## Facts

- Liggett Group, Inc., a Delaware corporation, had outstanding 7% cumulative preferred stock with a $100 per-share liquidation preference stated in its certificate of incorporation.
- Grand Metropolitan Limited sought to acquire Liggett through (1) a cash tender offer followed by (2) a reverse cash-out merger eliminating remaining minority interests.
- In both the tender offer and the subsequent merger, holders of the 7% preferred stock received $70 per share in cash.
- A preferred shareholder filed a putative class action alleging (i) breach of contract based on the charter’s liquidation preference and (ii) breach of fiduciary duty for failing to pay $100 per share.
- The Court of Chancery granted summary judgment for defendants; the plaintiff appealed.

## Issues

1. Whether the combined tender offer and reverse cash-out merger constituted a “liquidation” (or similar event) under the certificate of incorporation, triggering the $100 per-share liquidation preference for the 7% preferred stock.
2. Whether defendants breached fiduciary duties to the preferred shareholders by completing the transaction at $70 per share without paying the liquidation preference.

## Decision

- The Delaware Supreme Court affirmed summary judgment for defendants.
- The court held the transaction was not a “liquidation” within the meaning of the certificate of incorporation and did not trigger the $100 liquidation preference.
- The court held there was no fiduciary-duty breach because the preferred shareholders’ relevant rights were defined by the charter and fiduciary law did not expand those rights on these facts.

## Legal Principles

- Preferred stock rights and preferences are primarily contractual and are determined by the certificate of incorporation.
- A liquidation-preference provision triggered by “liquidation” or dissolution is construed as written and does not apply to mergers, tender offers, or changes of control unless the charter expressly provides.
- Fiduciary-duty doctrine generally cannot be used to obtain economic protections not granted by the preferred stock contract, absent additional wrongful conduct (e.g., fraud, self-dealing, or bad faith).

## Conclusion

The court enforced the preferred stock’s charter terms as written, ruling that a tender offer followed by a cash-out merger is not a liquidation triggering liquidation preferences and that fiduciary-duty claims could not be used to impose a liquidation payout where the charter did not provide for it.


Rothschild Int’l Corp. v. Liggett Grp., Inc., 474 A.2d 133 (Del. 1984)