On May 9, 2013, the Delaware Court of Chancery issued a memorandum opinion denying the stockholders' motion for preliminary injunctive relief in In re Plains Exploration & Production Company Stockholder Litigation because they had failed to establish a reasonable probability of success on the merits of their Revlon claim or other disclosure claims. The Court of Chancery held that the target company's board properly managed the sale process in spite of the fact that it did not conduct a pre-signing market check or actively shop the company post-signing.

On December 5, 2012, Freeport-McMoRan Copper & Gold Inc., an international mining company, and Plains Exploration & Production Company, an upstream oil and gas company, entered into a merger agreement (for a full summary of the merger agreement, see PLC What's Market, Freeport-McMoRan Copper & Gold Inc./Plains Exploration & Production Company Merger Agreement Commentary). Freeport, in a separate transaction, will also acquire McMoRan Exploration Co., a company engaged in the exploration, development and production of natural gas and oil, once the Freeport-Plains merger agreement is consummated (for a summary of the merger agreement for that transaction, see PLC What's Market, Freeport-McMoRan Copper & Gold Inc./McMoRan Exploration Co. Merger Agreement Summary). That transaction has been challenged by McMoRan's stockholders. In addition, Freeport's own stockholders have brought suit claiming that Freeport is overpaying and wasting corporate assets in its acquisitions of Plains and McMoRan.

Two Plains stockholders filed a motion in the Delaware Court of Chancery to preliminarily enjoin the Freeport-Plains merger, alleging that the Plains board of directors (Board) breached its fiduciary duties under the Revlon standard by, among other things:

The defendants argued that the motion should be denied because:

For more on directors' fiduciary duties, see Practice Note, Fiduciary Duties of the Board of Directors.

The Court of Chancery denied the plaintiffs' motion to enjoin the merger, finding that the plaintiffs did not meet their burden to show that the Board breached its Revlon duties or that their disclosure claims were meritorious. The Court of Chancery noted that while forming a special committee and conducting a pre-market check serve as good evidence that the directors are fulfilling their Revlon duties, there is no bright-line rule requiring these actions.

In this case, the Board decided not to form a special committee because seven of the eight directors, who all had extensive experience in the oil and gas industry, were independent and disinterested. Under these circumstances, the Court of Chancery found the Board's decision not to form a special committee reasonable. The Board's decision to allow Flores to lead the negotiations was also found reasonable because the Board:

The Court of Chancery also noted that there is no bright-line rule that the Board must conduct a pre-agreement market check or shop the company to fulfill its Revlon duties. In this case, the Board chose not to shop Plains or conduct a pre-agreement market check and relied on the information provided by its financial advisor, as well as its industry expertise, to make an informed decision. In addition, the deal-protection devices in the merger agreement were not onerous and therefore would not unduly impede a competing bid. In that vein, the Court of Chancery held that a post-agreement market check can effectively ensure that a company receives the best price reasonably available. The deal-protection devices here that the Court of Chancery concluded were not unreasonable or too onerous included:

The Board allowed enough time for competing bids to be made, negotiated with Freeport to increase its initial offer and obtained a premium for the company. Therefore, the Court of Chancery concluded that the plaintiffs had not established that the failure to conduct a pre-agreement market check or to shop the company would lead to a reasonable likelihood that their claim would be successful on the merits.

This case highlights that while a board of directors must fulfill its Revlon duties, there are no bright-line rules that show whether a board has met those duties. Rather, the analysis is based heavily on the facts and circumstances of each case. In that respect, an informed board can be found to have satisfied its Revlon duties without conducting a pre-signing market check or demanding a post-signing go-shop right.