## Facts

- Atlantic Richfield Company (ARCO) owned about 80.1% of ARCO Chemical Company (Chemical) and controlled Chemical.
- Chemical’s board consisted largely of current or former ARCO or affiliate executives.
- In 1998, Lyondell approached about acquiring Chemical; Chemical’s board authorized ARCO to explore a sale, and ARCO conducted the negotiations.
- ARCO allegedly needed cash for its own acquisition plans, making a quick all-cash deal attractive to ARCO.
- ARCO accepted Lyondell’s all-cash offer of $57.75 per share for all Chemical shares via a tender offer followed by a cash-out merger at the same price.
- Chemical’s board met once (June 18, 1998) to consider the transaction, received advisor presentations and a fairness conclusion, and unanimously approved the deal on the negotiated terms.
- A minority shareholder filed a putative class action alleging the directors abdicated their role by allowing ARCO to control the process, and that tender-offer disclosures omitted material valuation information needed to decide whether to tender or seek appraisal.
- The Court of Chancery dismissed under Rule 12(b)(6); the plaintiff appealed.

## Issues

1. Whether the sale of all shares of a controlled subsidiary to a third party for cash triggered the subsidiary directors’ enhanced duties under Revlon.
2. Whether the complaint stated a claim that the subsidiary directors breached fiduciary duties by effectively delegating the sale process to the controlling stockholder and approving the deal without an independent, informed evaluation.
3. Whether the complaint stated a claim for materially deficient disclosures in connection with the tender offer.

## Decision

- The Delaware Supreme Court reversed the dismissal and remanded.
- The court held that Revlon enhanced scrutiny was implicated because the transaction involved the cash sale of 100% of the company to a third party.
- The court held the complaint adequately pled a breach of fiduciary duty because directors have a non-delegable obligation to be independently informed and to exercise their own judgment even when a controlling stockholder can effect the deal.
- The court held the disclosure allegations were sufficient at the pleading stage to state a claim for failure to disclose material information relevant to the tender/appraisal decision.

## Legal Principles

- When a corporation is for sale in a transaction resulting in a cash-out sale to a third party, directors are subject to Revlon enhanced scrutiny and must reasonably seek the best value reasonably available for stockholders.
- A board’s fiduciary obligations in a sale process are non-delegable; the presence of a controlling stockholder does not excuse directors from conducting an independent and informed assessment of the transaction.
- Alleged conflicts between a controller’s interests and minority stockholders’ interests can heighten the need for independent board action and careful process under Revlon.
- When directors solicit stockholder action, they must disclose fully and fairly all material information; at the pleading stage, plausible allegations of omitted material valuation information suffice to survive dismissal.
- On a motion to dismiss, well-pleaded facts are accepted as true and reasonable inferences are drawn in the plaintiff’s favor.

## Conclusion

The court held that a controlled subsidiary’s directors remain subject to Revlon duties in a third-party cash sale and cannot cede effective decisionmaking to the controlling stockholder; the complaint plausibly alleged both fiduciary breaches and material disclosure failures, requiring the case to proceed past the pleading stage.


McMullin v. Beran, 765 A.2d 910 (Del. 2000)