## Facts

- SWT Acquisition Corp. (SWT) acquired approximately 19% of TW Services, Inc.’s (TW) outstanding shares.
- SWT then issued a hostile tender offer to buy TW’s remaining shares.
- Completion of SWT’s acquisition plan contemplated a second-step merger and required TW’s board of directors to approve an agreement to merge TW into SWT.
- Although SWT’s offer was financially attractive in the short term for TW stockholders, TW’s board had concerns based on SWT’s background and SWT’s recent dealings with TW.
- TW’s board viewed SWT’s tender offer as a bad-faith attempt either (i) to increase the value of SWT’s existing 19% position at TW’s expense, or (ii) to pressure TW into paying “greenmail” to buy out SWT at a premium.
- The board concluded that either outcome threatened TW’s long-term financial stability and corporate strategy.
- TW adopted a shareholder rights plan (poison pill) that would make it materially more difficult and expensive for SWT to acquire control without board approval.
- SWT demanded that TW redeem the pill so SWT’s tender offer could proceed; TW refused.
- SWT sought a preliminary injunction in the Delaware Court of Chancery compelling TW to redeem the poison pill.

## Issues

1. Whether SWT was entitled to a preliminary injunction requiring TW’s board to redeem the poison pill in response to SWT’s tender offer.
2. Whether, consistent with directors’ fiduciary duties, TW’s board could refuse to facilitate SWT’s bid when the board, acting in good faith and on an informed basis, concluded the bid posed a threat to TW’s long-term stockholder value (including a risk of greenmail).

## Decision

- The Court of Chancery denied SWT’s motion for a preliminary injunction.
- The court concluded SWT failed to show a sufficient likelihood of success on the merits that TW’s directors breached fiduciary duties by maintaining the poison pill and refusing to approve a merger agreement needed to complete SWT’s acquisition plan.
- The court credited the board’s good-faith view—formed in light of SWT’s conduct and relationships with TW—that SWT’s tender offer presented a threat to TW and its stockholders beyond the immediate premium offered.
- Because a mandatory injunction ordering redemption would substantially alter the status quo and effectively decide the control contest at an early stage, the court declined to grant that relief on a preliminary record.

## Legal Principles

- Directors’ duty of loyalty requires that they manage the corporation “within the law, with due care and in a way intended to maximize the long run interests of shareholders.”
- A board is not required to accept a bid solely because it offers a short-term premium; directors may consider long-run value and the bidder’s tactics and intentions when deciding how to respond.
- Where directors act in good faith and without disabling self-interest, courts generally defer to board decisions about whether to pursue a stand-alone course rather than a sale, and a bidder faces a heavy burden to obtain an order forcing board action.
- Preliminary injunctive relief, particularly relief compelling affirmative action such as redeeming a pill, requires a strong showing on the merits and is typically denied when it would resolve the dispute before a full adjudication.

## Conclusion

The Delaware Court of Chancery refused to order TW to redeem its poison pill, holding that SWT had not shown a basis for mandatory preliminary relief where TW’s board, acting with due care, within the law, and in good faith, determined that SWT’s bid and tactics threatened TW’s long-run stockholder interests, including the risk of greenmail.


TW Services v. SWT Acquisition Corp., Fed. Sec. L. Rep. (CCH) ¶ 94334 (1989)