## Facts

- Chicago Milwaukee Corporation (CMC), a Delaware holding company, held significant cash and real-estate assets after selling major operating assets and pursuing new acquisitions.
- CMC had outstanding $5 Prior Preferred Stock with a noncumulative dividend right and a $100 per-share liquidation preference; CMC had never paid dividends and followed a policy of not paying dividends to conserve assets.
- After the October 1987 market crash, the Preferred’s trading price fell from pre-crash highs to below $42 per share.
- On October 28, 1987, CMC commenced a self-tender for any and all Preferred shares at $55 per share in cash, later extended to expire on December 1, 1987.
- The tender materials stated purposes including buying at an “attractive” price, delisting the Preferred, and reducing administrative costs, but internal evidence indicated the board did not meaningfully deliberate about delisting or cost savings.
- CMC’s directors owned a large block of common stock (about 41%) and relatively little Preferred, creating incentives to conserve cash and retire Preferred at depressed prices.
- A Preferred stockholder filed a class action seeking to enjoin the offer, alleging the offer was coercive and the disclosures were materially misleading and omitted conflicts and true motives.

## Issues

1. Whether CMC’s directors breached fiduciary duties owed to Preferred stockholders by making materially misleading disclosures or omitting material facts in connection with the self-tender.
2. Whether the self-tender was coercive because its structure and communications pressured Preferred holders to tender rather than make an unforced choice.
3. Whether the requirements for a preliminary injunction were satisfied: likelihood of success on the merits, irreparable harm, and balance of equities.

## Decision

- The Court of Chancery granted a preliminary injunction restraining CMC from proceeding with the self-tender on the existing terms and disclosures.
- The court found a sufficient likelihood that the offer was coercive and that the directors breached their duty of disclosure by failing to provide a full and fair account of the offer’s purposes and director conflicts.
- The court held the plaintiff showed a reasonable probability of success, irreparable harm from tenders induced by coercion or misinformation, and that the equities favored preserving the status quo.

## Legal Principles

- In a corporate self-tender, directors must provide full and fair disclosure of all material facts so stockholders can make an informed decision whether to tender.
- Disclosures that misstate the board’s actual rationale, or omit material motivations and conflicts of interest, can constitute a breach of fiduciary duty warranting injunctive relief.
- A tender may be coercive when company actions or communications (including threatened loss of liquidity through delisting) improperly pressure stockholders to tender, undermining voluntary choice.
- Preliminary injunctive relief is appropriate where the plaintiff shows likelihood of success, irreparable harm not readily remedied by damages, and a balance of equities favoring restraint pending adjudication.

## Conclusion

The court preliminarily enjoined CMC’s self-tender because the record supported that the offer pressured Preferred holders to tender and that the directors’ disclosures were materially incomplete and misleading in light of conflicts and motivations to repurchase Preferred at post-crash depressed prices.


Eisenberg v. Chi. Milwaukee Corp., 537 A.2d 1051 (Del. Ch. 1987)