## Facts

- Burlington Northern, Inc. made a December 1982 partial tender offer to buy over 25 million El Paso Company shares at $24 per share to obtain 51.8% control.
- The offer was expressly conditioned on the nonoccurrence of six specified events, including no governmental interference, no material adverse change, and El Paso maintaining substantially the same bylaws and capital structure.
- El Paso’s board unanimously rejected the offer as inadequate and harmful to non-tendering shareholders.
- El Paso undertook defensive actions (including changes to its business and bylaws) that ultimately caused all six offer conditions to occur, giving Burlington a contractual basis to terminate the December offer.
- Burlington and El Paso negotiated a January 1983 settlement that terminated the December offer and substituted a new tender offer on different terms; El Paso directors tendered most of their shares in the January offer.
- A class of shareholders who tendered into the December offer sued Burlington for breach of contract and implied covenant violations, sued El Paso directors for fiduciary breaches tied to the settlement and alleged loss of “inchoate” proration rights, and alleged Burlington aided and abetted the directors’ breaches.
- The Court of Chancery dismissed the contract and implied-covenant claims against Burlington and rejected the fiduciary-duty and aiding-and-abetting claims; the shareholders appealed.

## Issues

1. Whether Burlington’s December 1982 tender offer created an enforceable obligation to purchase tendered shares notwithstanding the offer’s express conditions, such that terminating after the conditions occurred was a breach (including under the implied covenant of good faith and fair dealing).
2. Whether El Paso’s directors breached fiduciary duties by approving a settlement that ended the December offer and allegedly extinguished tendering shareholders’ “inchoate” proration rights, including by allegedly favoring directors’ ability to tender in the January offer.
3. Whether Burlington improperly interfered with tendering shareholders’ contract rights and/or knowingly aided and abetted any fiduciary breach by El Paso’s directors.

## Decision

- The Delaware Supreme Court affirmed the Court of Chancery.
- Burlington was contractually entitled to terminate the December tender offer once the specified conditions occurred; therefore, there was no breach of contract or implied covenant.
- Any proration rights associated with the December offer were contingent and did not vest because the offer did not proceed to closing after conditions failed.
- The fiduciary-duty claims against El Paso’s directors and the aiding-and-abetting claims against Burlington failed on the record, including because no actionable primary fiduciary breach was shown.

## Legal Principles

- A tender offeror’s obligation to purchase shares is governed by the offer’s express terms; when an offer is expressly subject to conditions precedent, occurrence of those conditions can discharge any duty to consummate.
- “Inchoate” proration rights in a partial tender offer remain contingent and do not become enforceable if the offer is validly terminated under its conditions.
- The implied covenant of good faith and fair dealing cannot be used to negate explicit contractual conditions or impose an obligation inconsistent with the parties’ stated contingencies.
- Aiding-and-abetting liability requires an underlying breach by a fiduciary and knowing participation; absent a primary breach, the secondary claim fails.
- Directors retain discretion to respond to and settle disputes arising from partial tender offers, absent proof of actionable self-dealing or bad faith sufficient to support a fiduciary-duty claim.

## Conclusion

The court held that the December tender offer’s explicit conditions permitted Burlington to terminate once those conditions occurred, leaving tendering shareholders without a matured contractual or proration right to force completion; the related fiduciary-duty and aiding-and-abetting theories tied to the settlement and replacement January offer were also rejected.


Gilbert v. El Paso Co., 575 A.2d 1131 (Del. 1990)