In 2003, in the case of Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003), the Delaware Supreme Court held that stockholder voting agreements “negotiated as part of a merger agreement, which guaranteed shareholder approval of the merger if put to a vote, coupled with a merger agreement that both lacked a fiduciary out and contained a Section 251(c) provision requiring the board to submit the merger to a shareholder vote, constituted a coercive and preclusive defensive device,” because it made the merger an “impermissible fait accompli.” The Omnicare decision was issued by a divided Supreme Court (3-2), rare in Delaware, and the case has been controversial ever since.

The principal reasons for the controversy were that the Omnicare board of directors did not have any conflicts of interest and they shopped the company prior to entering into a merger agreement. The lack of identifiable breaches of the duties of loyalty and care, coupled with Delaware’s tradition of permitting stockholders to vote their stock in their interest provided they are not harming the minority in a self-interested transaction, left many practitioners with the belief that the case was wrongly decided. The makeup of the Delaware Supreme Court has changed since 2003 and then-Justice Myron T. Steele, who was part of the Omnicare dissent, is now chief justice. Yet, because practitioners counsel clients to avoid Omnicare situations, the Delaware Supreme Court has not had occasion to revisit the issue and perhaps reverse its prior holding.

One way practitioners endeavored to avoid Omnicare is to have controlling stockholders approve and close transactions immediately with written consents so the deal does not have to be subjected to a stockholder meeting and vote. It was never entirely clear that this avoids the concerns addressed in Omnicare, but in a recent opinion issued by the Delaware Court of Chancery on Sept. 30, 2011, in In re OPENLANE, Inc. Shareholders Litigation, the court denied a motion by a plaintiff-stockholder of OPENLANE Inc. to enjoin the merger of OPENLANE with KAR Auction Services Inc., despite the fact that the merger agreement at issue did not include a “fiduciary out” and the transaction was locked up within 24 hours after signing via written consents from the holders of a majority of OPENLANE’s stock.

Importantly, the court acknowledged that Omnicare could be read to require a fiduciary out in every merger agreement. The court explained further, however, that when a board enters into a merger agreement that does not contain a fiduciary out, “it is not at all clear that the court should automatically enjoin the merger when no superior offer has emerged,” noting that such a decision “is a perilous endeavor because there is always the possibility that the existing deal will vanish, denying stockholders the opportunity to accept any transaction.”

Also noteworthy is the court’s conclusion that the board made a reasonable effort to maximize stockholders, and therefore satisfied its obligations under Revlon, even though the board did not obtain a fairness opinion and did not reach out to any financial buyers. That conclusion is a reaffirmation of Delaware precedent that “[t]here is no single path that a board must follow in order to maximize stockholder value, but directors must follow a path of reasonableness which leads toward that end.”

However, the particular facts of the case made that finding possible and it should not be read as approving of such a process as a matter of course. Indeed, the court noted that if directors do not employ a “traditional value maximization tool, such as an auction, a broad market check, or a go-shop provision,” the board must possess “impeccable knowledge of the company’s business.” Fortunately for OPENLANE’s board, it actually managed the day-to-day operations of the company, making it one of those rare boards that had the type of “impeccable knowledge” to which the court could defer to on a preliminary record.