Omnicare: Coercion and the New Unocal Standard

Abstract

When Omnicare, Inc. v. NCS Healthcare, Inc. was decided ten years ago, it was widely derided as one of the worst corporate law opinions since Smith v. Van Gorkom. In fact, Chief Justice Myron Steele of the Delaware Supreme Court remarked at a conference not long after that the opinion would likely have the life span of a "fruit fly." I subsequently offered up a modest, and perhaps lonely, defense of the Omnicare decision published in the pages of this Journal. In that defense, I argued that when sellers grant buyers deal certainty there should be no expectation that such an act provides sellers any value, notwithstanding nominal payments buyers might make in exchange for that incremental certainty. In fact, deal certainty should be expected to lead to low-ball offers. I argued that Omnicare, for all its faults, was helpful because it placed fiduciary limits on sellers in situations in which sellers are not able to credibly resist buyer demands for additional transactional certainty. These fiduciary limits, by pre-committing sellers to a process that ensures a minimal degree of competition, or at least the threat of it, force buyers to reveal private information about their valuations of the sellers. Buyers, for their part, need not be denied deal certainty by Omnicare's controversial rule. They can still get the transactional certainty they wish, but they have to pay for it.