Lyondell Chemical Company Court Case (Case Study Sample)

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LYONDELLBASELL V. STAKEHOLDERS COURT CASE
Lyondell chemical company used to be the third biggest self-governing publicly operated chemical corporation in North America. A majority of the company’s directors had previously worked for other large publicly traded firms, making them quite experienced in management roles and responsibilities. In 2006, Basell, a private company, told Lyondell that they were interested in its acquisition. The company representatives offered a trade of 26.50 to 28.50 U.S dollars per stake, after which it was agreed that 48 dollars per share was a reasonable deal. On the whole, the failure of the directors to take initiatives to protect the company, as well as seek the shareholder’s consent was the main reasons for the lawsuit against them.
The lawsuit was brought about by the directors of Lyondell agreeing to sell the company to Basell. The directors had told Basell to come up with a good purchase price which Basell confirmed to be $ 400 million in total. Basell later claimed that that amount was the best they could offer. It was a significant premium and the contract had to be finalized on Blavatnik's schedule. Later on, the break-up fee was reduced to 385 million dollars as a sign of good faith.
About a year later, Lyondell got filed for bankruptcy under the debt they had. The plaintiff, Walter E. Ryan, filed the case in Delaware on July 23, 2007. The plaintiff said that the directors were not competent enough to perform in good faith in steering the trade of the company. The directors also failed to discuss most favorable terms of the agreement and also this was partly attributed to the insufficient time they invested in the negotiations. The executives were also blamed for failing to honor their responsibility of treating the shareholders with loyalty, care, and candor. In addition, the merger value was inadequate with the directors being influenced to accept the merger for their personal self-interest. The procedure through which the merger was discussed was significantly defective with the managers settling for an irrational deal. Moreover, the defense provisions and the initial proxy declaration omitted several material facts.
The defendants were the directors of Lyondell who were energetic, cultured and conscious of the worth of the firm and the circumstances of the market in which the firm functioned. They also said they were independent and were not inspired by self-interest. The trial court established that the directors had failed to act throughout the two months following the filing of the Basell agenda 13D which was critical to the scrutiny of their good faith. The Court of Chancery concentrated on the managers' two months of indecisiveness when, in fact, they ought to have concentrated on the one week that they agreed to Basell's proposal.
However, did the court render the directors liable of bad faith? They did not. The trial case affirmed that the managers' failure to make any particular steps during the trade process could not have revealed a conscious neglect of their responsibilities. There is also a massive variance between an insufficient or faulty effort to bring out fiduciary obligations and a deliberate neglect of those duties. If the directors perceptively and wholly refused to commence their tasks, they would have reflected a direct breach of their responsibility to loyalty.
The reasons that the court gave for their decisions were bases on the notion that the directors of Lyondell met numerous times to contemplate Basell's premium proposal. They were also conscious of the value of their firm through the evaluation of the chemical company market. The directors also petitioned and asked for the guidance of their financial and legal consultants. They also went ahead to discuss an advanced offer even after the values indicated that Basell had gi...