Merger Agreement – Page 3 – Delaware Docket

Chancery Court Denies Motion to Expedite on Speculative Disclosure Claims

Jan 14 2015

On January 12, 2015, Vice Chancellor Glasscock issued an opinion in Parsons v. Digital River, Inc., et al., 2015 WL 139760 (Del. Ch. 2015) on a Motion to Expedite brought by Amy Parsons on behalf of similarly situated public stockholders (“Plaintiff”) as to disclosure claims concerning an imminent merger. The ruling on the disclosure claims was deferred after the Vice Chancellor denied Plaintiff’s Motion on December 31, 2014 as it related to Revlon claims raised, in order to allow Plaintiff to submit a supplemental brief clarifying why such claims would be material to stockholders.

The Motion was brought by Plaintiff against the Board of Directors of Digital River, Inc. (the “Company”) for breaches of fiduciary duties arising in connection with the Agreement and Plan of Merger entered into with Siris Capital Group, LLC, dated October 23, 2014 (the “Merger Agreement”). On November 18, 2014, Plaintiff initiated a class action to enjoin the proposed merger on the grounds that the Company was undervalued and that the Board of Directors failed to provide the stockholders with material information regarding the deal process.

Of the numerous disclosure claims raised by Plaintiff in the Motion to Expedite, Vice Chancellor Glasscock focused primarily on the claim regarding management retention, both because it was the most significant and it had not been rendered moot by the Company’s subsequent filing of a definitive proxy statement. Vice Chancellor Glasscock concluded that Plaintiff sought expedited discovery on the grounds that the disclosures were “simply not credible” without providing a factual basis for such assertion.

Because the disclosure claim was speculative, Vice Chancellor Glasscock found that the chance of receiving injunctive relief to be low and that the value of potential disclosure did not outweigh the cost of expedition. The Plaintiff’s Motion to Expedite was denied.

Parsons v. Digital River, Inc., et al., 2015 WL 139760 (Del. Ch. 2015) (Glasscock, V.C.)

Cigna Health and Life Insurance Co. v. Audax Health Solutions, Inc., et al., C.A. No. 9405-VCP (November 26, 2014) (Parsons, V.C.)

Dec 02 2014

By Lisa Stark

In Cigna Health and Life Insurance Co. v. Audax Health Solutions, Inc., the Delaware Court of Chancery held unenforceable provisions in a merger agreement and letter of transmittal requiring, as a condition to receiving the merger consideration, the target’s stockholders to: (1) indemnify the acquirer, up to their pro rata share of the merger consideration, for the target’s breaches of its representations and warranties, and (2) release the acquirer and its affiliates from any and all claims relating to the merger.

In this case, plaintiff, Cigna Health and Life Insurance Co. (“Cigna”), a former stockholder of defendant Audax Health Solutions, Inc. (“Audax”), sought some $46 million in merger consideration arising from the acquisition of Audax by Optum Services, Inc. Defendants refused to pay Cigna the merger consideration for failure to sign a letter of transmittal (or LoT). The LoT provided that the undersigned stockholder agreed to be bound by the indemnification provisions in the merger agreement and released the acquirer for any and all claims relating to the merger. Some of the target’s representations and warranties, which were the subject of the indemnification obligations, survived indefinitely. Cigna argued that the indemnification obligations and the LoT violated the Delaware General Corporation Law (the “DGCL”) for several reasons, including that they rendered the amount of merger consideration indefinite in violation of Section 251 of the DGCL and rendered the stockholders liable for the target corporation’s debts in violation of Section 102(b)(6) of the DGCL. Cigna argued that the release contained in the LoT was unenforceable for lack of consideration. Finally, Cigna argued that the stockholder representative appointment provisions in the merger agreement were unenforceable. In this decision, the Court addressed Cigna’s motion for judgment on the pleadings.

The Court found Cigna’s claims relating to the stockholder representative appointment provisions not properly presented, but agreed with Cigna that the indemnification and release obligations were unenforceable. Specifically, the Court held that the indemnification provisions violated Section 251 of the DGCL by putting at risk all of the merger consideration for an indefinite period of time and rendering the amount of merger consideration to be received by the stockholders undeterminable. As to the release, the Court held it unenforceable for lack of consideration–the right to receive the merger consideration vested at the effective time of the merger and the stockholders could not be required to release claims absent additional consideration. The Court expressly limited its holding to cases where a stockholder was required to indemnify a party as a condition to receiving the merger consideration and all of such stockholder’s merger consideration was subject to clawback. The Court also expressly stated that it was not addressing the validity of escrow holdbacks as a purchase price adjustment even though its reasoning could be applied to invalidate such arrangements. Finally, the Court stated that its opinion did not prohibit corporations from entering into separate agreements with stockholders to indemnify the acquirer prior to the time that the stockholders’ right to receive the merger consideration vested, but that “a post-closing price adjustment cannot be foisted on non-consenting stockholders.”

CignavAudax

Cooper Tire & Rubber Co. v. Apollo (Mauritius) Holdings Pvt. Ltd., et al., C.A. No. 8980-VCG (October 31, 2014) (Glasscock, V.C.)

Nov 05 2014

By David Bernstein and Marisa DiLemme

This decision involves a merger agreement (the “Agreement”) between Apollo (Mauritius) Holdings Pvt. Ltd. and Cooper Tire & Rubber Company (“Cooper”), a principal purpose of which was for Apollo to acquire Cooper’s 65% interest in Chengshan Cooper Tires (“CCT”), a Chinese tire manufacturer. After the merger was announced, the minority owner of CCT apparently caused CCT’s union workers to go on strike by telling them that if they did not protest, they would be fired. The minority partner also prevented Cooper from getting access to CCT’s financial records, which made it impossible for Cooper to prepare and deliver financial statements for the third quarter of 2013 as required by the Agreement. Apollo refused to consummate the merger and sought a judicial declaration that its refusal was not a breach of the Agreement because Cooper had not satisfied several conditions to closing.

Vice Chancellor Glasscock agreed that Apollo was not required to carry out the merger because Cooper had not satisfied some of the conditions to closing. Among other things, he found that the strike at CCT violated a Cooper covenant to cause each of its subsidiaries to “conduct its business in the ordinary course of business consistent with past practice.” Cooper argued that an exception to the definition of “Material Adverse Effect” for a negative reaction to the Agreement by Cooper’s labor unions or joint venture partners also applied to the covenant to cause all subsidiaries to conduct their businesses in the ordinary course, but Vice Chancellor Glasscock rejected this argument, pointing out that even within the definition of Material Adverse Effect, there were some things (events that would prevent Cooper from fulfilling its obligations under the Agreement or from consummating the merger) that were not subject to the exception.

Another argument that Cooper made is that by attempting to negotiate terms on which the minority owner of CCT would withdraw its opposition to the transaction, Apollo acquiesced in proceeding with the merger despite what the minority owner was doing. Vice Chancellor Glasscock rejected this argument, saying that Apollo was negotiating with the minority owner in an effort to make it possible for the merger to proceed.

CoopervApollo

In re TPC Group Inc. Shareholders Litigation, Consolidated C.A. No. 7865-VCN (October 29, 2014) (Noble, V.C.)

Nov 03 2014

By Jamie Bruce and Lauren Garraux

The issue before the Court in In re TPC Group Inc. Shareholders Litigation was whether plaintiffs, shareholders of TPC Group Inc. (“TPC”) (“Plaintiffs”), were entitled to attorneys’ fees due to an increase in the merger price obtained between their commencement of shareholder litigation challenging the merger and the acquisition’s closing under an amended merger agreement. Shortly after TPC announced its acquisition by First Reserve Corporation, SK Capital Partners and their affiliates (collective, the “PE Group”), Plaintiffs filed complaints in Delaware Chancery Court challenging the intended merger on a number of grounds, including inadequate price. Ultimately, Plaintiffs’ claims were mooted by subsequent bidding and a supplemental proxy statement, which resulted in, inter alia, an increase of $5 per share ($79 million aggregate), an increase which TPC, its board and PE Group (collectively, “Defendants”) attributed to a competing proposal.

According to the Court, the critical issue with respect to Plaintiffs’ request was causation, i.e., whether Plaintiffs’ legal challenge was the cause of the price increase. Under Delaware law, it is presumed that plaintiffs are a cause; therefore, the burden is on the defendant to prove, by the preponderance of the evidence, that no causal connection (whether direct or indirect) existed between the price increase and plaintiffs’ litigation efforts. PE Group submitted affidavits citing concern over a competing proposal, negative publicity, public opposition by a significant shareholder, and the potential for an unfavorable evaluation by Institutional Shareholder Services when deciding whether PE Group should raise its bid. While acknowledging that these affidavits were self-serving, the Court indicated that Defendants’ account was the most credible and was consistent with the record, and the Court concluded that Defendants had met their burden in this regard and, therefore, denied Plaintiffs’ request for attorneys’ fees relating to an increase in the merger price.

InReTPC

Catagory:Merger Agreement