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In re Topps Co. Shareholders Litigation
Shorin understood Eisner to be proposing a going private transaction.
Once the insurgents were seated, an “Ad Hoc Committee” was formed of
two insurgent directors and two “Incumbent Directors” to evaluate Topps's
strategic direction. Almost immediately, the insurgent directors and the
incumbent directors began to split on substantive and, it is fair to say,
again begin an auction process, having already failed once in trying to
auction its Confectionary Business.
From the time the insurgents were seated, Eisner was on the scene,
expressing an interest in making a bid. Two other financial buyers also
made a pass. But Topps's public message was that it was not for sale.
The Ad Hoc Committee split 2-2 over whether to negotiate with Eisner.
Although offered the opportunity to participate in the negotiation process,
the apparent leader of the Dissidents refused, favoring a public auction.
One of the Incumbent Directors who was an independent director took up
the negotiating oar, and reached agreement with Eisner on a merger at
dissenting. Because of the dysfunctional relations on the Ad Hoc
Committee, that Committee was displaced from dealing with the Go Shop
process by an Executive Committee comprised entirely of Incumbent
Directors.
Shortly before the Merger Agreement was approved, Topps's chief
responding to Upper Deck's overture. Shortly after the Merger was
approved, Topps's investment banker began the Go Shop process,
contacting more than 100 potential strategic and financial bidders,
including Upper Deck, who was the only serious bidder to emerge.
Suffice it to say that Upper Deck did not move with the clarity and
proprietary concerns about turning over sensitive information to its main
competitor and a seller happy to have a bid from an industry rival go away,
even if that bid promised the Topps's stockholders better value.
By the end of the Go Shop period, Upper Deck had expressed a
willingness to pay $10.75 per share in a friendly merger, subject to its
After the end of the Go Shop period, Upper Deck made another unsolicited
overture, expressing a willingness to buy Topps for $10.75 without a
financing contingency and with a strong come hell or high water promise to
deal with manageable (indeed, mostly cosmetic) antitrust issues. The bid,
however, limited Topps to a remedy for failing to close limited to a reverse
that price or step aside.
In fact, Topps went public with a disclosure about Upper Deck's bid, but in
a form that did not accurately represent that expression of interest and
disparaged Upper Deck's seriousness. Topps did that knowing that it had
required Upper Deck to agree to a contractual standstill (the “Standstill
occur within a couple of weeks.
A group of “Stockholder Plaintiffs” and Upper Deck (collectively, the
“moving parties”) have moved for a preliminary injunction. They contend
that the upcoming Merger vote will be tainted by Topps's failure to disclose
material facts about the process that led to the Merger Agreement and
v. MacAndrews & Forbes Holdings, Inc.FN1 prevent the board from
denying the stockholders the chance to make a mature, uncoerced
decision for themselves.
FN1. 506 A.2d 173 (Del.1986).
In this decision, I conclude that a preliminary injunction against the
coercive tender offer on conditions as favorable or more favorable than
those it has offered to the Topps board.
The moving parties have established a reasonable probability of success
that the Topps board is breaching its fiduciary duties by misusing the
Standstill in order to prevent Upper Deck from communicating with the
make an informed decision and to avail themselves of a higher-priced offer
that they might find more attractive.
II. A Reader's Roadmap To The Opinion
The briefs of the Stockholder Plaintiffs and Upper Deck FN2 advance
arguments so numerous that it is realistically impossible for the court to
Investors LLC. Northwood is the acquisition vehicle Upper Deck is using.
Although the defendants question Upper Deck's standing, Northwood is a
Topps stockholder and entitled under Revlon and its progeny to press
fiduciary duty claims. E.g., In re Gaylord Container Corp. S'holders Litig.,
747 A.2d 71, 77-78 & n. 8 (Del.Ch.1999) (explaining that a bidder who
compliance with their Revlon duties. The standards of review relevant to
such claims are familiar and need not be dilated on at length.
[1] Link to KeyCite Notes[2] Link to KeyCite Notes 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
FN3. E.g., Arnold v. Society for Savings Bancorp., Inc., 650 A.2d 1270,
1277 (Del.1994).
FN4. E.g., Emerald Partners v. Berlin, 726 A.2d 1215, 1223
(Del.Supr.1999) (“When stockholder action is requested, directors are
required to provide shareholders with all information that is material to the
vote”) (citing TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96
S.Ct. 2126, 48 L.Ed.2d 757 (1976)).
[3] Link to KeyCite Notes[4] Link to KeyCite Notes[5] Link to KeyCite
Notes The so-called Revlon standard is equally familiar. When directors
propose to sell a company for cash or engage in a change of control
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.FN8
FN6. E.g., Revlon, 506 A.2d at 184 n. 16; accord Paramount
proposes to pay, the post-signing shopping process permitted by the
Merger Agreement, and the deal protection measures. Second, I will set
forth the key terms of the Standstill Agreement signed by Upper Deck,
explaining in the course of that what Upper Deck is, the negotiations
leading to the Standstill Agreement, and some key points regarding the
disclosed before the Merger vote. Finally, I set forth those areas where the
Proxy Statement advances a position about factual issues about which
there is a good faith basis for dispute.
The reason for this last category's inclusion largely relates to the Standstill
Agreement. The Incumbent Directors who comprise the majority of the
Stockholder Plaintiffs and Upper Deck. Many of those arguments will have
been presaged by the previous discussion, but will be drawn together in, I
hope, a more coherent fashion.
III. Factual Background
A. The Eisner Merger Agreement
purchase price of about $385 million. The Merger Agreement is not
conditioned on Eisner's ability to finance the transaction, and contains a
representation that Eisner has the ability to obtain such financing.FN9 But
the only remedy against Eisner if he breaches his duties and fails to
consummate the Merger is his responsibility to pay a $12 million reverse
The “Go Shop” provision in the Merger Agreement works like this. For a
period of forty days after the execution of the Merger Agreement, Topps
was authorized to solicit alternative bids and to freely discuss a potential
transaction with any buyer that might come along. Upon the expiration of
the “Go Shop Period,” Topps was required to cease all talks with any
Period.
The Merger Agreement defined a Superior Proposal as a proposal to
acquire at least 60% of Topps that would provide more value to Topps
stockholders than the Eisner Merger. The method in which the 60%
measure was to be calculated, however, is not precisely defined in the
the Merger Agreement in order to accept a Superior Proposal, subject only
to Eisner's right to match any other offer to acquire Topps.
The Eisner Merger Agreement contains a two-tier termination fee
provision. If Topps terminated the Eisner Merger Agreement in order to
accept a Superior Proposal during the Go Shop Period, Eisner was entitled
The Eisner Merger Agreement is subject to a number of closing conditions,
such as consent to the transaction by regulatory authorities and the parties
to certain of Topps's material contracts, such as its licenses with Major
League Baseball and other sports leagues.
In connection with the Eisner Merger Agreement, Shorin and Eisner
B. The Standstill Agreement Signed By Upper Deck
Upper Deck is currently the only company other than Topps to hold a
license from Major League Baseball to sell baseball cards featuring the
League's players. As such, Upper Deck is now Topps's primary, and only,
competitor in the American baseball card industry. When Upper Deck
certain information concerning the business, financial condition,
operations, prospects, assets, and liabilities of Topps solely for the
purpose of allowing Upper Deck to evaluate a possible transaction
between Topps and itself; (2) Upper Deck agreed not to disclose the fact
that such information was being provided to it or that it had entered into the
When Upper Deck received the draft Standstill Agreement, it attempted to
make revisions before executing it. In particular, Upper Deck sought to
eliminate the provision in the Standstill Agreement that prevented it from
making a tender offer for Topps and sought to insert a provision into the
Standstill Agreement requiring Topps to furnish to Upper Deck the same
contained the same material terms that were included in the initial draft
that was provided to it.
C. The Sale Process and Subsequent Negotiations As Explained In The
Proxy Statement
1. The Proxy Contests And The Unsuccessful Auction For The
Pokemon boost was short lived, however, and in recent years, Topps's
earnings per share have fallen from sixty cents a share in 2002 to less
than a dime a share in 2006.
In 2004, Topps began a strategic review of its domestic operations in an
attempt to reverse the downward trend. Topps concluded that its
owned some of Topps's common stock, announced its intention to
nominate its own slate of three director candidates and to solicit proxies for
their election at the meeting. Pembridge withdrew its proxy solicitation,
however, after receiving assurances that Topps would intensify its efforts
in considering strategic alternatives for the company. Topps and
Businesses, and a supposed belief (says the Proxy Statement) that there
was no logical buyer for the entire company, the Topps board decided to
commence a sale process, in the form of an auction, for its Confectionary
Business only. It hoped to realize $300 million from the sale and hired
Lehman Brothers as its financial advisor. The auction did not go well,
alternatives. Upper Deck, through its financial advisor, CIBC World
Markets Corp., contacted Lehman Brothers around this time frame to
inquire whether Topps might consider a sale of its Entertainment Business
to Upper Deck. The Proxy Statement makes a vague reference to this
overture. Undisclosed in the Proxy Statement, though, was that Shorin had
publicly stated that if its nominees were elected, they would aggressively
seek to sell the company in a going private transaction. One of the
directors Pembridge sought to replace was Topps's chairman and CEO
Arthur Shorin. Going into July 28, the date of the annual meeting, Shorin
and his fellow nominees were facing certain defeat. A face-saving deal
meeting, those four members were elected to the Topps board.FN10
FN10. The Stockholder Plaintiffs contend that the Proxy Statement does
not fairly convey the electoral pickle Shorin was in during July 2006. They
say the Proxy Statement should have indicated that the votes were
essentially counted, that the insurgents were going to win, and Shorin's
slate, including Shorin himself, was going down to defeat. Not only that,
the Stockholder Plaintiffs suggest that the Proxy Statement does not fairly
indicate that Eisner had approached Shorin and Silverstein and offered to
Shorin understood Eisner to be proposing a going private transaction.
Once the insurgents were seated, an “Ad Hoc Committee” was formed of
two insurgent directors and two “Incumbent Directors” to evaluate Topps's
strategic direction. Almost immediately, the insurgent directors and the
incumbent directors began to split on substantive and, it is fair to say,
again begin an auction process, having already failed once in trying to
auction its Confectionary Business.
From the time the insurgents were seated, Eisner was on the scene,
expressing an interest in making a bid. Two other financial buyers also
made a pass. But Topps's public message was that it was not for sale.
The Ad Hoc Committee split 2-2 over whether to negotiate with Eisner.
Although offered the opportunity to participate in the negotiation process,
the apparent leader of the Dissidents refused, favoring a public auction.
One of the Incumbent Directors who was an independent director took up
the negotiating oar, and reached agreement with Eisner on a merger at
dissenting. Because of the dysfunctional relations on the Ad Hoc
Committee, that Committee was displaced from dealing with the Go Shop
process by an Executive Committee comprised entirely of Incumbent
Directors.
Shortly before the Merger Agreement was approved, Topps's chief
responding to Upper Deck's overture. Shortly after the Merger was
approved, Topps's investment banker began the Go Shop process,
contacting more than 100 potential strategic and financial bidders,
including Upper Deck, who was the only serious bidder to emerge.
Suffice it to say that Upper Deck did not move with the clarity and
proprietary concerns about turning over sensitive information to its main
competitor and a seller happy to have a bid from an industry rival go away,
even if that bid promised the Topps's stockholders better value.
By the end of the Go Shop period, Upper Deck had expressed a
willingness to pay $10.75 per share in a friendly merger, subject to its
After the end of the Go Shop period, Upper Deck made another unsolicited
overture, expressing a willingness to buy Topps for $10.75 without a
financing contingency and with a strong come hell or high water promise to
deal with manageable (indeed, mostly cosmetic) antitrust issues. The bid,
however, limited Topps to a remedy for failing to close limited to a reverse
that price or step aside.
In fact, Topps went public with a disclosure about Upper Deck's bid, but in
a form that did not accurately represent that expression of interest and
disparaged Upper Deck's seriousness. Topps did that knowing that it had
required Upper Deck to agree to a contractual standstill (the “Standstill
occur within a couple of weeks.
A group of “Stockholder Plaintiffs” and Upper Deck (collectively, the
“moving parties”) have moved for a preliminary injunction. They contend
that the upcoming Merger vote will be tainted by Topps's failure to disclose
material facts about the process that led to the Merger Agreement and
v. MacAndrews & Forbes Holdings, Inc.FN1 prevent the board from
denying the stockholders the chance to make a mature, uncoerced
decision for themselves.
FN1. 506 A.2d 173 (Del.1986).
In this decision, I conclude that a preliminary injunction against the
coercive tender offer on conditions as favorable or more favorable than
those it has offered to the Topps board.
The moving parties have established a reasonable probability of success
that the Topps board is breaching its fiduciary duties by misusing the
Standstill in order to prevent Upper Deck from communicating with the
make an informed decision and to avail themselves of a higher-priced offer
that they might find more attractive.
II. A Reader's Roadmap To The Opinion
The briefs of the Stockholder Plaintiffs and Upper Deck FN2 advance
arguments so numerous that it is realistically impossible for the court to
Investors LLC. Northwood is the acquisition vehicle Upper Deck is using.
Although the defendants question Upper Deck's standing, Northwood is a
Topps stockholder and entitled under Revlon and its progeny to press
fiduciary duty claims. E.g., In re Gaylord Container Corp. S'holders Litig.,
747 A.2d 71, 77-78 & n. 8 (Del.Ch.1999) (explaining that a bidder who
compliance with their Revlon duties. The standards of review relevant to
such claims are familiar and need not be dilated on at length.
[1] Link to KeyCite Notes[2] Link to KeyCite Notes 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
FN3. E.g., Arnold v. Society for Savings Bancorp., Inc., 650 A.2d 1270,
1277 (Del.1994).
FN4. E.g., Emerald Partners v. Berlin, 726 A.2d 1215, 1223
(Del.Supr.1999) (“When stockholder action is requested, directors are
required to provide shareholders with all information that is material to the
vote”) (citing TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449, 96
S.Ct. 2126, 48 L.Ed.2d 757 (1976)).
[3] Link to KeyCite Notes[4] Link to KeyCite Notes[5] Link to KeyCite
Notes The so-called Revlon standard is equally familiar. When directors
propose to sell a company for cash or engage in a change of control
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.FN8
FN6. E.g., Revlon, 506 A.2d at 184 n. 16; accord Paramount
proposes to pay, the post-signing shopping process permitted by the
Merger Agreement, and the deal protection measures. Second, I will set
forth the key terms of the Standstill Agreement signed by Upper Deck,
explaining in the course of that what Upper Deck is, the negotiations
leading to the Standstill Agreement, and some key points regarding the
disclosed before the Merger vote. Finally, I set forth those areas where the
Proxy Statement advances a position about factual issues about which
there is a good faith basis for dispute.
The reason for this last category's inclusion largely relates to the Standstill
Agreement. The Incumbent Directors who comprise the majority of the
Stockholder Plaintiffs and Upper Deck. Many of those arguments will have
been presaged by the previous discussion, but will be drawn together in, I
hope, a more coherent fashion.
III. Factual Background
A. The Eisner Merger Agreement
purchase price of about $385 million. The Merger Agreement is not
conditioned on Eisner's ability to finance the transaction, and contains a
representation that Eisner has the ability to obtain such financing.FN9 But
the only remedy against Eisner if he breaches his duties and fails to
consummate the Merger is his responsibility to pay a $12 million reverse
The “Go Shop” provision in the Merger Agreement works like this. For a
period of forty days after the execution of the Merger Agreement, Topps
was authorized to solicit alternative bids and to freely discuss a potential
transaction with any buyer that might come along. Upon the expiration of
the “Go Shop Period,” Topps was required to cease all talks with any
Period.
The Merger Agreement defined a Superior Proposal as a proposal to
acquire at least 60% of Topps that would provide more value to Topps
stockholders than the Eisner Merger. The method in which the 60%
measure was to be calculated, however, is not precisely defined in the
the Merger Agreement in order to accept a Superior Proposal, subject only
to Eisner's right to match any other offer to acquire Topps.
The Eisner Merger Agreement contains a two-tier termination fee
provision. If Topps terminated the Eisner Merger Agreement in order to
accept a Superior Proposal during the Go Shop Period, Eisner was entitled
The Eisner Merger Agreement is subject to a number of closing conditions,
such as consent to the transaction by regulatory authorities and the parties
to certain of Topps's material contracts, such as its licenses with Major
League Baseball and other sports leagues.
In connection with the Eisner Merger Agreement, Shorin and Eisner
B. The Standstill Agreement Signed By Upper Deck
Upper Deck is currently the only company other than Topps to hold a
license from Major League Baseball to sell baseball cards featuring the
League's players. As such, Upper Deck is now Topps's primary, and only,
competitor in the American baseball card industry. When Upper Deck
certain information concerning the business, financial condition,
operations, prospects, assets, and liabilities of Topps solely for the
purpose of allowing Upper Deck to evaluate a possible transaction
between Topps and itself; (2) Upper Deck agreed not to disclose the fact
that such information was being provided to it or that it had entered into the
When Upper Deck received the draft Standstill Agreement, it attempted to
make revisions before executing it. In particular, Upper Deck sought to
eliminate the provision in the Standstill Agreement that prevented it from
making a tender offer for Topps and sought to insert a provision into the
Standstill Agreement requiring Topps to furnish to Upper Deck the same
contained the same material terms that were included in the initial draft
that was provided to it.
C. The Sale Process and Subsequent Negotiations As Explained In The
Proxy Statement
1. The Proxy Contests And The Unsuccessful Auction For The
Pokemon boost was short lived, however, and in recent years, Topps's
earnings per share have fallen from sixty cents a share in 2002 to less
than a dime a share in 2006.
In 2004, Topps began a strategic review of its domestic operations in an
attempt to reverse the downward trend. Topps concluded that its
owned some of Topps's common stock, announced its intention to
nominate its own slate of three director candidates and to solicit proxies for
their election at the meeting. Pembridge withdrew its proxy solicitation,
however, after receiving assurances that Topps would intensify its efforts
in considering strategic alternatives for the company. Topps and
Businesses, and a supposed belief (says the Proxy Statement) that there
was no logical buyer for the entire company, the Topps board decided to
commence a sale process, in the form of an auction, for its Confectionary
Business only. It hoped to realize $300 million from the sale and hired
Lehman Brothers as its financial advisor. The auction did not go well,
alternatives. Upper Deck, through its financial advisor, CIBC World
Markets Corp., contacted Lehman Brothers around this time frame to
inquire whether Topps might consider a sale of its Entertainment Business
to Upper Deck. The Proxy Statement makes a vague reference to this
overture. Undisclosed in the Proxy Statement, though, was that Shorin had
publicly stated that if its nominees were elected, they would aggressively
seek to sell the company in a going private transaction. One of the
directors Pembridge sought to replace was Topps's chairman and CEO
Arthur Shorin. Going into July 28, the date of the annual meeting, Shorin
and his fellow nominees were facing certain defeat. A face-saving deal
meeting, those four members were elected to the Topps board.FN10
FN10. The Stockholder Plaintiffs contend that the Proxy Statement does
not fairly convey the electoral pickle Shorin was in during July 2006. They
say the Proxy Statement should have indicated that the votes were
essentially counted, that the insurgents were going to win, and Shorin's
slate, including Shorin himself, was going down to defeat. Not only that,
the Stockholder Plaintiffs suggest that the Proxy Statement does not fairly
indicate that Eisner had approached Shorin and Silverstein and offered to
