Earlier this month in In Re Dollar Thrifty Shareholder Litigation, the Delaware Chancery Court refused to block the proposed merger between Hertz and Dollar Thrifty despite the presence of a higher bid by Avis. The suit seeking to enjoin the proposed merger was brought not by Avis, but by the stockholders of Dollar Thrifty. The stockholder plaintiffs challenged the premium of the Hertz offer (5.5% over the market price) as insufficient and alleged that the board failed to conduct a pre-signing auction or market check.
The Delaware Chancery Court rejected both claims and credited the board’s well-informed determinations that a deal with Avis was subject to more transaction risk than a deal with Hertz due to anti-trust and financing concerns, and that a pre-signing auction or market check could have resulted in Hertz ceasing negotiations. The decision in Dollar Thrifty is consistent with the Delaware courts’ continued deference to deal processes conducted in good faith by an independent and well-informed board. Vice Chancellor Strine reflected this deference by noting that “[w]hen directors who are well motivated, have displayed no entrenchment motivation over several years, and who diligently involve themselves in the deal process choose a course of action, this court should be reluctant to second-guess their actions as unreasonable.”
Even after the court’s September 8 refusal to block the proposed merger with Hertz, the stock price of Dollar Thrifty remained above the $41 per share Hertz offer. On September 10, Hertz and Dollar Thrifty amended the merger agreement, with Hertz raising its offer by $10.80 per share, resulting in a higher value than Avis’s $46.50 per share offer. Dollar Thrifty stockholders are now scheduled to vote on the merger on September 30. Thus, despite losing the request for an injunction, the stockholders of Dollar Thrifty have won a higher purchase price for their shares, and Avis was able to make the transaction more expensive for a competitor.