The Costs and Benefits of Precommitment: An Appraisal of Omnicare v. NCS Healthcare

The Decision of the Delaware Supreme Court in Omnicare v. NCS Healthcare raises concerns regarding the efficiency of Delaware law from the perspective of shareholder welfare maximization and engages the emerging literature on corporate precommitments. The clash between the majority and dissenting opinions offers competing visions of the basic corporate law separation of powers issue--that is, board versus shareholder primacy. This Article engages in a close analysis of the Omnicare opinion, focusing on its doctrinal foundations as well as its policy implications. After this introduction, Part II provides a brief overview of the relevant factual and legal background. Part III examines the majority\u27s use of existing doctrine and argues that existing law did not compel the majority\u27s conclusion, but rather that the majority stretched the law to announce its hostility to strong deal protection provisions. However, as addressed in Part IV, there are a number of situations, including the facts of NCS itself, in which shareholder welfare may be improved by mechanisms that enable boards to commit to a transaction with certainty. As a result, shareholder welfare will be harmed by a rule that would preclude directors from employing commitment strategies. This Article therefore proposes, in Part V, an alternative to the majority\u27s bright-line rule, drawing upon economic theory as well as the facts and circumstances surrounding the transaction to propose a rule that would support the ability of target boards, under certain circumstances, to adopt an affirmative precommitment strategy