Dow Chemical entered into a multibillion-dollar acquisition agreement with Rohm & Haas that required Dow to pay for certain Rohm & Haas assets on an agreed-upon closing date. Due to unforeseen circumstances, Dow was unable to generate the money needed to close the Rohm & Haas deal when the appointed time arrived. The original agreement included a “ticking fee” to accrue daily if the deal was not closed on time. Eventually, the parties reached a settlement in which the acquisition was completed in accordance with its initial terms, but the entire transaction ended up costing Dow significantly more than originally planned. A group of Dow’s shareholders filed suit against the directors for breach of fiduciary duty in approving and carrying out the transaction. The directors countered that that the transaction was the product of the board’s good faith and informed business judgment.

CASE QUESTIONS

1. Who prevails and why?

2. Are the directors seeking protection by the law for their own negligence? Explain.