In Teamsters Local v. Martell, (Del. Ch.; 2/23), the Chancery Court dismissed breach of fiduciary duty claims against the former CEO of Core Logic. Those allegations were premised on claims that, in order to preserve his job post-closing, the CEO steered the board toward an all-cash transaction with a financial buyer over a competing all-stock proposal from a strategic buyer with a higher implied valuation. Vice Chancellor Cook rejected those claims and held that the board’s decision to enter into the transaction was entitled to business judgment review under Corwin.
A recent Fried Frank memo reviews the Vice Chancellor’s decision and offers up the following key takeaways:
– The court dismissed claims that an officer steered an independent board to favor a financial buyer’s bid over a strategic buyer’s bid based solely on speculation that the officer had an implicit entrenchment motive. The court held that the plaintiff had alleged no particularized facts from which it could be inferred that CoreLogic’s CEO had an entrenchment motive; that he had in fact steered the board away from a deal with CoStar; nor, in any event, that he had influenced the independent and unconflicted board.
The claims were not sustainable based solely on “speculation and innuendo” arising from the CoStar CEO’s public comments about the sale process, particularly as the plaintiff had conducted a Section 220 investigation of the corporate books and records and had cited nothing in these documents to substantiate the claims.
– The court’s opinion reinforces that a board’s concerns about antitrust-related delay and value uncertainty can justify a determination to select a financial buyer’s cash bid over a nominally higher strategic buyer’s stock bid. The court rejected the plaintiff’s contention that, given that there were no “meaningful” antitrust issues associated with CoStar’s deal, the Board’s purported antitrust concerns about the bid must have been a pretext.
The court noted that a deal with no meaningful antitrust issues is different from a deal with no antitrust issues. The court also found no basis on which to reasonably infer that the Board did not actually have a concern about value certainty of CoStar’s stock deal, particularly given that CoStar’s stock, although high, had been steadily declining.
Another interesting aspect of this case is the Vice Chancellor’s accommodating approach to the idea of disclosure through incorporation by reference — which is something that Delaware courts can be persnickety about. Specifically, in this excerpt from his opinion, VC Cook rejected claims that information incorporated by reference into the target’s proxy statement from its 10-K was inadequately disclosed:
Nor is it “a per se disclosure violation to disclose information in public filings incorporated in the proxy instead of the proxy itself.” Where, as here, a document referenced in a proxy statement is “explicitly incorporated” and not “buried” such that “a reasonable stockholder reading the [proxy statement] could find it without difficulty,” it is considered “to be a part of the total mix of information available to stockholders.”
– John Jenkins, DealLawyers.com, March 3, 2023