## Facts

- Unocal Corporation controlled Pure Resources, Inc., owning about 65% of Pure’s common stock; the remaining shares were held by unaffiliated stockholders and certain managers.
- Unocal initiated an exchange (tender) offer to acquire the remaining Pure shares, with the stated intent to complete a DGCL § 253 short-form merger at the same price if Unocal reached 90% ownership.
- The offer included a non-waivable “majority-of-the-minority” tender condition, but the offer’s definition of “minority” included Unocal-affiliated holders and certain Pure managers.
- Pure managers held arrangements (including put-type rights) that could yield different economic outcomes than those of ordinary stockholders in a Unocal buyout.
- Pure’s board formed an independent special committee that retained separate legal and financial advisors, negotiated with Unocal, and ultimately declined to recommend the offer.
- Minority stockholders sued and sought a preliminary injunction, alleging both substantive unfairness and materially misleading or incomplete disclosure in the tender materials.

## Issues

1. What standard of review applies to a controlling stockholder’s tender offer for the minority shares: entire fairness, or enhanced scrutiny for a non-coercive tender offer with full disclosure?
2. What structural protections are required for a controller tender offer to be treated as non-coercive?
3. Whether the tender offer disclosures omitted or misstated material information necessary for stockholders to decide whether to tender.

## Decision

- The Court of Chancery held that the tender offer was not categorically subject to entire fairness review solely because it was made by a controller.
- The court applied enhanced scrutiny for a controller tender offer that must be non-coercive and fully disclosed, and articulated minimum features required for non-coercion.
- The court preliminarily enjoined the offer primarily due to materially inadequate disclosure, and also identified coercion concerns tied to the offer’s structure and the definition of “minority.”

## Legal Principles

- A controlling stockholder’s tender offer is generally reviewed under enhanced scrutiny for non-coercive offers with full disclosure, rather than automatic entire fairness review.
- To be treated as non-coercive, a controller tender offer should, at a minimum:  
  - include a non-waivable majority-of-the-minority condition using a meaningfully independent minority;  
  - include the controller’s commitment to complete a prompt short-form merger at the same price upon reaching the statutory threshold; and  
  - avoid retributive threats or conduct that penalizes non-tendering stockholders.
- Minority stockholders are entitled to material disclosures enabling an informed tender decision, including fair presentation of banker analyses and clear description of conflicts and differing incentives of management and affiliated holders.
- An independent special committee’s ability to function effectively—including providing a candid recommendation—depends on independence, adequate information, and procedural conditions that reduce pressure on stockholders’ choice.

## Conclusion

The court enjoined the controller’s tender offer until material disclosure deficiencies were cured and explained that controller tender offers, while not automatically subject to entire fairness, must include concrete protections and meaningful minority approval conditions to ensure voluntary, informed stockholder choice.


In re Pure Res., Inc. S’holders Litig., 808 A.2d 421 (Del. Ch. 2002)