Starkman v. Marathon Oil Co.

In mid-1981, Marathon Oil Company (Marathon) (defendant) began preparing for a potential takeover. Marathon officers prepared an internal asset valuation called the Strong Report, which estimated the values of Marathon’s exploratory acreage and oil reserves based on speculative assumptions about oil prices and other factors decades into the future. The Strong Report valued Marathon at between $276 and $323 per share. Marathon’s leadership viewed the Strong Report as an optimistic valuation that would position Marathon well if Marathon were approached by potential buyers. At Marathon’s request, the First Boston investment-banking firm had prepared a similar valuation report to be used to avoid a takeover or achieve the best possible price if a takeover occurred. First Boston’s report valued Marathon at between $188 and $225 per share. However, Marathon’s actual market value at the time was only $63.75 per share. On October 30, 1981, Mobil Oil announced a takeover bid in which Mobil would make a tender offer to purchase up to 68 percent of Marathon’s stock at $85 per share. Marathon’s board of directors publicly denounced Mobil’s bid as grossly inadequate. Marathon’s directors also decided privately to seek a so-called “white knight” to make a friendly acquisition offer. On November 17, 1981, Marathon and U.S. Steel agreed to an acquisition and merger in which U.S. Steel would make a tender offer for roughly 51 percent of Marathon’s shares at $125 per share. The Marathon-U.S. Steel agreement was announced to shareholders on November 19. However, on November 18, Marathon shareholder Irving Starkman (plaintiff) had sold his shares on the open market for $78 per share. Starkman sued Marathon, asserting that Marathon’s board had violated Securities and Exchange Commission (SEC) Rule 10b-5 by failing to disclose soft information (i.e., information less certain than concrete facts) to shareholders in the period between Mobil’s hostile-takeover offer and U.S. Steel’s friendly merger offer. Starkman contended that Marathon should have told shareholders about the U.S. Steel negotiations and the Strong and First Boston reports so that shareholders could have chosen whether to sell their shares on the market or wait to see if U.S. Steel offered a higher price. The district court granted summary judgment for Marathon, and Starkman appealed.