Smith v. Van Gorkom
Delaware Supreme Court
488 A.2d 858 (Del.Sup.Ct. 1985)
Jerome Van Gorkom, the CEO of Trans Union Corporation (Trans Union), engaged in his own negotiations with a third party for a buyout/merger with Trans Union. Prior to negotiations, Van Gorkom determined the value of Trans Union to be $55 per share and during negotiations agreed in principle on a merger. There is no evidence showing how Van Gorkom came up with this value other than Trans Union’s market price at the time of $38 per share. Subsequently, Van Gorkom called a meeting of Trans Union’s senior management, followed by a meeting of the board of directors (defendants). Senior management reacted very negatively to the idea of the buyout. However, the board of directors approved the buyout at the next meeting, based mostly on an oral presentation by Van Gorkom. The meeting lasted two hours and the board of directors did not have an opportunity to review the merger agreement before or during the meeting. The directors had no documents summarizing the merger, nor did they have justification for the sale price of $55 per share. Smith et al. (plaintiffs) brought a class action suit against the Trans Union board of directors, alleging that the directors’ decision to approve the merger was uninformed. The Delaware Court of Chancery ruled in favor of the defendants. The plaintiffs appealed.
Rule of Law
Holding and Reasoning (Horsey, J.)
Dissent (McNeilly, J.)