Litigation over buyout of baseball trading card and
candy company

• Board agreed to private equity buyout in March 2007
• Initial deal was struck with group led by Michael Eisner, former Disney CEO
• Competing offer came from Upper Deck, a competitor

• For details on initial deal and competing offer,
  see Topps Buyout (a dedicated Topic Page)
• Also see Timeline immediately below

• Two suits are pending in Delaware Chancery

• Consolidated shareholder action
• Upper Deck suit

• Other shareholder suits are also pending in New York

Initial Delaware decision  - May 2007

• Delaware Chancery declined to stay litigation for earlier filed New York action
• See May 2007 opinion below

Delaware Chancery enjoins shareholder vote June 2007

• Competing bidder (Upper Deck) sought to overturn a confidentiality / standstill agreement it was required to sign as part of go shop process
• Complaint Delaware Chancery 6.05.07   Slow loading
• Topps Form 8-K  6.06.07
• Defendants brief  6.13.07 
• Plaintiffs reply brief  6.13.07

Delaware court enjoins scheduled shareholder vote

• See June 2007 opinion below

3.06.07

Topps announces sale to Eisner Group

• $9.75 per share; $385mm total

• Press release
• Form 8-K
• Employee letter
• Background to the merger

• Merger agreement provided for a 40-day go shop period

• Go shop process was overseen by a board committee
  that excluded Topps independent directors
  Form 8-K

• Arthur Shorin (7.4% holder) backs the deal

• Schedule 13D  3.15.07
• Voting agreement

Director - Investor voice opposition

• Arnaud Ajdler (Director)

• Letter to board  3.06.07

• Crescendo Partners

• Schedule 13D amendment  3.06.07
• Schedule 13D amendment  3.14.07
  Includes new letter to board

3.19.07

Upper Deck signs a confidentiality agreement

• Agreement includes a standstill provision that prohibits Upper Deck from making an unsolicited tender offer for Topps

4.12.07

Upper Deck makes a competing offer

• $10.75 per share; $425mm total  (10.25% higher)

4.16.07

Topps board: Upper Deck offer not a superior proposal

• Cites concerns with Upper Deck obtaining financing and antitrust clearance

4.26.07

Dissidents solicit proxies to vote down Eisner Group deal

• The Committee To Enhance Topps
• Press release

• SEC filings

• Preliminary proxy statement 4.26.07
• Preliminary proxy statement 5.08.07
• Preliminary proxy statement 5.14.07
• Definitive proxy statement  5.21.07
• Slide presentation 5.31.07

5.09.07

Delaware court rules on a procedural issue

• Delaware Chancery declined to stay litigation
  for earlier filed New York suit
• See May 2007 opinion below

5.24.07

Topps publicly discloses Upper Deck competing offer

• $10.75 per share; $425mm total  (10.25% higher)

• Topps press release

• Eisner Group grants a waiver to allow Topps to enter discussions with Upper Deck

• Waiver
• Form 8-K

• Director criticizes process

• Director letter 5.31.07
• Topps response 5.31.07

6.01.07

Upper Deck asks to be released from standstill

6.05.07

Upper Deck sues in Delaware Chancery

• Complaint Delaware Chancery 6.05.07   Slow loading
• Topps Form 8-K  6.06.07
• Defendants brief  6.13.07 
• Plaintiffs reply brief  6.13.07

6.14.07

Delaware Chancery enjoins shareholder vote

• See Litigation over Go Shop Process immediately below

6.15.07

Topps defends its deal

• Investor slide presentation

6.18.07

Topps postpones shareholder meeting; waives standstill

• Press release

6.25.07

Upper Deck makes an unsolicited offer for Topps

• See Topps Buyout - Unsolicited offer

Opinion - Del Ch 2007 

• Vice Chancellor Strine
• ___ A.2d __
• Opinion - PDF format 

• Complaint Delaware Chancery 6.05.07   Slow loading
• Topps Form 8-K  6.06.07
• Defendants brief  6.13.07 
• Plaintiffs reply brief  6.13.07

• Enjoins shareholder vote
• Finds that use 40 day go shop period "was likely ... reasonable"

• Opinion discussion

• Finds use of standstill problematic

• Opinion discussion

Hyperlinked opinion    Click on links below for direct access

Top  ++

Introduction  I

Reader's Roadmap II

Facts  III

• Eisner merger agreement  III.A
• Upper Deck standstill agreement  III.B
• Sale process  III.C

• Proxy contests - Unsuccessful auction  III.C.1
• Eisner negotiations  III.C.2
• Go shop process - Upper Deck bid  III.C.3
• Dissident directors denounce Eisner deal  III.C.4

• Undisputed facts in proxy statements  III.D

• Failure to disclose "assurances" to management  III.D.1
• Failure to disclose Lehman valuation presentation  III.D.2
• Upper Deck's credibility as a bidder  III.D.3

• Who's telling the truth?  III.E

Revlon claims  IV

Resolution of Revlon claims  V

Conclusion  VI

Re: Revlon duties

Revlon v MacAndrews & Forbes

• 501 A.2d 1239 (Del Ch 1985)
• 506 A.2d 173 (Del 1986)

• The so-called Revlon standard is equally familiar. When directors propose to sell a company for cash or engage in a change of control transaction, they must take
  reasonable measures to ensure that the stockholders receive the highest value reasonably attainable.
• Accord Paramount Communications v QVC Network,
  637 A.2d 34, 44 (Del. 1994)
• [W]hen bidders make relatively similar offers, or dissolution of the company becomes inevitable, the directors cannot fulfill their enhanced Unocal duties by playing favorites with the contending factions. Market forces must be allowed to operate freely to bring the targets shareholders the best price available for their equity.
• Revlon, 506 A.2d at 184
• See also Robert M. Bass Group, Inc. v. Evans,
  552 A.2d 1227, 1242 (Del Ch 1988)

Paramount Communications v QVC Network

• 637 A.2d 34 at 49-50 (Del 1994)

• Of particular pertinence to this case, when directors have made the decision to sell the company, any favoritism they display toward particular bidders must be justified solely by reference to the objective of maximizing the price the stockholders receive for their shares.

Mills Acquisition v Macmillan

• 559 A.2d 1261, 1282-1283, 1282-83 (Del 1988)

• When directors bias the process against one bidder and toward another not in a reasoned effort to maximize advantage for the stockholders, but to tilt the process toward the bidder more likely to continue current management, they commit a breach of fiduciary duty.

Re: Duty to disclose

Arnold v Society for Savings Bancorp

• 650 A.2d 127o. 1277 (Del 1994)

• When directors of a Delaware corporation seek approval for a merger, they have a duty to provide the stockholders with the material facts relevant to making an informed decision.

Emerald Partners v Berlin

• 726 A.2d 1215, 1223 (Del Ch 1999)

• When stockholder action is requested, directors are required to provide shareholders with all information that is material to the action being requested and to provide a balanced truthful account of all matters disclosed in the communication with shareholders.

In re Pure Resources

• 808 A.2d 421, 448 (Del Ch 2001)

• Explaining that when a disclosure venture[s] into certain subjects, it must do so in a manner that is materially complete and unbiased by the omission of material facts
• Under Delaware law, when directors undertake to tell a story they must do it in a non-misleading manner
• Also, Malone v Brincat  808 A.2d 421, 448 (Del. Ch. 2001

Re: Upper Deck standing

In re Gaylord Container

• 747 A.2d 71, 77-78 & n.8 (Del. Ch. 1999)

• Explaining that a bidder who owns shares in a target has standing to press fiduciary duty claims against the targets board and collecting cases to that effect identifying the pragmatic reasons justifying such a policy

Re: Deal protection measures

Ace Ltd v Capital Re

• 747 A.2d 95 (Del. Ch. 1999)

• Topping bid made by alternative buyer despite substantial termination fee and match right

Re: Remedy

Louisiana Municipal Police Employees Retirement System v Crawford (Caremark)

•  918 A.2d 1172, 1192 (Del. Ch. 2007)

• Shareholders would suffer irreparable harm [if they] were . . . forced to vote without knowledge of . . . material facts.)

ODS Technologies v Marshall

•  832 A.2d 1254, 1262 (Del. Ch.2003)

• "The threat of an uninformed stockholder vote constitutes irreparable harm."

In re Pure Resources

• 808 A.2d at 452 808 A.2d 421, 448 (Del. Ch. 2001)

• "[I]rreparable injury is threatened when a stockholder might make a tender or voting decision on the basis of materially misleading or inadequate information."

Opinion - Del Ch May 2007 

• Vice Chancellor Strine
• Text of opinion

Declined to stay litigation for earlier filed New York action

• Procedural issue raised in litigation over proposed  buyout of Topps
• Topps is a Delaware company, headquartered in New York
• Several shareholder lawsuits were filed immediately after announcement of the deal

• One in New York, filed first
• Several in Delaware, one filed a day after New York

• "In sum, [all these] complaints contend that the Topps board of directors failed to fulfill their fiduciary duties in a myriad of ways during the process leading to the signing of the Merger Agreement with the Private Equity Buyers, a Merger Agreement they contend allows the Private Equity Buyers to get Topps at a bargain price."

At this stage, neither New York court nor Delaware court has stayed litigation

• In early April, New York court wouldn't permit defendants to file a motion to dismiss or stay the New York litigation

• In its May 9 decision, Delaware Chancery denied a similar motion to stay or dismiss the Delaware litigation

So Topps defendants currently face parallel proceedings

• Delaware Vice Chancellor Strine expected New York court to defer by staying or dismissing the New York action

• In view of the comity traditionally shown by New York in these situations to the courts of the chartering state and mandated by Langfelder, I therefore have confidence that the result the defendants fear will not come to pass.

• Strine cited New York Court of Appeals decision in Langfelder v Universal Laboratories (1944):

• "it is well settled that jurisdiction in any case will be declined . . . where a determination of the rights of the litigants involves regulation and management of the internal affairs of [a] corporation dependent upon the laws of [a] foreign state."
  293 N.Y. 200, 204

• New York Supreme Court has refused to do so

• Opinion   6.08.07
• Vice Chancellor Strine's belief that New York law requires it to dismiss or stay the case against Topps in deference to the Delaware litigation is based on "outdated and incorrect legal principles."
• Internal affairs doctrine as outlined in Langfelder is now viewed as a "discretionary doctrine allowing courts to balance convenience and the relative interests of the states involved."
• Amended complaint  6.12.07

Commentary

• Potter Anderson  May 2007

June 2007 opinion   Re: Go shop

• Cleary Gottlieb  6.19.07
• Wachtell  6.20.07

May 2007 opinion   Re: Delaware internal affairs

• Potter Anderson  May 2007

Internal Affairs Doctrine

Topps Buyout