Question: In early 2012, the CEOs at Freeport-McMoRan Copper & Gold Inc. and Plains Exploration & Production Company discussed merging and informed their respective boards of this possibility. Later, Plains made a significant purchase of property and refused financing offered by Freeport in order to ensure that any acquisition would be at arm's length. The Plains board then decided to end merger discussions and to focus on its new property, but Flores, Plains' CEO and board chair, continued to engage in meetings with Freeport through the fall of 2012. Freeport ultimately offered to acquire Plains in November 2012. Flores was expected to become vice chair of Freeport and CEO of Freeport's newly acquired oil and gas operations if Plains merged with Freeport.
Plains employed its long-term financial adviser, Barclays PLC, to help assess the merger, but Plains never sought any other potential acquirers or discussed potential business combinations with companies other than Freeport. After negotiations led on behalf of Plains by Flores and consideration of Barclay's fairness analysis by the Plains board, Plains agreed to merge with Freeport in exchange for Freeport stock and cash worth approximately $50 per share of Plains stock. Although no onerous deal protections impeded competing bids, no other bidders surfaced in the five-month period following the execution of the merger agreement on December 5, 2012.
With the exception of Flores, the seven other Plains directors were disinterested and independent. All the board members were fully aware of the potential conflict of interest that existed because of Flores's future position in the new entity. The board was also aware that because Flores owned a significant amount of stock, his interest in obtaining the best deal was aligned with that of the other stockholders. The Plains directors attended numerous meetings about the sales process, they authorized Flores to take specific action when necessary, they participated with Flores in the negotiations with Freeport, and they also engaged and relied on "sophisticated" legal and financial advisors.
Stockholders of Plains sued to enjoin the merger, alleging that the board had breached its fiduciary duty.
Who should prevail, and why? [In re Plains Exploration & Production Company Stockholder Litigation, 2013 WL 1909124 (Del. Ch. May 9, 2013).]