## Facts

- Panhandle Eastern Corporation owned Anadarko Petroleum Corporation as a wholly owned subsidiary and decided to spin off Anadarko by distributing Anadarko stock as a dividend to Panhandle shareholders.
- Panhandle set a record date (Sept. 12, 1986) to identify Panhandle shareholders eligible to receive Anadarko shares and a distribution date (Oct. 1, 1986) for the actual issuance.
- Before the distribution, Panhandle circulated an information statement warning that agreements between Panhandle and Anadarko might be executed to implement the spin-off and could disadvantage Anadarko.
- Between the spin-off decision and the distribution date, Panhandle and Anadarko’s board approved several intercompany contracts and amendments (the “disputed agreements”) that Anadarko later alleged were unfair to Anadarko.
- At the time the disputed agreements were approved, Anadarko remained wholly owned by Panhandle, and Anadarko’s board was largely composed of Panhandle-affiliated directors.
- After the disputed agreements were approved and near the spin-off, certain Anadarko directors resigned; a reconstituted Anadarko board sued Panhandle and former Anadarko directors for breach of fiduciary duty, claiming duties were owed to Anadarko’s future public stockholders.
- Plaintiffs asserted three theories for pre-distribution duties to future Anadarko stockholders: (1) Panhandle shareholders became record owners via a stock ledger keyed to the record date, (2) Panhandle shareholders became beneficial owners once the spin-off was declared and the record date passed, and (3) Panhandle and/or directors held Anadarko shares in trust for the future recipients.

## Issues

1. Whether, after a parent declares a spin-off of a wholly owned subsidiary but before the distribution date, the parent and the subsidiary’s directors owe fiduciary duties to the subsidiary’s prospective stockholders.

## Decision

- The Delaware Supreme Court affirmed summary judgment for Panhandle and the individual defendants.
- The court held that, prior to distribution, prospective Anadarko stockholders held only an expectancy interest insufficient to impose fiduciary obligations on Panhandle or Anadarko’s directors.
- The court rejected the record-ownership theory because the record date and stock ledger served administrative purposes and did not confer present Anadarko stockholder status.
- The court rejected the beneficial-ownership theory because Panhandle retained legal and equitable ownership of Anadarko shares until distribution, and Panhandle shareholders had only a future right to receive shares.
- The court rejected the trustee theory because the spin-off was a corporate dividend transaction, not a trust arrangement, and Delaware law did not impose trustee-like duties to non-stockholder beneficiaries in this setting.
- The court treated disclosure in the information statement as relevant in showing that shareholders were on notice that intercompany agreements could change before distribution.

## Legal Principles

- Directors of a wholly owned subsidiary generally owe fiduciary duties to the parent corporation as the sole stockholder while the subsidiary remains wholly owned.
- A prospective recipient of shares in a planned distribution holds an expectancy, not stockholder status, before the distribution occurs.
- Administrative steps such as setting a record date or preparing a list of intended recipients do not transfer legal or equitable ownership of the subsidiary’s shares.
- Delaware fiduciary duties to stockholders arise upon actual stock ownership; they do not extend to future stockholders absent present ownership.
- Courts will not impose trust-based fiduciary obligations on corporate parents or directors toward anticipated share recipients in a standard dividend spin-off without a formal trust relationship.

## Conclusion

Because Anadarko remained wholly owned by Panhandle until the distribution date, Anadarko’s directors owed duties only to Panhandle, and Panhandle shareholders slated to receive Anadarko stock had only an expectancy interest; accordingly, the pre-distribution agreements could not be attacked as fiduciary breaches owed to prospective Anadarko stockholders.


Anadarko Petrol. Corp. v. Panhandle E. Corp., 545 A.2d 1171 (Del. 1988)