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Valeant Pharmaceuticals International v. Jerney
Delaware Court of Chancery
921 A.2d 732 (2007)
Valeant Pharmaceuticals International (plaintiff) planned to spin off one of its assets, creating a new company. Valeant planned an initial public offering (IPO) for the spinoff. As part of the spinoff, the Valeant board of directors planned to award themselves bonuses. Valeant had an operating income of $189 million. Milan Panic, Valeant’s Chairman and CEO, proposed bonuses for the directors valued at a total of approximately $50 million. The issue of the bonuses was referred to Valeant’s compensation committee, which consisted of three directors, each of whom stood to receive the bonus under consideration. Furthermore, two of those directors had a longstanding personal friendship with Panic and had discussed potential consulting jobs with Panic. The committee did not hire an independent consultant to review the plan, but rather, at the direction of the board, hired Towers Perrin, a group that had previously determined for the board that the proposed bonuses were justified. The resulting Tower Perrin report concluded that the bonuses were fair. Just before the IPO, the board was informed that it would need to be re-priced, down from $13 to $15 per share, to $10 per share. Panic was advised by Valeant’s counsel that the bonuses should be revisited in light of this change. Panic ignored this advice, and the board approved the new IPO price but did not re-address the bonuses. In the end, Panic received a cash bonus of almost $30 million. Adam Jerney (defendant), a former director and president of Valeant received $3 million. Jerney voted in favor of the bonuses. Panic had domineered the entire process leading up to the approval of the bonuses. Shareholders brought a shareholder derivative suit to challenge the bonuses and the process that led to them. Valeant eventually took control of the suit. All defendant-directors settled, except for Jerney.
Rule of Law
Holding and Reasoning (Lamb, J.)
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