Lyondell Chemical Co. v. Ryan

Basell AF (Basell) made an offer to purchase Lyondell Chemical Company (Lyondell) at $40 per share. Dan Smith, Lyondell’s CEO and Chair, responded that the offer was too low. Negotiations commenced and eventually, Smith took an offer of $48 per share to the Lyondell board of directors (defendants). The board held a special meeting at which it considered the offer, as well as a valuation report that had just been prepared for Lyondell. A merger agreement was drafted, and the board, along with Lyondell’s financial and legal advisors, reviewed the agreement. Lyondell’s financial advisor stated that Basell’s offer was fair and that no other offers from the chemical industry would top it. The defendants approved the merger for a stockholder vote. Lyondell did not receive any other offers between the board’s approval and the vote. The stockholders approved the merger with 99 percent of the voting shares voting in favor. Walter Ryan, a Lyondell stockholder (plaintiff), brought a class action suit alleging, among other things, that the Lyondell directors breached their duty of loyalty by not obtaining the best available price in the sale to Basell. The defendants filed a motion for summary judgment. The Delaware Court of Chancery denied the motion, finding that the defendants did not conduct an auction for the sale, conduct a market check, or demonstrate “an impeccable knowledge of the market,” as is required under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). The defendants appealed.