How 'Bad Law, Bad Economics and Bad Policy' Positively Shaped Corporate Behavior
56 Pages Posted: 5 Sep 2015
Date Written: May 3, 2014
The Delaware Supreme Court, known as one of the premier business courts in the country, has been instrumental in shaping the development of corporate law. In 2003, the court issued Omnicare, Inc. v. NCS Healthcare, Inc., an opinion that still remains one of the most controversial mergers and acquisitions decisions. While the Omnicare decision has been heavily criticized and many have called for its subsequent reversal, it continues to be good law. In conjunction with the 10-year anniversary of the court’s decision, this article addresses the impact Omnicare has had on M&A activity and how it has shaped modern corporate policy and decision-making.
In re-evaluating this controversial decision, this article also takes a different perspective than most prior scholarship, discussing Omnicare’s contributions to the development of improved standards of director conduct. Despite its many detractors, the majority opinion positively influenced director decision-making in one of the most important events in the life of a corporation – the merger. By requiring a higher standard of director conduct in approving deal protection devices and holding directors accountable for their decisions, Omnicare can, and should, be viewed as a normatively good decision, advancing proper corporate governance norms and the policy of protecting stockholder interests. Relatedly, this article discusses whether these normative rules are efficient – do the gains to stockholders resulting from Omnicare’s preferred director conduct exceed the costs they impose?
Keywords: Omnicare, M&A, merger, acquisition, precommitment, lock-ups, Delaware, deal protection, deal protection devices
JEL Classification: G30, G34, M14, K22
Suggested Citation: Suggested Citation