in a breach of fiduciary duty. The shareholders also argued that the tender price should have been $122 per share, which would entitle them to damages representing the difference between that amount and $68 per share.