This article begins by briefly discussing the factual background of the Omnicare decision and the majority’s opinion. Second, this article analyzes the criticism that followed, which generally falls into two broad categories: the doctrinal shortcomings in the majority’s reasoning and the negative practical implications of banning precommitment strategies. Third, this article briefly explores whether the concerns about Omnicare’s impact on merger and acquisition activity came to fruition in the ten years since the decision was issued, concluding that many did not. This article also reviews post-Omnicare case law noting that subsequent decisions of the Delaware Court of Chancery addressing Omnicare-based challenges have sought to avoid its application. While Omnicare has not been overruled and remains good law, these decisions indicate a willingness of Delaware’s lower court to limit its reach. As a result, the number of actual scenarios where the decision may still have a direct impact is small. Nevertheless, it would be unwise to overlook the positive aspects of Omnicare. Because the vast majority of scholarship addressing this controversial decision has been of a critical nature, little attention has been given to Omnicare’s normative value. Thus, Part V addresses some of the broader normative implications of Omnicare with a particular focus on the role the decision plays in improving corporate governance and increasing stockholder value. In re-evaluating the decision it becomes clear that the Omnicare majority sought to improve corporate decision-making in one of, if not the, most important events in the life of a corporation – the merger. To that end, the decision added a renewed and heightened focus on deal protection devices and the role of the board of directors in properly discharging its fiduciary duties in the context of negotiating, evaluating, and ultimately accepting, a merger proposal. In the style characteristic of Delaware fiduciary duty case law, Omnicare is a normatively charged decision, providing guidance on the decisional process required of corporate directors. In particular the majority’s decision shapes the definition and description of the roles that directors are expected to fill in negotiating and approving mergers, with a focus on deal protection devices. Finally, Part VI of this article discusses whether, despite their positive impact, Omnicare’s changes to corporate governance are efficient ones.
Shaner, Megan Wischmeier
"How "Bad Law, Bad Economics and Bad Policy" Positively Shaped Corporate Behavior,"
Akron Law Review: Vol. 47:
3, Article 4.
Available at: https://ideaexchange.uakron.edu/akronlawreview/vol47/iss3/4