NACCO Industries, Inc. v. Applica Inc.

During merger discussions, NACCO Industries, Inc. (NACCO) (plaintiff) entered a standstill agreement with Applica Incorporated (defendant) restricting NACCO from purchasing Applica stock outside of the merger. In July 2006, NACCO and Applica signed a merger agreement that included deal-protection devices such as a nonsolicitation provision prohibiting Applica from soliciting offers from other bidders. Under the agreement, if Applica received an unsolicited and superior proposal, Applica was obligated to promptly inform NACCO and keep NACCO informed. Applica could terminate the agreement to accept a superior proposal and pay NACCO a $4 million termination fee and a $2 million expense reimbursement. After signing the merger agreement, and without informing NACCO, Applica allegedly initiated communication with another bidder, Harbert Management Corporation (Harbinger) (defendant), regarding a potentially superior transaction. Prior to making an offer, Harbinger purchased Applica shares in the market and filed multiple Schedule 13D reports. Each Schedule 13D stated that Harbinger’s purchases were for investment purposes and not to acquire control of Applica. By August 2006, Harbinger owned approximately 39 percent of Applica’s stock. In September 2006, Harbinger filed another amendment to its Schedule 13D to disclose Harbinger intended to acquire control of Applica and, simultaneously, offered to purchase all Applica stock not owned by Harbinger for a per-share price superior to NACCO’s offer. In October 2006, Applica terminated the NACCO merger agreement, paid the termination fee and expense reimbursement, and signed a merger agreement with Harbinger. A public bidding war for Applica stock ensued between Harbinger and NACCO, which Harbinger won. NACCO alleged Harbinger, through fraudulent Schedule 13D disclosures, had had an unfair bidding advantage by already owning nearly 40 percent of Applica and thus bidding on only 60 percent of the stock while NACCO was bidding on 100 percent. Therefore, every dollar that NACCO bid would cost Harbinger 60 cents. NACCO sued Applica for breach of contract and sued Harbinger for fraud and tortious interference with a contract. Applica and Harbinger filed motions to dismiss.