818 A.2d 914 (Del. 2003)
Omnicare v. NCS Healthcare is a cornerstone Delaware Supreme Court decision on deal protection devices and the non-waivability of fiduciary duties in mergers and acquisitions.
Whether the combination of a force-the-vote provision, a no-shop that lacked a termination fiduciary out, and voting agreements locking up a majority of the vote was an impermissible defensive measure under Unocal because it was coercive or preclusive and improperly constrained the directors' continuing fiduciary duties.
Under Unocal's enhanced scrutiny, when directors adopt defensive measures in response to a perceived threat, they must show (1) reasonable grounds for believing a threat to corporate policy and effectiveness existed, and (2) that the defensive response was neither coercive nor preclusive and was reasonable in relation to the threat. Directors cannot contractually disable themselves from exercising their continuing fiduciary duties; deal-protection measures that effectively render stockholder approval a foregone conclusion or prevent the board from responding to superior proposals fall outside a range of reasonableness and are invalid. See Unocal Corp. v. Mesa Petroleum Co.; Unitrin, Inc. v. American Gen. Corp.; Paramount Commc'ns v. QVC Network.
The Delaware Supreme Court reversed and enjoined enforcement of the deal protections. The combination of the force-the-vote provision, the no-shop without a termination fiduciary out, and the voting agreements that locked up a majority of the voting power made approval of the Genesis merger a fait accompli. Those measures were both preclusive and coercive, and therefore unreasonable under Unocal.
Omnicare is a leading authority that directors cannot deploy deal protections to predetermine outcomes. It effectively requires, in practice, a termination fiduciary out in public company mergers, and it cautions against majority lock-ups through voting agreements when combined with a force-the-vote. The decision sharpened the application of Unocal and Unitrin to deal protections, defining preclusive and coercive effects in concrete M&A settings. For law students, it illustrates the tension between contractual certainty and fiduciary flexibility, and it remains a drafting roadmap: include fiduciary outs, calibrate termination fees, avoid vote outcomes that become a fait accompli, and ensure boards retain meaningful latitude to respond to superior proposals.