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E-MailThis post is from Robert S. Saunders of Skadden, Arps, Slate, Meagher & Flom LLP. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.
With his November 30 opinion in Globis Partners v. Plumtree Software, Vice Chancellor Parsons weighs in on the evolving standards for merger-related disclosure of projections, as well as investment bankers’ work and compensation. The opinion also importantly confirms that, even where a complaint invokes Revlon‘s reasonableness standard by challenging the directors’ approval of a cash-out merger, it can still be dismissed at the pleading stage if it fails to allege facts sufficient to rebut the presumptions of the business-judgment rule.
The plaintiff brought a putative class action on behalf of the former stockholders of Plumtree Software, alleging that its former directors had breached their fiduciary duties by agreeing to sell Plumtree to BAE Systems for $5.50 per share in cash. The complaint alleged that the that the directors had “unloaded” Plumtree “at a cheap price” to avoid personal liability for Plumtree’s admitted failure to comply with the terms of a government contract. The plaintiff also alleged that the directors had omitted myriad material facts from the merger proxy, mostly relating to the work of Plumtree’s investment bankers.
Vice Chancellor Parsons rejected these disclosure claims, concluding that:
(1) Plumtree’s disclosure that its investment bank’s fees were “customary” and partially contingent on a deal was sufficient–and that quantification of those fees was not necessary;
(2) Although Chancery has held in recent cases that reliable projections of the company’s future performance should be disclosed (in Netsmart), and that unreliable projections need not be (in Checkfree), Plumtree’s omission of any projections was not actionable because the plaintiff had not alleged that Plumtree in fact had reliable projections to disclose (indeed, Plumtree’s investment banker had not performed a discounted cash flow analysis in connection with its fairness opinion, and the proxy stated that Plumtree was unable to develop reliable long-term forecasts); and
(3) Plumtree had not been required to disclose the identities of third parties it had contacted as potential merger partners.
The Vice Chancellor also dismissed the plaintiff’s Revlon claim, concluding that although under Revlon directors have a duty to seek the highest price reasonably available, Revlon plaintiffs must plead facts rebutting the presumptions of the business judgment rule. Vice Chancellor Parsons explained that the plaintiff’s allegations did not rebut the directors’ presumption of disinterest, holding that the facts in the complaint did not suggest a substantial likelihood that the directors would be personally liable for the company’s contract problem.
The opinion thus confirms that the mere invocation of Revlon, without more, will not be sufficient for a plaintiff to survive a motion to dismiss. As the Delaware Supreme Court held in Malpiede v. Townson, “[a]lthough the Revlon doctrine imposes enhanced judicial scrutiny of certain transactions involving a sale of control, it does not eliminate the requirement that plaintiffs plead sufficient facts to support the underlying claims for a breach of fiduciary duty in conducting the sale.”
Vice Chancellor Parsons’s Globis opinion is available here.
