In a recent post-trial decision,
Facts of the Case
The chancellor's decision contains a detailed recitation of the facts she found. As set forth in the opinion, by summer 2018
After the conference, Stollmeyer effectively "greased the wheels" for Vista. According to the court, Stollmeyer "did not adequately involve the Board or erect, much less adhere to, speed bumps to ensure a value-maximizing process."2 Stollmeyer did not inform the board about Vista's intentions until a week after Vista's initial expression of interest. The board remained unaware of the full extent of Stollmeyer's previous meetings with Vista. Even though a transaction committee instituted guidelines to cabin management communication with bidders, Stollmeyer tipped off Vista that a formal sales process was beginning. A banker friend of Stollmeyer's who had originally introduced Stollmeyer to Vista told Vista Stollmeyer's target price.
The court held that Vista had the inside track throughout the brief bidding process. After Vista submitted a firm offer, the board asked other bidders to respond promptly with their best offers. However, because other bidders were still in the early stages of their work and due diligence, they were not in a position to respond quickly enough. The board countered Vista's original offer, and Vista raised its offer to
Plaintiffs also contended that Stollmeyer breached his duty of disclosure to stockholders by not fully disclosing these pre-acquisition interactions with Vista. Additionally, plaintiffs claimed that Vista aided and abetted Stollmeyer's disclosure violations. Stollmeyer had read the definitive proxy and supplemental disclosures before they were filed and he signed the proxy materials as CEO. The disclosures presented a narrative where Stollmeyer casually met with Vista and omitted certain facts that would have depicted Stollmeyer as favoring Vista. For its part, Vista had failed to correct the proxy and supplemental disclosures. According to the merger agreement,
Applicable Standards of Review and the Court's Findings
Two
Here, the court concluded that the facts prohibited a finding that Stollmeyer had satisfied this enhanced duty under Revlon. He was a "conflicted fiduciary who [was] insufficiently checked by the board" and looked out for "his own personal interests in ways inconsistent with maximizing stockholder value."8 Having proven Stollmeyer's conflicts, plaintiffs had, according to the court, called "into question the reasonableness of the decision-making process employed and the reasonableness of the directors' action in light of the circumstances then existing."9 Further, "because the Board did not know about and could not disclose information about [Stollmeyer's] machinations," the defendants could not show that the stockholder vote was fully informed.10 Thus, they had failed to present a sufficient Corwin cleansing defense.
Additionally, plaintiffs showed that Vista had aided and abetted the disclosure breach against Vista. The key to that claim was proving "knowing participation" in the breach by Vista, which the court admitted was among the more difficult claims to prove.11
Result and Key Takeaways
Having held both Stollmeyer liable for sale-process breaches and Stollmeyer and Vista jointly and severally liable for the disclosure breaches,
While fact-specific, the case is a reminder of the board's need to oversee a careful and diligent process that demonstrates the full board's good faith. In a public company merger, the target's proxy statement will generally include a detailed description of any of the relevant contacts between the bidder and the target or its representatives. The bidder itself is, by definition, aware of these communications and should take care that the proxy accurately describes such relevant contacts and that events that may seem less important in isolation are disclosed where their omission may render other statements misleading.
To the extent that management has conflicts, those conflicts should be openly identified and appropriately dealt with. Here too, it may behoove a bidder to make sure that "offline" communications are avoided and that the target's representatives are aware of any direct contacts with management. In this case, as in others, some of the more unfavorable evidence consisted of informal text or similar communications that undercut the proxy narrative. Given that a bidder may inherit the target's liabilities if it succeeds in the acquisition, and can itself have aiding and abetting liability, the bidder has a plain interest in ensuring that the target board's process is reasonable and diligent.
Footnotes
1 In re
2 Id. at *1.
3 506 A.2d 173 (Del. 1986).
4 Id. at 182.
5 In re
6 125 A.3d 304 (Del. 2015).
7 Id. at 305-06.
8 In re
9 Id.
10 Id. at *39.
11 Id. at *43.
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