## Facts

- NCS Healthcare, Inc., an insolvent Delaware public corporation, negotiated and signed a merger agreement with Genesis Health Ventures, Inc. and its merger subsidiary.
- During negotiations, NCS operated under an exclusivity/no-shop arrangement and did not negotiate with Omnicare, a competing bidder; it used Omnicare’s interest to seek improved terms from Genesis.
- The merger agreement contained no fiduciary-out clause and required NCS to submit the Genesis merger to a stockholder vote even if the board later withdrew its recommendation.
- NCS’s chairman and CEO entered irrevocable voting agreements committing their shares—together constituting a majority of NCS’s voting power—to vote in favor of the Genesis merger.
- After signing, Omnicare made a materially higher proposal; the NCS board determined it was superior and withdrew its recommendation for the Genesis merger.
- Despite the changed recommendation, the combination of the mandatory vote requirement and the locked-up majority vote ensured stockholder approval of the Genesis deal.

## Issues

1. Whether the merger agreement and related voting agreements, when combined, were invalid because they operated as coercive and preclusive defensive measures under enhanced scrutiny.
2. Whether the directors breached fiduciary duties by entering a merger structure lacking a fiduciary out and effectively disabling the board from responding to a superior proposal before the stockholder vote.

## Decision

- The Delaware Supreme Court reversed the Court of Chancery.
- The Court held that the combined deal protections (no fiduciary out, mandatory submission to a vote, and irrevocable majority voting commitments) made approval of the Genesis merger a foregone conclusion and rendered the stockholder vote a mere formality.
- The Court concluded the arrangement was both coercive and preclusive because it foreclosed any realistic possibility that a superior competing transaction could succeed and deprived stockholders of meaningful choice.
- The Court determined the challenged provisions were invalid and unenforceable because they impermissibly constrained the board’s ability to satisfy continuing fiduciary obligations up to the time of the stockholder vote.

## Legal Principles

- Directors have continuing fiduciary obligations through the stockholder vote and must be able to respond to materially changed circumstances, including the emergence of a superior proposal.
- Deal-protection measures in a change-of-control setting are reviewed under enhanced scrutiny and may not be coercive or preclusive in effect.
- A merger structure that, in combination, guarantees approval and eliminates meaningful stockholder choice is disproportionate and cannot be justified as a reasonable response to threats.
- Directors may not contractually disable themselves from exercising fiduciary judgment; contractual certainty is limited by fiduciary duties, especially where later events require the board to act for stockholders’ benefit.

## Conclusion

The court invalidated a merger package that guaranteed stockholder approval through a locked-up majority vote and the absence of a fiduciary out, holding that such arrangements are coercive and preclusive under enhanced scrutiny and inconsistent with directors’ continuing fiduciary duties.


Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003)