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Doing Deals 2017:The Art of M&A

Transactional Practice

CORPORATE LAW AND PRACTICECourse Handbook Series

Number B-2306

ChairIgor Kirman


5

Investment Banker Issues & Considerations (PowerPoint slides)

Kevin Miller

Alston & Bird LLP

Copyright 2017©

If you find this article helpful, you can learn more about the subject by going to www.pli.edu to view the on demand program or segment for which it was written.

291


292


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Doi

ng D

eals

201

7:Th

e A

rt o

f M&

A T

rans

actio

nal P

ract

ice

Wed

nesd

ay, M

arch

8, 2

017

Kev

in M

iller

Als

ton

& B

ird L

LPN

ew Y

ork,

NY

293


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Iden

tifyi

ng a

nd A

ddre

ssin

g M

ater

ial I

nves

tmen

t Ban

ker R

elat

ions

hips

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

Foot

ball

Fiel

d?

Aid

ing

and

Abe

tting

Cla

ims

–Im

plic

atio

ns o

f Tru

lia a

nd A

ttenb

orou

gh (a

ka

Zale

)

2

294


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Iden

tifyi

ng a

nd A

ddre

ssin

g M

ater

ial I

nves

tmen

t Ban

ker

Rel

atio

nshi

ps

295


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps

The

Focu

s on

Dis

clos

ure

Dis

clos

ure

of m

ater

ial r

elat

ions

hips

and

act

ual a

nd p

oten

tial c

onfli

cts

of in

tere

st h

as re

ceiv

ed

incr

ease

d at

tent

ion

give

n th

e nu

mbe

r of b

reac

h of

fidu

ciar

y du

ty c

laim

s an

d ai

ding

and

abe

tting

br

each

of f

iduc

iary

dut

y cl

aim

s ba

sed

in w

hole

or i

n pa

rt on

alle

ged

inad

equa

te d

iscl

osur

e of

m

ater

ial r

elat

ions

hips

and

con

flict

s to

the

boar

d.

Boa

rds

need

to c

onsi

der t

he im

plic

atio

ns o

f mat

eria

l rel

atio

nshi

ps b

etw

een

pros

pect

ive

finan

cial

ad

viso

rs a

nd p

oten

tial c

ount

erpa

rties

and

oth

er in

tere

sted

par

ties

(whi

ch m

ay in

clud

e m

anag

emen

t):

“But

wha

t is

criti

cal i

s th

at b

anks

hav

e a

sens

ible

and

def

ensi

ble

disc

losu

re p

olic

y th

at tr

acks

an

d he

lps

surfa

ce p

oten

tial m

ater

ial c

onfli

cts

.… It

is a

lso

vita

l tha

t the

re n

ot b

e a

parti

al

appr

oach

to c

onfli

ct d

iscl

osur

e, w

hich

leav

es o

pen

the

poss

ibilit

y fo

r “oh

by

the

way

” mom

ents

th

at w

ere

fore

seea

ble.

Dis

clos

ure

is c

omfo

rting

to c

lient

s an

d th

e co

urts

, as

it su

gges

ts a

fo

rthrig

ht a

ttem

pt to

gra

pple

with

sel

f-int

eres

t in

prin

cipl

ed, e

thic

al w

ay. .

. . I

f con

flict

s w

ere

surfa

ced,

con

tain

ed, a

nd a

ddre

ssed

, and

a s

trong

han

d w

as g

iven

to th

e im

parti

al m

embe

rs o

f th

e bo

ard,

the

plai

ntiff

s’ a

bilit

y to

sug

gest

that

thos

e co

nflic

ts in

fect

ed th

e w

hy [c

erta

in

deci

sion

s w

ere

mad

e] is

impa

ired.

It w

ill th

eref

ore

be m

ore

diffi

cult

for t

he p

lain

tiffs

to g

et th

e de

al e

njoi

ned

or to

pre

ss a

dam

ages

cas

e.”

Strin

e, L

eo E

., “D

ocum

entin

g th

e D

eal:

How

Q

ualit

y C

ontro

l and

Can

dor C

an Im

prov

e B

oard

room

Dec

isio

n-M

akin

g an

d R

educ

e th

e Li

tigat

ion

Targ

et Z

one,

” Bus

ines

s La

wye

r, V

ol. 7

0 N

o. 3

(Sum

mer

201

5).

4

296


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

But

Chi

ef J

ustic

e St

rine

has

also

not

ed th

at:

“Ban

ks w

ith th

e le

ast n

umbe

r of p

oten

tial c

onfli

cts

(i.e.

, bou

tique

ban

ks) a

re n

ot

nece

ssar

ily th

e be

st a

dvis

ors

for a

targ

et c

ompa

ny...

" ht

tp://

ww

w.p

aulh

astin

gs.c

om/p

ublic

atio

ndet

ail.a

spx?

publ

icat

ionI

d=21

91.

“[T]h

ere

is a

diff

eren

ce b

etw

een

the

typi

cal c

onfli

cts

that

invo

lve

a ba

nk o

r law

yer

wor

king

sem

i-reg

ular

ly o

n en

gage

men

ts fo

r key

pla

yers

, suc

h as

priv

ate

equi

ty fi

rms,

an

d m

ore

unus

ual,

mor

e m

ater

ial c

onfli

cts.

” S

trine

, Leo

E.,

“Doc

umen

ting

the

Dea

l: H

ow Q

ualit

y C

ontro

l and

Can

dor C

an Im

prov

e B

oard

room

Dec

isio

n-M

akin

g an

d R

educ

e th

e Li

tigat

ion

Targ

et Z

one,

” Bus

ines

s La

wye

r, V

ol. 7

0 N

o. 3

(Sum

mer

201

5).

And

oth

ers

have

obs

erve

d th

at:

“The

Del

awar

e co

urts

are

und

oubt

edly

cog

niza

nt a

nd re

spec

tful o

f the

fact

that

the

mos

t effe

ctiv

e ad

viso

ry s

ervi

ces

are

ofte

n re

nder

ed b

y ba

nker

s w

ith re

latio

nshi

ps th

at

run

broa

dly

and

deep

ly in

the

rele

vant

indu

stry

. In

gene

ral,

the

cour

ts a

re n

ot s

eeki

ng

to d

icta

te th

e ch

oice

of a

dvis

er, b

ut ra

ther

are

pro

mot

ing

trans

pare

ncy

and

supe

rvis

ion.

” http

://bl

ogs.

law

.har

vard

.edu

/cor

pgov

/201

2/05

/31/

dela

war

e-de

cisi

ons-

data

-poi

nts-

not-d

octri

ne/.

5

297


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Exam

ples

of W

hat M

ay N

eed

to b

e D

iscl

osed

Mat

eria

l inv

estm

ent b

anki

ng re

latio

nshi

ps –

aggr

egat

e fe

es o

r rev

enue

s re

ceiv

ed

for p

rovi

ding

mat

eria

l inv

estm

ent b

anki

ng a

dvic

e an

d se

rvic

es (M

&A

adv

isor

y,

capi

tal m

arke

ts, f

inan

cing

) to

mos

t lik

ely

buye

rs d

urin

g pa

st tw

o ye

ars

Mat

eria

l fin

anci

al in

tere

sts

–i.e

., m

ater

ial a

mou

nts

of e

quity

, deb

t and

oth

er

secu

ritie

s an

d fin

anci

al in

stru

men

ts h

eld

by th

e fin

anci

al a

dvis

or a

nd s

enio

r dea

l te

am m

embe

rs in

the

mos

t lik

ely

buye

rs

Loan

s to

or p

artic

ipat

ions

in c

redi

t fac

ilitie

s of

mos

t lik

ely

buye

rs

Inte

rest

in s

eeki

ng o

ther

role

s in

tran

sact

ion,

suc

h as

fina

ncin

g po

tent

ial b

uyer

s

Rec

ent t

arge

ted

pitc

hes

to p

oten

tial b

uyer

s co

ncer

ning

a p

oten

tial t

rans

actio

n in

volv

ing

the

clie

nt (e

.g.,

Zale

)

Mat

eria

l rel

atio

nshi

ps b

etw

een

seni

or m

embe

rs o

f the

inve

stm

ent b

anki

ng te

am

(incl

udin

g as

a re

cent

em

ploy

ee a

t oth

er in

vest

men

t ban

ks) a

nd m

ost l

ikel

y bu

yers

6

298


Cop

yrig

ht 2

017©

Mec

hani

cs o

f Dis

clos

ure

Whe

n an

d ho

w to

dis

clos

e re

latio

nshi

ps/a

ctua

l and

pot

entia

l con

flict

s of

inte

rest

:

Out

set o

f eng

agem

ent (

e.g.

, sin

gle

bidd

er p

roce

ss)

Onc

e lim

ited

num

ber o

f lik

ely

buye

rs id

entif

ied

At o

utse

t if m

ost l

ikel

y bu

yers

bel

ieve

d to

be

know

n

Prio

r to

seco

nd ro

und

of b

ids

(e.g

., if

broa

d au

ctio

n)

How

to d

iscl

ose

to th

e bo

ard:

Ver

bally

Evi

dent

iary

con

cern

s if

reco

llect

ions

diff

er

Writ

ing

Cre

ates

con

tem

pora

neou

s w

ritte

n re

cord

Whe

re to

dis

clos

e:

Mem

o to

Boa

rd o

f Dire

ctor

s/B

oard

boo

k

Eng

agem

ent l

ette

rs

7

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

299


Cop

yrig

ht 2

017©

Boa

rd D

iscl

osur

e M

emor

anda

“Boa

rd D

iscl

osur

e M

emor

anda

” are

typi

cally

pro

vide

d at

a re

lativ

ely

early

sta

ge in

th

e sa

les

proc

ess,

so

that

the

boar

d ca

n m

ake

an in

form

ed d

ecis

ion

with

resp

ect t

o w

heth

er th

e fin

anci

al a

dvis

or w

ill be

abl

e to

pro

vide

the

boar

d w

ith th

e ob

ject

ive

finan

cial

and

stra

tegi

c ad

vice

that

the

boar

d ne

eds.

The

form

s of

Boa

rd D

iscl

osur

e M

emor

anda

typi

cally

focu

s on

the

rang

e of

ag

greg

ate

fees

rece

ived

dur

ing

the

past

two

year

s fo

r pro

vidi

ng in

vest

men

t ban

king

ad

vice

and

ser

vice

s (e

.g.,

M&

A a

dvis

ory,

cap

ital m

arke

ts a

nd fi

nanc

ing)

to th

e m

ost-l

ikel

y bu

yers

and

any

mat

eria

l fin

anci

al in

tere

sts

the

finan

cial

adv

isor

has

in

thos

e m

ost-l

ikel

y bu

yers

.

Boa

rd D

iscl

osur

e M

emor

anda

als

o ty

pica

lly d

iscl

ose

whe

ther

any

of t

he s

enio

r in

vest

men

t ban

king

pro

fess

iona

ls a

ssig

ned

by th

e fin

anci

al a

dvis

or to

per

form

the

sells

ide

advi

sory

eng

agem

ent h

ave

mat

eria

l rel

atio

nshi

ps w

ith o

r fin

anci

al in

tere

sts

in th

e m

ost-l

ikel

y bu

yers

.

To th

e ex

tent

fact

s an

d ci

rcum

stan

ces

war

rant

, the

form

s of

Boa

rd D

iscl

osur

e M

emor

anda

bei

ng u

sed

by fi

nanc

ial a

dvis

ors

can

be m

odifi

ed to

pro

vide

add

ition

al

info

rmat

ion

requ

este

d by

the

boar

d or

as

othe

rwis

e m

ay b

e ap

prop

riate

. 8

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

300


Cop

yrig

ht 2

017©

Enga

gem

ent L

ette

r Pro

visi

ons

As

an a

ltern

ativ

e to

the

Boa

rd D

iscl

osur

e M

emor

andu

m a

ppro

ach,

an

artic

le in

The

B

usin

ess

Law

yerr

ecom

men

ded

that

com

pani

es e

ngag

ing

finan

cial

adv

isor

s ob

tain

de

taile

d re

pres

enta

tions

, war

rant

ies,

cov

enan

ts a

nd re

med

y pr

ovis

ions

in fi

nanc

ial

advi

sor e

ngag

emen

t let

ters

with

resp

ect t

o th

e di

sclo

sure

of t

he fi

nanc

ial a

dvis

or’s

m

ater

ial r

elat

ions

hips

with

pot

entia

l buy

ers.

Klin

ger-

Wile

nsky

, Eric

S. a

nd E

mer

itz,

Nat

han

P.,

“Fin

anci

al A

dvis

or E

ngag

emen

t Let

ters

: Pos

t-Rur

al/M

etro

Tho

ught

s an

d O

bser

vatio

ns. B

usin

ess

Law

yer,”

Vol

. 71

No.

1 (W

inte

r 201

5/20

16).

9

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

301


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Req

uire

men

ts fo

r Effe

ctiv

e D

iscl

osur

e

Con

sist

ent w

ith th

e th

eme

of C

hief

Jus

tice

Stri

ne’s

artic

le, t

he p

rimar

y go

al o

f cou

nsel

an

d fin

anci

al a

dvis

ors

shou

ld b

e to

ass

ist b

oard

s in

mak

ing

info

rmed

bus

ines

s de

cisi

ons.

Effe

ctiv

e di

sclo

sure

for p

urpo

ses

of in

form

ed b

oard

dec

isio

n m

akin

g re

quire

s th

ree

thin

gs:

Con

tent

–th

e di

sclo

sure

of a

dequ

ate

info

rmat

ion

rega

rdin

g th

e fin

anci

al a

dvis

or’s

m

ater

ial r

elat

ions

hips

with

pro

spec

tive

buye

rs;

Tim

ing

–th

e di

sclo

sure

of i

nfor

mat

ion

at th

e be

ginn

ing

or a

t a re

lativ

ely

early

sta

te

in th

e sa

les

proc

ess;

and

Acc

ess

–bo

ard

acce

ss a

nd a

ttent

ion

to th

e di

sclo

sed

info

rmat

ion.

Thou

gh n

ot th

e pr

imar

y ob

ject

ive,

add

ition

al b

enef

its o

f effe

ctiv

e di

sclo

sure

that

as

sist

s bo

ards

in m

akin

g in

form

ed b

usin

ess

deci

sion

s in

clud

e th

e in

crea

sed

likel

ihoo

d th

at a

boa

rd’s

dec

isio

ns w

ill s

urvi

ve le

gal c

halle

nge

and

the

redu

ced

likel

ihoo

d th

at a

com

pany

’s b

oard

or i

ts fi

nanc

ial a

dvis

or w

ill b

e fo

und

liabl

e fo

r any

da

mag

es re

sulti

ng fr

om th

e bo

ard’

s bu

sine

ss d

ecis

ions

. 10

302


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Con

tent

Con

tent

–Th

e de

liver

y of

a B

oard

Dis

clos

ure

Mem

oran

dum

to a

clie

nt’s

or

pros

pect

ive

clie

nt’s

boa

rd a

t a re

lativ

ely

early

sta

ge in

the

sale

pro

cess

that

dis

clos

es

the

rang

e of

agg

rega

te fe

es re

ceiv

ed d

urin

g th

e pa

st tw

o ye

ars

(e.g

., le

ss th

an $

X

milli

on; b

etw

een

$X a

nd $

Y m

illion

; bet

wee

n $Y

milli

on a

nd $

Z m

illion

; mor

e th

an $

Z m

illion

) for

pro

vidi

ng in

vest

men

t ban

king

adv

ice

and

serv

ices

to th

e m

ost-l

ikel

y bu

yers

, as

wel

l as

any

mat

eria

l fin

anci

al in

tere

sts

the

finan

cial

adv

isor

has

in th

ose

mos

t-lik

ely

buye

rs, w

ill g

ener

ally

pro

vide

the

boar

d w

ith a

dequ

ate

info

rmat

ion

to

asse

ss th

e be

nefit

s an

d ris

ks a

ssoc

iate

d w

ith re

lyin

g on

the

finan

cial

adv

isor

’s a

dvic

e w

hen

mak

ing

key

deci

sion

s.

Atte

mpt

ing

to a

ddre

ss th

e ne

ed fo

r ade

quat

e di

sclo

sure

rega

rdin

g a

finan

cial

ad

viso

r’s m

ater

ial r

elat

ions

hips

with

pot

entia

l buy

ers

by m

eans

of c

ontra

ctua

l pr

ovis

ions

in a

n en

gage

men

t let

ter o

ften

resu

lts in

dem

ands

for d

etai

led

disc

losu

re

that

take

s a

long

tim

e to

neg

otia

te a

nd p

repa

re (a

nd, t

o th

e ex

tent

ver

ifiab

le,

adeq

uate

ly v

erify

) and

that

may

requ

ire th

e co

nsen

t of t

hird

par

ties

(e.g

., th

e fin

anci

al

advi

sor’s

oth

er c

lient

s) w

ho m

ay n

ot b

e w

illing

to p

rovi

de c

onse

nt in

a ti

mel

y m

anne

r, if

at a

ll.

11

303


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Tim

ing

Tim

ing

–P

ropo

nent

s of

Boa

rd D

iscl

osur

e M

emor

anda

bel

ieve

that

onc

e a

limite

d nu

mbe

r of t

he m

ost-l

ikel

y bu

yers

has

bee

n id

entif

ied,

info

rmat

ion

rega

rdin

g th

e fin

anci

al a

dvis

or’s

mat

eria

l rel

atio

nshi

ps w

ith th

e m

ost-l

ikel

y bu

yers

can

and

sho

uld

be p

rom

ptly

pro

vide

d to

a c

lient

’s o

r pro

spec

tive

clie

nt’s

boa

rd a

nd p

erio

dica

lly

upda

ted

as fa

cts

and

circ

umst

ance

s w

arra

nt –

e.g.

, to

refle

ct a

dditi

onal

like

ly b

uyer

s or

mat

eria

l cha

nges

in th

e pr

evio

usly

dis

clos

ed in

form

atio

n re

gard

ing

the

finan

cial

ad

viso

r’s m

ater

ial r

elat

ions

hips

with

the

mos

t-lik

ely

buye

rs.

Del

ayin

g th

e se

lect

ion

of a

fina

ncia

l adv

isor

and

/or b

oard

act

ion

upon

its

finan

cial

ad

viso

r’s a

dvic

e un

til th

e de

taile

d di

sclo

sure

pro

visi

ons

in a

n en

gage

men

t let

ter h

ave

been

fina

lized

and

the

resu

lting

dis

clos

ures

rega

rdin

g th

e fin

anci

al a

dvis

or’s

mat

eria

l re

latio

nshi

ps w

ith p

oten

tial b

uyer

s ha

ve b

een

revi

ewed

by

the

boar

d, ri

sks

dela

y th

at

coul

d ad

vers

ely

affe

ct th

e tim

ing

(and

pot

entia

lly e

ven

the

likel

ihoo

d) o

f a s

ucce

ssfu

l tra

nsac

tion.

12

304


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Acc

ess

Acc

ess

–P

rovi

ding

a B

oard

Dis

clos

ure

Mem

oran

dum

to th

e bo

ard

at a

rela

tivel

y ea

rly s

tage

in a

sal

es p

roce

ss a

lso

sign

ifica

ntly

incr

ease

s th

e lik

elih

ood

that

the

boar

d w

ill be

bet

ter p

ositi

oned

to m

ake

info

rmed

judg

men

ts re

gard

ing

the

sele

ctio

n of

a

finan

cial

adv

isor

and

/or t

he w

eigh

t to

be g

iven

to th

e fin

anci

al a

dvis

or’s

adv

ice,

the

need

for a

dditi

onal

info

rmat

ion

rega

rdin

g th

ose

rela

tions

hips

and

the

poss

ible

nee

d fo

r a s

econ

d ad

viso

r.

Giv

en th

at c

ontra

ctua

l pro

visi

ons

in a

n en

gage

men

t let

ter r

elat

ing

to th

e di

sclo

sure

of

a fin

anci

al a

dvis

or’s

mat

eria

l rel

atio

nshi

ps w

ith p

oten

tial b

uyer

s w

ould

form

onl

y a

part

of th

e br

oade

r con

tract

ual r

elat

ions

hip

esta

blis

hed

by a

fina

ncia

l adv

isor

’s

enga

gem

ent l

ette

r and

that

eng

agem

ent l

ette

rs a

re o

ften

nego

tiate

d co

ncur

rent

ly w

ith

the

perfo

rman

ce o

f an

enga

gem

ent,

the

boar

d m

ay n

ot h

ave

adeq

uate

tim

e to

ad

dres

s th

e re

sulti

ng d

iscl

osur

es re

gard

ing

a fin

anci

al a

dvis

or’s

mat

eria

l re

latio

nshi

ps w

ith p

oten

tial b

uyer

s if

the

cont

ract

ually

requ

ired

disc

losu

res

are

not

rece

ived

unt

il la

te in

the

sale

s pr

oces

s.

13

305


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

-Oth

er

Oth

er C

onsi

dera

tions

–In

add

ition

, if a

prim

ary

goal

of d

etai

led

cont

ract

ual p

rovi

sion

s in

an

enga

gem

ent l

ette

r rel

atin

g to

the

disc

losu

re o

f the

fina

ncia

l adv

isor

’s m

ater

ial

rela

tions

hips

with

pot

entia

l buy

ers

is to

allo

cate

risk

and

liab

ility,

it is

far f

rom

cle

ar

that

suc

h pr

ovis

ions

will

pro

vide

an

effe

ctiv

e re

med

y to

the

com

pany

reta

inin

g th

e fin

anci

al a

dvis

or o

r tha

t com

pany

’s s

tock

hold

ers.

Giv

en th

at, d

espi

te a

llege

d co

nflic

ts, v

irtua

lly a

ll ne

gotia

ted

mer

gers

stil

l clo

se, a

ny

cont

ract

ual c

laim

s fo

r bre

ach

of p

rovi

sion

s in

an

enga

gem

ent l

ette

r bro

ught

by

a ta

rget

com

pany

will

inur

e to

the

bene

fit o

f the

buy

er a

s th

e ne

w o

wne

r of t

he ta

rget

.

Eve

n if

the

targ

et b

ecom

es a

war

e of

suc

h cl

aim

s pr

ior t

o th

e ex

ecut

ion

of th

e m

erge

r agr

eem

ent,

atte

mpt

s by

the

targ

et to

neg

otia

te fo

r add

ition

al c

onsi

dera

tion

from

the

buye

r ref

lect

ing

the

valu

e of

suc

h cl

aim

s w

ill no

t lik

ely

succ

eed

sinc

e bu

yers

will

be

unlik

ely

to a

ttrib

ute

muc

h va

lue

to c

laim

s ag

ains

t the

targ

et’s

fina

ncia

l ad

viso

r tha

t alle

gedl

y re

sulte

d in

the

buye

r obt

aini

ng a

favo

rabl

e pu

rcha

se p

rice.

14

306


Cop

yrig

ht 2

017©

Dis

clos

ure

of M

ater

ial F

inan

cial

Adv

isor

Rel

atio

nshi

ps (c

ont’d

)

Boa

rd D

iscl

osur

e M

emor

andu

m v

. Eng

agem

ent L

ette

r Pro

visi

ons

In p

ract

ice,

it a

ppea

rs th

at, a

s a

resu

lt of

the

issu

es a

nd c

once

rns

disc

usse

d ab

ove,

th

e B

oard

Dis

clos

ure

Mem

oran

dum

has

bec

ome

the

pred

omin

ant m

arke

t app

roac

h fo

r add

ress

ing

the

need

for d

iscl

osur

e of

a fi

nanc

ial a

dvis

or’s

mat

eria

l rel

atio

nshi

ps

with

the

mos

t-lik

ely

buye

rs to

a c

lient

’s o

r pro

spec

tive

clie

nt’s

boa

rd.

15

307


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

Foot

ball

Fiel

d?

308


Cop

yrig

ht 2

017©

17

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

foot

ball

field

Purp

ose

of th

e Fo

otba

ll Fi

eld

Sum

mar

izes

the

finan

cial

ana

lysi

s pe

rform

ed in

con

nect

ion

with

pre

para

tion

of a

fa

irnes

s op

inio

n bu

t may

incl

ude

othe

r con

side

ratio

ns

Form

at ty

pica

lly tr

acks

the

trans

actio

n st

ruct

ure

dolla

r val

ues

in c

ash

or fi

xed

valu

e tra

nsac

tions

exch

ange

ratio

s in

sto

ck-fo

r-st

ock/

fixed

exc

hang

e ra

tio m

erge

rs

As

a su

mm

ary,

sho

uld

be re

view

ed a

nd c

onsi

dere

d in

the

cont

ext o

f the

mor

e de

taile

d un

derly

ing

anal

ysis

“All

anal

yses

are

not

cre

ated

equ

al”-

each

refle

cts

a di

ffere

nt fo

cus

and

pers

pect

ives

and

nee

ds to

be

cons

ider

ed in

the

cont

ext o

f the

spe

cific

fact

s an

d ci

rcum

stan

ces

pres

ente

d

Diff

eren

t ana

lyse

s ha

ve u

niqu

e ad

vant

ages

and

lim

itatio

ns, a

nd a

s su

ch, d

iffer

in

info

rmat

iona

l val

ue u

nder

the

fact

s an

d ci

rcum

stan

ces

pres

ente

d

309


Cop

yrig

ht 2

017©

18

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–W

hat’s

on

the

foot

ball

field

(con

t’d)

Mos

t Com

mon

Fin

anci

al A

naly

ses

Sel

ecte

d C

ompa

nies

Ana

lysi

s

Sel

ecte

d Tr

ansa

ctio

ns A

naly

sis

Dis

coun

ted

Cas

h Fl

ow A

naly

sis

Con

tribu

tion

Ana

lysi

s (S

tock

Con

side

ratio

n)

Oth

er P

oten

tial A

naly

ses

and

Con

side

ratio

ns (w

heth

er o

r not

on

the

foot

ball

field

)

His

toric

al S

tock

Tra

ding

Ana

lysi

s (i.

e., 5

2 w

eek

high

/low

)

Wal

l Stre

et R

esea

rch

Pric

e Ta

rget

s

Pre

miu

ms

Pai

d A

naly

sis

Leve

rage

d B

uyou

t (LB

O) A

naly

sis

Mer

ger C

onse

quen

ces

–ac

cret

ion/

dilu

tion

Illus

trativ

e Fu

ture

Sto

ck T

radi

ng A

naly

sis

310


Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

Cho

ice

of A

naly

tical

Met

hodo

logi

es, A

ssum

ptio

ns a

nd In

puts

Exe

rcis

e of

pro

fess

iona

l jud

gmen

t tak

ing

into

acc

ount

rele

vant

fact

s an

d ci

rcum

stan

ces

Pre

cede

nt, c

onve

ntio

n an

d co

nsis

tenc

y pl

ays

an im

porta

nt ro

le in

est

ablis

hing

the

anal

ytic

par

amet

ers

of th

e va

luat

ion

Cer

tain

com

mon

ana

lyse

s m

ay b

e ex

clud

ed if

sig

nific

ant l

imita

tions

impa

ir th

eir

valu

e/ut

ility

19

311


Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Cho

ice

of M

etho

dolo

gies

, Ass

umpt

ions

and

Inpu

ts (c

ont’d

)

Dis

coun

ted

cash

flow

ana

lysi

s

Pro

ject

ions

are

the

criti

cal i

nput

to th

e an

alys

is a

nd s

houl

d re

flect

man

agem

ent’s

cur

rent

be

st e

stim

ates

with

resp

ect t

o th

e fu

ture

fina

ncia

l per

form

ance

of t

he C

ompa

ny

Fina

ncia

l adv

isor

s re

ly u

pon

the

Com

pany

for t

he p

repa

ratio

n of

pro

ject

ions

and

app

rova

l to

use/

rely

upo

n th

e pr

ojec

tions

for p

urpo

ses

of th

eir d

cfan

d ot

her a

naly

ses

Mul

tiple

fore

cast

s en

dors

ed b

y m

anag

emen

t can

cre

ate

issu

es

Trea

tmen

t of s

yner

gies

, NO

Ls

Oth

er d

cfco

nsid

erat

ions

:

cost

of c

apita

l dis

coun

t rat

es

Equ

ity ri

sk p

rem

ia, b

etas

and

oth

er in

puts

appr

oach

es to

term

inal

val

uatio

n

mul

tiple

s vs

. per

petu

ity g

row

th ra

tes

term

inal

val

ue m

ultip

les

base

d on

sel

ecte

d co

mpa

nies

ana

lysi

s vs

. se

lect

ed tr

ansa

ctio

ns a

naly

sis

20

312


Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Cho

ice

of M

etho

dolo

gies

, Ass

umpt

ions

and

Inpu

ts (c

ont’d

)

Sel

ecte

d co

mpa

nies

ana

lysi

s

How

com

para

ble

are

the

com

pani

es re

lativ

e to

eac

h ot

her a

nd to

the

subj

ect

com

pany

–bu

sine

ss p

rofil

e, o

pera

ting

and

finan

cial

met

rics

Add

ress

ing

mat

eria

l cha

nges

in th

e su

bjec

t com

pany

’s b

usin

ess-

hist

oric

al a

nd/o

r pr

ojec

ted

Rel

evan

t met

rics

for a

sses

sing

val

ue –

indu

stry

/com

pany

spe

cific

Sel

ectio

n of

refe

renc

e ra

nges

: mat

hem

atic

al/fi

xed

crite

ria v

s. e

xerc

ise

of

prof

essi

onal

judg

men

t (m

edia

n vs

. sel

ecte

d m

ultip

le ra

nges

that

may

not

be

cent

ered

on

med

ian)

21

313


Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Cho

ice

of M

etho

dolo

gies

, Ass

umpt

ions

and

Inpu

ts (c

ont’d

)

Sel

ecte

d tra

nsac

tions

ana

lysi

s (a

dditi

onal

con

side

ratio

ns to

thos

e fo

r sel

ecte

d co

mpa

nies

)

Tim

efra

me

of c

ompl

eted

tran

sact

ions

incl

uded

in th

e an

alys

is

Cha

nges

in m

arke

t con

ditio

ns o

ver t

ime

for t

he tr

ansa

ctio

ns c

onsi

dere

d

Diff

eren

t for

ms

of c

onsi

dera

tion

(cas

h, c

ash/

stoc

k, a

ll-st

ock)

Diff

eren

t tra

nsac

tion

stru

ctur

e te

rms

–33

8 (h

)(10

), ac

quire

d N

OLs

Uni

que

cons

ider

atio

ns o

f pa

rticu

lar a

cqui

rer w

hich

impa

ct p

rice

paid

–qu

antu

m

of s

yner

gies

, stra

tegi

c im

pera

tive

22

314


Cop

yrig

ht 2

017©

Fina

ncia

l Ana

lyse

s U

nder

lyin

g Fa

irnes

s O

pini

ons

–Se

lect

ed C

onsi

dera

tions

(con

t’d)

Sel

ecte

d D

iscu

ssio

n To

pics

Mus

t fin

anci

al a

naly

ses

unde

rlyin

g fa

irnes

s op

inio

ns fo

llow

cas

e la

w re

gard

ing

stat

utor

y ap

prai

sals

?

Wha

t if m

anag

emen

t pro

ject

ions

gen

erat

e D

CF

valu

atio

n ra

nges

sig

nific

antly

in

exce

ss o

f the

pro

pose

d pu

rcha

se p

rice?

Wha

t if n

ot a

ll of

the

anal

yses

sup

port

a fa

irnes

s co

nclu

sion

?

How

do

inad

equa

cy o

pini

ons

rend

ered

in re

spon

se to

uns

olic

ited

offe

rs d

iffer

from

fa

irnes

s op

inio

ns?

23

315


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Aid

ing

and

Abe

tting

Cla

ims

–Im

plic

atio

ns o

f Tru

lia a

nd

Atte

nbor

ough

(aka

Zal

e)

316


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia, I

nc. S

’hol

derL

itig.

, CA

100

20-C

B (D

el. C

h. J

an. 2

2, 2

016)

In T

rulia

, the

Del

awar

e C

ourt

of C

hanc

ery

reje

cted

a d

iscl

osur

e-on

ly s

ettle

men

t as

inad

equa

te.

The

Cou

rt fo

und

that

the

supp

lem

enta

l dis

clos

ures

obt

aine

d by

the

plai

ntiff

s w

ere

inad

equa

te to

sup

port

a br

oad

rele

ase

of c

lass

cla

ims

–th

e su

pple

men

tal

disc

losu

res

wer

e no

t “pl

ainl

y” m

ater

ial

In o

rder

to s

uppo

rt a

broa

d re

leas

e of

cla

ss c

laim

s, th

e su

pple

men

tal d

iscl

osur

es

mus

t be

“pla

inly

” mat

eria

l –i.e

., “s

igni

fican

tly a

lters

the

tota

l mix

of i

nfor

mat

ion

mad

e av

aila

ble”

25

317


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

“A fa

ir su

mm

ary,

how

ever

, is

a su

mm

ary.

By

defin

ition

, it n

eed

not c

onta

in a

ll in

form

atio

n un

derly

ing

the

finan

cial

adv

isor

’s o

pini

on o

r con

tain

ed in

its

repo

rt to

the

boar

d. 5

6 In

deed

, thi

s C

ourt

has

held

that

the

sum

mar

y do

es n

ot n

eed

to p

rovi

de

suffi

cien

t dat

a to

allo

w th

e st

ockh

olde

rs to

per

form

thei

r ow

n in

depe

nden

t va

luat

ion.

57Th

e es

senc

e of

a fa

ir su

mm

ary

is n

ot a

cor

nuco

pia

of fi

nanc

ial d

ata,

but

ra

ther

an

accu

rate

des

crip

tion

of th

e ad

viso

r’s m

etho

dolo

gy a

nd k

ey a

ssum

ptio

ns.5

8 In

my

view

, dis

clos

ures

that

pro

vide

ext

rane

ous

deta

ils d

o no

t con

tribu

te to

a fa

ir su

mm

ary

and

do n

ot a

dd v

alue

for s

tock

hold

ers.

59”

See

“Add

ition

al M

ater

ials

” –on

pag

es 6

1 to

63

for f

ootn

otes

56

thro

ugh

59

26

318


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

“[P]ra

ctiti

oner

ssh

ould

exp

ect t

hat d

iscl

osur

e se

ttlem

ents

are

like

ly to

be

met

with

co

ntin

ued

disf

avor

in th

e fu

ture

unl

ess

the

supp

lem

enta

l dis

clos

ures

add

ress

a

plai

nly

mat

eria

l mis

repr

esen

tatio

n or

om

issi

on, a

nd th

e su

bjec

t mat

ter o

f the

pr

opos

ed re

-leas

e is

nar

row

ly c

ircum

scrib

ed to

enc

ompa

ss n

othi

ng m

ore

than

di

sclo

sure

cla

ims

and

fiduc

iary

dut

y cl

aim

s co

ncer

ning

the

sale

pro

cess

, if t

he

reco

rd s

how

s th

at s

uch

clai

ms

have

bee

n in

vest

igat

ed s

uffic

ient

ly. I

n us

ing

the

term

“p

lain

ly m

ater

ial,”

I m

ean

that

it s

houl

d no

t be

a cl

ose

call

that

the

supp

lem

enta

l in

form

atio

nis

mat

eria

l as

that

term

is d

efin

ed u

nder

Del

awar

e la

w. W

here

the

supp

lem

enta

l inf

orm

atio

n is

not

pla

inly

mat

eria

l, it

may

be

appr

opria

te fo

r the

Cou

rt to

app

oint

an

amic

us c

uria

e to

ass

ist t

he C

ourt

in it

s ev

alua

tion

of th

e al

lege

d be

nefit

s of

the

supp

lem

enta

l dis

clos

ures

, giv

en th

e ch

alle

nges

pos

ed b

y th

e no

n-ad

vers

aria

l nat

ure

of th

e ty

pica

l dis

clos

ure

settl

emen

t hea

ring.

”

27

319


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

Mat

eria

lity

of In

divi

dual

Tra

nsac

tion

Mul

tiple

s

“The

Pro

xy d

iscl

osed

that

J.P

. Mor

gan

used

pub

licly

ava

ilabl

e in

form

atio

n to

ana

lyze

ce

rtain

sel

ecte

d pr

eced

ent t

rans

actio

ns in

volv

ing

com

pani

es e

ngag

ed in

bus

ines

ses

that

J.P

. Mor

gan

cons

ider

ed a

nalo

gous

to T

rulia

’s b

usin

esse

s. T

he P

roxy

list

ed th

e da

te, t

he ta

rget

, and

the

acqu

irer f

or e

ach

of 3

2 tra

nsac

tions

that

wer

e co

nsid

ered

. It

also

dis

clos

ed th

e lo

w a

nd h

igh

forw

ard

EB

ITD

A m

ultip

les

for t

he g

roup

of

trans

actio

ns. .

. . P

lain

tiffs

’ grie

vanc

e is

that

the

Pro

xy d

id n

ot p

rovi

de th

e re

leva

nt

mul

tiple

s fo

r eac

h of

the

32 in

divi

dual

tran

sact

ions

. The

indi

vidu

al m

ultip

les

wer

e ad

ded

in th

e S

uppl

emen

tal D

iscl

osur

es fo

r tho

se tr

ansa

ctio

ns fo

r whi

ch th

e in

form

atio

n w

as p

ublic

ly a

vaila

ble.

The

add

ition

of t

his

info

rmat

ion

mad

e ev

iden

t tha

t m

ultip

les

wer

e no

t pub

licly

ava

ilabl

e fo

r 15

of th

e 32

tran

sact

ions

. . .

. The

add

ition

of

the

indi

vidu

al m

ultip

les

and

the

reve

latio

n th

at s

ome

wer

e no

t pub

licly

av

aila

ble

coul

d no

t rea

sona

bly

have

bee

n ex

pect

ed to

sig

nific

antly

alte

r the

to

tal m

ix o

f inf

orm

atio

n (e

mph

asis

add

ed).”

28

320


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

Mat

eria

lity

of In

divi

dual

Com

pany

Mul

tiple

s

“The

Pro

xy d

iscl

osed

the

nam

es o

f six

teen

pub

licly

trad

ed c

ompa

nies

that

J.P

. M

orga

n us

ed to

con

stru

ct ra

nges

of f

orw

ard

EB

ITD

A a

nd re

venu

e m

ultip

les

for T

rulia

an

d Zi

llow

. The

Pro

xy p

rovi

ded

thes

e m

ultip

les

for T

rulia

and

Zill

ow b

ased

on

thei

r la

st u

naffe

cted

trad

ing

day

befo

re th

e an

noun

cem

ent o

f the

mer

ger.

. . .

The

Sup

plem

enta

l Dis

clos

ures

add

ed th

e re

venu

e an

d E

BIT

DA

mul

tiple

s fo

r eac

h of

the

sixt

een

com

pani

es. C

iting

In re

Cel

era

Cor

pora

tion

Sha

reho

lder

Liti

gatio

n, p

lain

tiffs

ar

gue,

in e

ssen

ce, t

hat i

ndiv

idua

l com

pany

mul

tiple

s ar

e m

ater

ial p

er s

e. T

hat i

s no

t a

fair

read

ing

of th

e ca

se. .

. . .

Alth

ough

the

deci

sion

relu

ctan

tly c

oncl

uded

th

at a

mul

tiple

s di

sclo

sure

was

com

pens

able

, it f

ound

it “

ques

tiona

ble

whe

ther

[th

e m

ultip

les]

alte

red

the

‘tota

l mix

’ of a

vaila

ble

info

rmat

ion”

bec

ause

that

in

form

atio

n “a

lread

y w

as p

ublic

ly a

vaila

ble.

” Th

e in

divi

dual

com

pany

mul

tiple

s in

the

Supp

lem

enta

l Dis

clos

ures

her

e al

so w

ere

alre

ady

publ

icly

ava

ilabl

e.

(em

phas

is a

dded

)”

29

321


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia (c

ont’d

)

Mat

eria

lity

of Im

plie

d Te

rmin

al E

BIT

DA

Mul

tiple

s“J

.P. M

orga

n pe

rform

ed a

rela

tive

disc

ount

ed c

ash

flow

ana

lysi

s to

det

erm

ine

the

per-

shar

e eq

uity

val

ues

of T

rulia

and

Zillo

w, u

sing

exp

ecte

d ca

sh fl

ows

from

201

4 th

roug

h 20

28 b

ased

on

man

agem

ent’s

pro

ject

ions

for e

ach

com

pany

and

the

perp

etui

ty g

row

th

met

hod

to c

alcu

late

the

com

pani

es’ r

espe

ctiv

e te

rmin

al v

alue

s. T

he P

roxy

exp

lain

ed th

is

met

hodo

logy

and

pro

vide

d th

e as

sum

ptio

ns J

.P. M

orga

n us

ed in

its

anal

ysis

. Spe

cific

ally

, th

e P

roxy

dis

clos

ed m

anag

emen

t’s p

roje

ctio

ns o

f unl

ever

ed fr

ee c

ash

flow

s, th

e ra

nges

of

disc

ount

rate

s (1

1.0%

to 1

5.0%

) and

per

petu

ity g

row

th ra

tes

(2.5

% to

3.5

%) t

hat w

ere

used

, the

term

inal

per

iod

proj

ecte

d ca

sh fl

ows,

and

oth

er d

etai

ls.

In m

y vi

ew, t

hese

di

sclo

sure

s al

read

y pr

ovid

ed a

mor

e-th

an-fa

ir su

mm

ary

of th

e re

lativ

e di

scou

nted

ca

sh fl

ow a

naly

sis

that

J.P

. Mor

gan

perf

orm

ed T

he S

uppl

emen

tal D

iscl

osur

es a

dded

to

this

sum

mar

y th

e E

BIT

DA

exi

t mul

tiple

rang

es fo

r Tru

lia a

nd Z

illow

that

wer

e im

plie

d by

th

e ra

nge

of te

rmin

al v

alue

s ca

lcul

ated

bas

ed o

n J.

P. M

orga

n’s

chos

en in

puts

. Pla

intif

fs

argu

e th

at, a

lthou

gh J

.P. M

orga

n us

ed th

e pe

rpet

uity

gro

wth

met

hod

and

only

der

ived

the

impl

ied

EB

ITD

A e

xit m

ultip

les

to c

heck

the

stre

ngth

of i

ts m

etho

dolo

gy, t

he im

plie

d m

ultip

les

wer

e im

porta

nt to

sto

ckho

lder

s. .

. . .

. the

sup

plem

enta

l dis

clos

ure

imm

ater

ial.

(em

phas

is a

dded

)”

30

322


Cop

yrig

ht 2

017©

Trul

ia

In re

Wal

gree

n, N

o 15

-379

9 (7

th C

ir 8-

10-1

6) –

Subs

eque

nt F

eder

al J

udic

ial

Com

men

tary

on

Trul

ia

“The

type

of c

lass

act

ion

illust

rate

d by

this

cas

e—th

e cl

ass

actio

n th

at y

ield

s fe

es fo

r cl

ass

coun

sel a

nd n

othi

ng fo

r the

cla

ss—

is n

o be

tter t

han

a ra

cket

. It m

ust e

nd. N

o cl

ass

actio

n se

ttlem

ent t

hat y

ield

s ze

ro b

enef

its fo

r the

cla

ss s

houl

d be

app

rove

d,

and

a cl

ass

actio

n th

at s

eeks

onl

y w

orth

less

ben

efits

for t

he c

lass

sho

uld

be

dism

isse

d ou

t of h

and.

. . .

And

so

Trul

ia a

dopt

ed a

cle

arer

sta

ndar

d fo

r the

app

rova

l of

suc

h se

ttlem

ents

, id.

at 8

98–9

9 (fo

otno

tes

omitt

ed, e

mph

asis

add

ed),

whi

ch w

e en

dors

e, a

nd a

pply

in th

is c

ase

. . .”

31

323


Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

Sing

h v.

Atte

nbor

ough

, Cas

e N

o.: 6

45, 2

015

(Del

May

6, 2

016)

In A

ttenb

orou

gh, t

he S

upre

me

Cou

rt af

firm

ed th

e C

ourt

of C

hanc

ery’

s de

cisi

on u

pon

rear

gum

entf

ollo

win

g th

e D

elaw

are

Sup

rem

e C

ourt’

s de

cisi

on in

Cor

win

v. K

KR

Fin

. H

oldi

ngs

LLC

, 125

A.3

d 30

4 (D

el. 2

015)

find

ing

that

a fu

lly in

form

ed,u

ncoe

rced

vote

of

the

disi

nter

este

d st

ockh

olde

rs in

voke

d th

e bu

sine

ss ju

dgm

ent s

tand

ard

of re

view

, ef

fect

ivel

y ex

tingu

ishi

ng th

ose

clai

ms.

“Whe

n th

e bu

sine

ss ju

dgm

ent r

ule

stan

dard

of

revi

ew is

invo

ked

beca

use

of a

vot

e, d

ism

issa

l is

typi

cally

the

resu

lt.”

In e

ffect

, ful

ly in

form

ed a

nd u

ncoe

rced

, sto

ckho

lder

s on

ly g

et o

ne b

ite a

t the

app

le –

if th

ey a

ppro

ve a

tran

sact

ion,

they

can

not t

hen

turn

aro

und

and

sue

thei

r dire

ctor

s or

ex

ecut

ive

offic

ers

for g

ross

neg

ligen

ce o

r pur

sue

aidi

ng a

nd a

betti

ng b

reac

h of

fid

ucia

ry c

laim

s ag

ains

t buy

ers,

adv

isor

s or

oth

er th

ird p

artie

s pr

edic

ated

on

such

al

lege

d gr

oss

negl

igen

ce.

32

324


Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

In R

e Vo

lcan

o, C

A 1

0485

-VC

MR

(Del

. Ch.

Jun

e 30

, 201

6)

Cor

win

als

o ap

plie

s to

two

step

mer

gers

pur

suan

t to

251(

h)

The

failu

re o

f the

bre

ach

of fi

duci

ary

duty

cla

ims

agai

nst V

olca

no’s

dire

ctor

s as

a

resu

lt of

the

irreb

utta

ble

pres

umpt

ion

of th

e bu

sine

ss ju

dgm

ent r

ule

resu

lted

in th

e di

smis

sed

the

aidi

ng a

nd a

betti

ng c

laim

s ag

ains

t Vol

cano

’s fi

nanc

ial a

dvis

or.

See

al

so A

ttenb

orou

gh (“

Hav

ing

corr

ectly

dec

ided

, how

ever

, tha

t the

sto

ckho

lder

vot

e w

as fu

lly in

form

ed a

nd v

olun

tary

, the

Cou

rt of

Cha

ncer

y pr

oper

ly d

ism

isse

d th

e pl

aint

iffs’

cla

ims

agai

nst a

ll pa

rties

.”) a

nd C

orw

in (“

An

aidi

ng a

nd a

betti

ng c

laim

[, ho

wev

er,]

‘may

be

sum

mar

ily d

ism

isse

d ba

sed

upon

the

failu

re o

f the

bre

ach

of

fiduc

iary

dut

y cl

aim

s ag

ains

t the

dire

ctor

def

enda

nts.

”)

33

325


Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

City

of M

iam

i Gen

eral

Em

ploy

ees'

and

San

itatio

n Em

ploy

ees'

Ret

irem

ent T

rust

v

Com

stoc

k, C

A N

o. 9

980-

CB

(Del

. Ch.

Aug

. 24,

201

6)

“I co

nclu

de th

at p

lain

tiff’s

cla

ims

for p

ostc

losi

ngda

mag

es a

gain

st C

&J’

s di

rect

ors

and

offic

ers

are

subj

ect t

o th

e bu

sine

ss ju

dgm

ent p

resu

mpt

ion

unde

r the

Del

awar

e S

upre

me

Cou

rt’s

deci

sion

in C

orw

in v

. KK

R F

inan

cial

Hol

ding

s LL

C b

ecau

se o

f the

le

gal e

ffect

of t

he s

tock

hold

er v

ote,

and

that

judi

cial

revi

ew o

f pla

intif

f’s fi

duci

ary

duty

cl

aim

s (a

nd re

late

d ai

ding

and

abe

tting

cla

ims)

thus

end

s th

ere.

Thi

s co

nclu

sion

fo

llow

s fro

m tw

o su

bsid

iary

det

erm

inat

ions

: tha

t pla

intif

f has

faile

d to

ple

ad fa

cts

suffi

cien

t to

dem

onst

rate

that

the

C&

J st

ockh

olde

r vot

e w

as n

ot fu

lly in

form

ed, a

nd

that

pla

intif

f has

not

alle

ged

fact

s sh

owin

g th

at th

e ch

alle

nged

tran

sact

ion,

whi

ch w

as

appr

oved

by

a m

ajor

ity o

f dis

inte

rest

ed a

nd in

depe

nden

t dire

ctor

s, s

houl

d be

sub

ject

to

ent

ire fa

irnes

s re

view

.”

No

disc

ussi

on o

f whe

ther

bus

ines

s ju

dgm

ent r

ule

pres

umpt

ion

is ir

rebu

ttabl

e.

“A c

laim

for a

idin

g an

d ab

ettin

g a

brea

ch o

f fid

ucia

ry d

uty

cann

ot s

urvi

ve if

the

unde

rlyin

g fid

ucia

ry d

uty

clai

ms

do n

ot.”

34

326


Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

Lark

in v

. Sha

h (a

ka A

uspe

x), C

A N

o. 1

0918

-VC

S (D

el. C

h. A

ug. 2

5, 2

016)

C B

ouch

ard’

s op

inio

n in

C&

J ap

pear

ed to

sug

gest

that

Cor

win

doe

s no

t app

ly to

tra

nsac

tions

sub

ject

to th

e en

tire

fairn

ess

stan

dard

of r

evie

w (“

the

Sup

rem

e C

ourt

held

in C

orw

in th

at if

a tr

ansa

ctio

n th

at is

not

sub

ject

to e

ntire

fairn

ess

is a

ppro

ved

by

a fu

lly in

form

ed, u

ncoe

rced

vote

of s

tock

hold

ers,

Rev

lon

revi

ew d

oes

not a

pply

and

th

e ap

prop

riate

sta

ndar

d fo

r a p

ost-c

losi

ng d

amag

es a

ctio

n is

the

busi

ness

judg

men

t ru

le..

. . .p

lain

tiff h

as n

ot a

llege

d fa

cts

show

ing

that

the

chal

leng

ed tr

ansa

ctio

n, w

hich

w

as a

ppro

ved

by a

maj

ority

of d

isin

tere

sted

and

inde

pend

ent d

irect

ors,

sho

uld

be

subj

ect t

o en

tire

fairn

ess

revi

ew”)

In A

uspe

x, V

C S

light

s in

depe

nden

tly e

xam

ined

the

issu

e in

a d

ecis

ion

rend

ered

one

da

y la

ter a

nd c

oncl

uded

that

“[i]n

the

abse

nce

of a

con

trolli

ng s

tock

hold

er th

at

extra

cted

per

sona

l ben

efits

, the

effe

ct o

f dis

inte

rest

ed s

tock

hold

er a

ppro

val o

f the

m

erge

r is

revi

ew u

nder

the

irreb

utta

ble

busi

ness

judg

men

t rul

e, e

ven

if th

e tra

nsac

tion

mig

ht o

ther

wis

e ha

ve b

een

subj

ect t

o th

e en

tire

fairn

ess

stan

dard

due

to

conf

licts

face

d by

indi

vidu

al d

irect

ors.

” (em

phas

is a

dded

)

35

327


Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Subs

eque

nt C

ourt

of C

hanc

ery

Opi

nion

s In

terp

retin

g C

orw

in

Che

ster

Cou

nty

Ret

irem

ent S

yste

m v

Col

lins

(aka

Blo

unt),

CA

No.

120

72-V

CL

(Del

. Ch.

Dec

. 6, 2

016)

“[W]h

en a

tran

sact

ion

has

been

app

rove

d by

a m

ajor

ity o

f the

dis

inte

rest

ed

stoc

khol

ders

in a

fully

info

rmed

and

unc

oerc

edvo

te, t

he b

usin

ess

judg

men

t rul

e ap

plie

s an

d ‘in

sula

tes

the

trans

actio

n fro

m a

ll at

tack

s ot

her t

han

on th

e gr

ound

s of

w

aste

[.]’”

Cite

s La

rkin

v. S

hah

-“In

the

abse

nce

of a

con

trolli

ng s

tock

hold

er th

at e

xtra

cted

pe

rson

al b

enef

its, t

he e

ffect

of d

isin

tere

sted

sto

ckho

lder

app

rova

l of t

he m

erge

r is

revi

ew u

nder

the

irreb

utta

ble

busi

ness

judg

men

t rul

e, e

ven

if th

e tra

nsac

tion

mig

ht

othe

rwis

e ha

ve b

een

subj

ect t

o th

e en

tire

fairn

ess

stan

dard

due

to c

onfli

cts

face

d by

in

divi

dual

dire

ctor

s.” (

emph

asis

add

ed)

Hav

ing

faile

d to

ade

quat

ely

plea

d a

clai

m fo

r bre

ach

of fi

duci

ary

duty

, the

Cou

rt of

C

hanc

ery

held

that

the

plai

ntiff

like

wis

e fa

iled

to a

dequ

atel

y pl

ead

aidi

ng a

nd a

betti

ng

brea

ch o

f fid

ucia

ry d

uty

clai

ms

agai

nst B

loun

t’s fi

nanc

ial a

dvis

or a

nd a

gain

st th

e bu

yers

and

als

o gr

ante

d di

smis

sal o

f tho

se c

laim

s.

36

328


Cop

yrig

ht 2

017©

Sing

h v.

Atte

nbor

ough

(con

t’d)

Dic

ta R

egar

ding

Fin

anci

al A

dvis

or L

iabi

lity

“Del

awar

e ha

s pr

ovid

ed a

dvis

ors

with

a h

igh

degr

ee o

f ins

ulat

ion

from

liab

ility

by

empl

oyin

g a

defe

ndan

t-frie

ndly

sta

ndar

d th

at re

quire

s pl

aint

iffs

to p

rove

scie

nter

and

awar

ds a

dvis

ors

an e

ffect

ive

imm

unity

from

due

-car

e lia

bilit

y. A

s he

ld in

RB

C C

apita

l M

arke

ts, L

LC v

. Jer

vis

[aka

Rur

al/M

etro

], ho

wev

er, a

n ad

viso

r who

se b

ad-fa

ith

actio

ns c

ause

its

boar

d cl

ient

s to

bre

ach

thei

r situ

atio

nal f

iduc

iary

dut

ies

(e.g

., th

e du

ties

Rev

lon

impo

ses

in a

cha

nge-

of-c

ontro

l tra

nsac

tion)

is li

able

for a

idin

g an

d ab

ettin

g.Th

e ad

viso

r is

not a

bsol

ved

from

liab

ility

sim

ply

beca

use

its c

lient

s’ a

ctio

ns

wer

e ta

ken

in g

ood-

faith

relia

nce

on m

isle

adin

g an

d in

com

plet

e ad

vice

tain

ted

by th

e ad

viso

r’s o

wn

know

ing

disl

oyal

ty. T

o gr

ant i

mm

unity

to a

n ad

viso

r bec

ause

its

own

clie

nts

wer

e du

ped

by it

wou

ld b

e un

prin

cipl

ed a

nd w

ould

allo

w c

orpo

rate

adv

isor

s a

leve

l of u

nacc

ount

abili

ty a

fford

ed to

no

othe

r pro

fess

iona

ls in

our

soc

iety

. In

fact

, m

ost p

rofe

ssio

nals

face

liab

ility

und

er a

sta

ndar

d in

volv

ing

mer

e ne

glig

ence

, not

the

seco

nd h

ighe

st s

tate

ofs

cien

ter—

know

ledg

e—in

the

mod

el p

enal

cod

e.”

37

329


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Add

ition

al M

ater

ials

330


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Add

ition

al M

ater

ials

–Fi

nanc

ial A

naly

ses

Und

erly

ing

Fairn

ess

Opi

nion

s –

Wha

t’s o

n th

e Fo

otba

ll Fi

eld?

331


Cop

yrig

ht 2

017©

Fairn

ess

Opi

nion

s

40

Wha

t Are

The

y?

An

opin

ion

with

resp

ect t

o w

heth

er th

e co

nsid

erat

ion

(som

etim

es e

xpre

ssed

as

an e

xcha

nge

ratio

in a

sto

ck fo

r sto

ck d

eal)

paid

/issu

ed o

r rec

eive

d in

a tr

ansa

ctio

n is

fair

from

a fi

nanc

ial

poin

t of v

iew

to th

e pa

rty o

r per

sons

pay

ing/

issu

ing

or re

ceiv

ing

the

cons

ider

atio

n, a

s ap

plic

able

.

Why

Doe

s a

Boa

rd W

ant O

ne?

To h

elp

the

boar

d de

mon

stra

te th

at it

gat

here

d al

l rea

sona

bly

avai

labl

e in

form

atio

n in

fulfi

lling

its fi

duci

ary

duty

of c

are

in a

ppro

ving

the

trans

actio

n.

Whe

n A

re T

hey

Req

uire

d?

They

are

not

requ

ired

unde

r Del

awar

e la

w o

r the

Fed

eral

Sec

uriti

es L

aws.

Mos

t com

pani

es

will

obta

in th

em in

con

nect

ion

with

tran

sact

ions

requ

iring

sha

reho

lder

app

rova

l and

man

y co

mpa

nies

will

obta

in th

em in

con

nect

ion

with

tran

sact

ions

of a

cer

tain

siz

e or

sig

nific

ance

ev

en if

no

stoc

khol

der a

ppro

val i

s re

quire

d (i.

e., i

f suf

ficie

ntly

mat

eria

l to

the

com

pany

).

Whe

n D

o B

oard

s N

eed

Them

Del

iver

ed?

Gen

eral

ly a

t the

mee

ting

at w

hich

the

boar

d ap

prov

es th

e tra

nsac

tion.

332


Cop

yrig

ht 2

017©

Fairn

ess

Opi

nion

Con

side

ratio

ns

41

Fairn

ess

opin

ions

are

not

a s

ubst

itute

for t

he e

xerc

ise

of b

usin

ess

judg

men

t by

a bo

ard

and

seni

or m

anag

emen

t –th

e sc

ope

of a

fairn

ess

opin

ion

is li

mite

d to

an

eval

uatio

n of

the

fairn

ess

of th

e co

nsid

erat

ion

to b

e pa

id o

r rec

eive

d fro

m a

fina

ncia

l po

int o

f vie

w.

The

bene

fits

of a

fairn

ess

opin

ion

are

limite

d if

rend

ered

afte

r the

tran

sact

ion

is

auth

oriz

ed b

y th

e bo

ard.

The

key

for b

oard

s is

to g

athe

r all

reas

onab

ly a

vaila

ble

info

rmat

ion

and

to a

ct in

goo

d fa

ith o

n an

info

rmed

bas

is. A

det

aile

d fin

anci

al p

rese

ntat

ion

and

disc

ussi

on w

ith th

e bo

ard

is o

ften

mor

e va

luab

le th

an a

two-

or th

ree-

page

fairn

ess

opin

ion.

333


Cop

yrig

ht 2

017©

Fairn

ess

Opi

nion

s –

Wha

t The

y Sa

y

42

Wha

t Do

Fairn

ess

Opi

nion

s S

ay:

In c

onne

ctio

n w

ith a

div

estit

ure,

a F

airn

ess

Opi

nion

add

ress

es th

e fa

irnes

s, fr

om a

fin

anci

al p

oint

of v

iew

, to

the

selle

r of t

he c

onsi

dera

tion

to b

e re

ceiv

ed b

y th

e se

ller.

In c

onne

ctio

n w

ith a

n ac

quis

ition

, a F

airn

ess

Opi

nion

add

ress

es th

e fa

irnes

s, fr

om

a fin

anci

al p

oint

of v

iew

, to

the

buye

r of t

he c

onsi

dera

tion

to b

e pa

id b

y th

e bu

yer.

Onl

y in

con

nect

ion

with

tran

sact

ions

whe

re th

e st

ockh

olde

rs o

f a c

ompa

ny re

ceiv

e co

nsid

erat

ion

(i.e.

, a s

ale

of th

e en

tire

com

pany

) will

a F

airn

ess

Opi

nion

add

ress

th

e fa

irnes

s, fr

om a

fina

ncia

l poi

nt o

f vie

w, t

o th

e ho

lder

s of

com

mon

sto

ck o

f the

co

mpa

ny o

f the

con

side

ratio

n to

be

rece

ived

by

such

sto

ckho

lder

s in

the

sale

. C

erta

in s

tock

hold

ers

may

be

carv

ed o

ut.

Fairn

ess

Opi

nion

s on

ly a

ddre

ss th

e fa

irnes

s “fr

om a

fina

ncia

l poi

nt o

f vie

w” o

f the

co

nsid

erat

ion

bein

g pa

id o

r rec

eive

d by

a p

arty

act

ually

pay

ing

or re

ceiv

ing

cons

ider

atio

n.

Fairn

ess

Opi

nion

s sp

eak

of a

spe

cific

dat

e, a

nd o

pini

on p

rovi

ders

gen

eral

ly

disc

laim

any

dut

y or

obl

igat

ion

to u

pdat

e or

reaf

firm

thei

r opi

nion

s.

334


Cop

yrig

ht 2

017©

Fairn

ess

Opi

nion

s –

Wha

t The

y D

on’t

Say

43

Wha

t Fai

rnes

s O

pini

ons

Don

’t S

ay:

They

do

not a

ddre

ss th

e re

lativ

e m

erits

of a

par

ticul

ar tr

ansa

ctio

n as

com

pare

d to

al

tern

ativ

e bu

sine

ss s

trate

gies

.

They

do

not a

ddre

ss th

e co

mpa

ny’s

und

erly

ing

busi

ness

dec

isio

n to

pur

sue

a tra

nsac

tion.

They

do

not c

onst

itute

a re

com

men

datio

n to

sto

ckho

lder

s on

how

to v

ote

or a

ct w

ith

resp

ect t

o a

trans

actio

n.

335


Cop

yrig

ht 2

017©

Fairn

ess

Opi

nion

s –

Wha

t The

y D

on’t

Say

(con

t.)

44

Wha

t Fai

rnes

s O

pini

ons

Don

’t S

ay (c

ont.)

:

They

do

not t

ypic

ally

add

ress

the

allo

catio

n of

the

aggr

egat

e co

nsid

erat

ion

to b

e re

ceiv

ed a

mon

g ho

lder

s of

diff

eren

t cla

sses

of c

apita

l sto

ck. B

ut s

ee In

re T

ele-

Com

mun

icat

ions

, Inc

. S’h

olde

rsLi

tig.,

No.

CIV

.A. 1

6470

, 200

5 W

L 36

4272

7 (D

el.

Ch.

Dec

. 21,

200

5).

They

do

not t

ypic

ally

add

ress

the

fairn

ess

of c

onsi

dera

tion

to b

e re

ceiv

ed b

y ho

lder

s of

pre

ferr

ed s

tock

who

se ri

ghts

are

typi

cally

con

tract

ual o

r qua

si-

cont

ract

ual.

They

do

not t

ypic

ally

add

ress

any

oth

er te

rms

of th

e tra

nsac

tion

or a

gree

men

ts

ente

red

into

in c

onne

ctio

n w

ith th

e tra

nsac

tion

or o

ther

wis

e, li

ke: l

ocku

ps,

term

inat

ion

fees

, sev

eran

ce a

gree

men

ts, n

o sh

op p

rovi

sion

s, fi

nanc

ing

arra

ngem

ents

, etc

.

They

do

not a

ddre

ss th

e pr

ice

at w

hich

a b

uyer

’s s

tock

will

trade

afte

r giv

ing

effe

ct

to th

e tra

nsac

tion

or th

e pr

ice

at w

hich

buy

er o

r sel

ler s

tock

can

be

purc

hase

d or

so

ld a

t any

oth

er ti

me.

336


Cop

yrig

ht 2

017©

Sele

cted

Pro

ject

ions

Issu

es

45

Do

finan

cial

adv

isor

s pr

epar

e pr

ojec

tions

?

Whe

n an

d on

wha

t bas

is s

houl

d pr

ojec

tions

be

prep

ared

by

man

agem

ent?

Wha

t is

the

role

of t

he b

oard

and

com

pany

cou

nsel

in s

uper

visi

ng th

e pr

epar

atio

n an

d ap

prov

al o

f pr

ojec

tions

?

Dea

ling

with

unr

ealis

tic p

roje

ctio

ns o

r pro

ject

ions

that

cha

nge

or a

re u

pdat

ed d

urin

g a

sale

pro

cess

.

Wha

t sho

uld

a bu

yer b

e to

ld a

nd w

hen?

Wha

t if a

boa

rd/s

peci

al c

omm

ittee

or a

fina

ncia

l adv

isor

has

rese

rvat

ions

rega

rdin

g a

coun

terp

arty

’s

proj

ectio

ns?

Whi

ch a

re m

ore

rele

vant

:

coun

terp

arty

man

agem

ent’s

pro

ject

ions

for c

ount

erpa

rty; o

r

clie

nt m

anag

emen

t’s p

roje

ctio

ns fo

r cou

nter

party

?

Avo

idin

g di

sput

es re

gard

ing

the

proj

ectio

ns o

n w

hich

fina

ncia

l adv

isor

s w

ere

auth

oriz

ed to

rely

.

Wha

t to

do if

a c

ount

erpa

rty w

on’t

prov

ide

inte

rnal

pro

ject

ions

?

Crit

eria

for d

eter

min

ing

whe

ther

to p

ress

for b

uyer

pro

ject

ions

?

Und

er w

hat c

ircum

stan

ces

can

you

cons

ider

rely

ing

on p

ublic

ly a

vaila

ble

anal

yst e

stim

ates

in li

eu o

f int

erna

l m

anag

emen

t pro

ject

ions

?

How

sho

uld

mul

tiple

pro

ject

ions

cas

es b

e co

nsid

ered

by

the

boar

d/sp

ecia

l com

mitt

ee a

nd fi

nanc

ial a

dvis

ors?

Wha

t if m

anag

emen

t can

not o

r will

not

iden

tify

a si

ngle

set

of p

roje

ctio

ns re

pres

entin

g its

bes

t est

imat

es a

s to

the

futu

re fi

nanc

ial p

erfo

rman

ce o

f the

com

pany

?

337


Cop

yrig

ht 2

017©

Inve

stm

ent B

anke

r Iss

ues

& C

onsi

dera

tions

Add

ition

al M

ater

ials

–A

idin

g an

d A

betti

ng C

laim

s

338


Cop

yrig

ht 2

017©

Aid

ing

and

Abe

tting

a B

reac

h of

Fid

ucia

ry D

uty

Four

Ele

men

ts o

f a C

laim

Und

er D

elaw

are

Law

Und

er D

elaw

are

law

, the

four

ele

men

ts o

f a c

laim

for a

idin

g an

d ab

ettin

g a

brea

ch o

f fid

ucia

ry d

uty

incl

ude:

(i)th

e ex

iste

nce

of a

fidu

ciar

y re

latio

nshi

p;

(ii)

brea

ch o

f fid

ucia

ry d

uty;

(iii)

know

ing

parti

cipa

tion

in th

at b

reac

h by

def

enda

nts;

and

(iv)

dam

ages

pro

xim

atel

y ca

used

by

that

bre

ach.

Mor

gan

v. C

ash,

No.

505

3-V

CS

, 20

10 W

L 28

0374

6, a

t *4

(Del

.Ch.

Jul

y 16

, 201

0).

47

339


Cop

yrig

ht 2

017©

Rur

al/M

etro

Bac

kgro

und

On

June

30,

201

1, R

ural

/Met

ro C

orpo

ratio

n m

erge

d w

ith a

n af

filia

te o

f War

burg

Pin

cus

LLC

and

eac

h sh

are

of R

ural

com

mon

sto

ck w

as c

onve

rted

into

the

right

to re

ceiv

e $1

7.25

in c

ash.

Pla

intif

fs a

llege

d th

at th

e m

embe

rs o

f the

Rur

al b

oard

of d

irect

ors

brea

ched

thei

r fid

ucia

ry d

uty

of c

are

in

appr

ovin

g th

e m

erge

r and

by

faili

ng to

dis

clos

e m

ater

ial i

nfor

mat

ion

in th

e C

ompa

ny‘s

def

initi

ve p

roxy

st

atem

ent

Pla

intif

fs fu

rther

con

tend

ed th

at d

efen

dant

RB

C C

apita

l Mar

kets

, LLC

, a fi

nanc

ial a

dvis

or to

Rur

al, a

ided

an

d ab

ette

d th

e di

rect

ors‘

bre

ach

of fi

duci

ary

duty

.

Bef

ore

trial

, the

dire

ctor

s se

ttled

($6.

6 m

illio

n) a

s di

d M

oelis

& C

ompa

ny L

LC, R

ural

’sot

her f

inan

cial

ad

viso

r ($5

mill

ion)

.

On

Mar

ch 7

, 201

4, th

e C

ourt

of C

hanc

ery

issu

ed a

pos

t-tria

l opi

nion

in w

hich

it h

eld

that

RB

C w

as li

able

fo

r aid

ing

and

abet

ting

brea

ches

of f

iduc

iary

dut

y by

the

Rur

al B

oard

. In

re R

ural

/Met

ro, C

A N

o. 6

350-

VC

L (D

el. C

h. M

ar. 7

, 201

4).

On

Oct

ober

10,

201

4 th

e C

ourt

of C

hanc

ery

issu

ed a

pos

t-tria

l opi

nion

in w

hich

it h

eld

that

RB

C w

as

resp

onsi

ble

for $

75.8

mill

ion

in d

amag

es a

ccru

ing

inte

rest

at a

rate

of 5

.75%

, 5%

abo

ve th

e Fe

dera

l R

eser

ve D

isco

unt R

ate

of 0

.75%

, fro

m J

une

30, 2

011,

the

clos

ing

date

of t

he m

erge

r thr

ough

the

date

of

paym

ent.

In re

Rur

al/M

etro

, CA

No.

635

0-V

CL

(Del

. Ch.

Oct

. 10,

201

4).

On

Nov

embe

r 30,

201

5, th

e D

elaw

are

Sup

rem

e C

ourt

affir

med

the

prin

cipa

l leg

al h

oldi

ngs

of th

e C

ourt

of

Cha

ncer

y’s

deci

sion

. RB

C C

apita

l Mkt

s. v

. Jer

vis,

No.

140

, 201

5, (D

el. N

ov. 3

0, 2

015)

.

48

340


Cop

yrig

ht 2

017©

Stan

dard

App

lied

in R

ural

/Met

rofo

r Det

erm

inin

g W

heth

er a

Bre

ach

of

Fidu

ciar

y D

uty

Has

Occ

urre

d –

Rea

sona

blen

ess

In a

sses

sing

whe

ther

RB

C w

as li

able

for a

idin

g an

d ab

ettin

g a

brea

ch o

f fid

ucia

ry

duty

by

the

Rur

al M

etro

Boa

rd, t

he C

hanc

ery

Cou

rt ap

plie

d th

e R

evlo

n re

ason

able

ness

sta

ndar

d of

revi

ew to

the

Boa

rd’s

con

duct

.

Acc

ordi

ng to

the

Cha

ncer

y C

ourt,

the

com

bina

tion

of R

BC

‘s b

ehin

d th

e sc

enes

m

aneu

verin

g, th

e ab

senc

e of

any

dis

clos

ure

to th

e B

oard

rega

rdin

g R

BC

‘s a

ctiv

ities

, an

d th

e be

late

d an

d sk

ewed

val

uatio

n de

ck c

ause

d th

e B

oard

dec

isio

n to

app

rove

W

arbu

rg‘s

offe

r to

fall

shor

t und

er th

e en

hanc

ed s

crut

iny

test

.

The

Sup

rem

e C

ourt

affir

med

this

app

roac

h. 49

341


Cop

yrig

ht 2

017©

The

Rur

al/M

etro

Boa

rd’s

Rev

lon

Bre

ache

s

Acc

ordi

ng to

the

Cha

ncer

y C

ourt:

RB

C d

esig

ned

a pr

oces

s th

at fa

vore

d its

ow

n in

tere

st in

gai

ning

fina

ncin

g w

ork

from

the

bidd

ers

for E

MS

. RB

C d

ivid

ed th

e po

ssib

le b

idde

rs in

to T

rack

1 b

uyer

s in

volv

ed in

the

EM

S p

roce

ss

and

Trac

k 2

buye

rs w

ho w

ere

not.

RB

C re

ache

d ou

t to

the

Trac

k 1

buye

rs in

Dec

embe

r to

let

them

kno

w th

at R

ural

was

in p

lay

and

plan

ned

to c

onta

ct th

e Tr

ack

2 bu

yers

dur

ing

the

first

w

eek

of J

anua

ry. R

BC

prio

ritiz

ed th

e E

MS

par

ticip

ants

so

they

wou

ld in

clud

e R

BC

in th

eir

finan

cing

tree

s. R

BC

als

o pl

anne

d to

pus

h its

sta

ple

finan

cing

pac

kage

for R

ural

. [O

ne o

f RB

C’s

le

ad b

anke

rs] s

tress

ed to

his

leve

rage

d fin

ance

col

leag

ues

that

RB

C h

ad th

e in

side

trac

k on

fin

anci

ng b

ecau

se o

f Rur

al‘s

conf

iden

tialit

y ag

reem

ents

.

Whe

n it

appr

oved

the

mer

ger,

the

Boa

rd w

as u

naw

are

of R

BC

‘s la

st m

inut

e ef

forts

to s

olic

it a

buy-

side

fina

ncin

g ro

le fr

om W

arbu

rg, h

ad n

ot re

ceiv

ed a

ny v

alua

tion

info

rmat

ion

until

thre

e ho

urs

befo

re th

e m

eetin

g to

app

rove

the

deal

, and

did

not

kno

w a

bout

RB

C‘s

man

ipul

atio

n of

its

valu

atio

n m

etric

s. U

nder

the

circ

umst

ance

s, th

e B

oard

‘s d

ecis

ion

to a

ppro

ve W

arbu

rg‘s

bid

la

cked

a re

ason

able

info

rmat

iona

l bas

is a

nd fe

ll ou

tsid

e th

e ra

nge

of re

ason

able

ness

. No

one

ever

told

the

Boa

rd th

at it

s ba

nker

s ha

d he

lped

War

burg

by

givi

ng C

arne

y [in

tern

al R

ural

boa

rd

] inf

orm

atio

n. N

o on

e ev

er to

ld th

e B

oard

that

sen

ior l

ever

aged

fina

ncin

g ba

nker

s at

RB

C s

pent

M

arch

26,

201

1, m

akin

g a

final

pus

h to

get

a ro

le in

War

burg

‘s fi

nanc

ing,

incl

udin

g by

offe

ring

to

fund

a $

65 m

illion

revo

lver

for a

diff

eren

t War

burg

por

tfolio

com

pany

.

50

342


Cop

yrig

ht 2

017©

Kno

win

g Pa

rtic

ipat

ion

and

the

Scie

nter

Req

uire

men

t –Th

e Su

prem

e C

ourt

Fou

nd th

at th

e B

oard

’s R

evlo

n B

reac

hes

Wer

e th

e R

esul

t of R

BC

’s

Frau

d on

the

Boa

rd a

nd a

n In

form

atio

nal V

acuu

m C

reat

ed B

y R

BC

The

Supr

eme

Cou

rt he

ld th

at:

“The

tria

l cou

rt, in

a le

ngth

y an

alys

is o

f aid

ing

and

abet

ting

law

and

tort

law

, hel

d th

at if

a ‘[

i]f th

e th

ird p

arty

kno

ws

that

the

boar

d is

bre

achi

ng it

s du

ty o

f car

e an

d pa

rtici

pate

s in

the

brea

ch b

y m

isle

adin

g th

e bo

ard

or c

reat

ing

the

info

rmat

iona

l vac

uum

, the

n th

e th

ird p

arty

can

be

liabl

e fo

r ai

ding

and

abe

tting

.’ W

e af

firm

this

nar

row

hol

ding

.

“It is

the

aide

r and

abe

ttor t

hat m

ust a

ct w

ith s

cien

ter.

The

aide

r and

abe

ttor m

ust a

ct ‘k

now

ingl

y,

inte

ntio

nally

, or w

ith re

ckle

ss in

diffe

renc

e …

[;]’ t

hat i

s, w

ith a

n ‘ill

icit

stat

e of

min

d.’ T

o es

tabl

ish

scie

nter

, the

pla

intif

f mus

t dem

onst

rate

that

the

aide

r and

abe

ttor h

ad ‘a

ctua

l or c

onst

ruct

ive

know

ledg

e th

at th

eir c

ondu

ct w

as le

gally

impr

oper

.’ A

ccor

ding

ly, t

he q

uest

ion

of w

heth

er a

de

fend

ant a

cted

with

sci

ente

ris

a fa

ctua

l det

erm

inat

ion.

The

tria

l cou

rt fo

und

that

, ‘[o

]n th

e fa

cts

of th

is c

ase,

RB

C a

cted

with

the

nece

ssar

y de

gree

of s

cien

tera

nd c

an b

e he

ld li

able

for a

idin

g an

d ab

ettin

g.’ T

he e

vide

nce

supp

orts

this

find

ing.

…

“Her

e …

the

clai

m fo

r aid

ing

and

abet

ting

was

pre

mis

ed o

n R

BC

’s ‘f

raud

on

the

Boa

rd,’

and

that

R

BC

aid

ed a

nd a

bette

d th

e B

oard

’s b

reac

h of

dut

y w

here

, for

RB

C’s

ow

n m

otiv

es, i

t ‘in

tent

iona

lly

dupe

d’ th

e di

rect

ors

into

bre

achi

ng th

eir d

uty

of c

are.

” RB

C C

apita

l Mkt

s. v

. Jer

vis,

No.

140

, 201

5,

(Del

. Nov

. 30,

201

5)

51

343


Cop

yrig

ht 2

017©

Rur

al/M

etro

–Pr

inci

pal L

egal

Hol

ding

s

Prin

cipa

l Leg

al H

oldi

ngs

of S

upre

me

Cou

rt D

ecis

ion

“We

agre

e w

ith th

e tri

al c

ourt

that

the

indi

vidu

al d

efen

dant

s br

each

ed th

eir f

iduc

iary

du

ties

by e

ngag

ing

in c

ondu

ct th

at fe

ll ou

tsid

e th

e ra

nge

of re

ason

able

ness

, and

that

th

is w

as a

suf

ficie

nt p

redi

cate

for i

ts fi

ndin

g of

aid

ing

and

abet

ting

liabi

lity

agai

nst

RB

C.”

“To

esta

blis

h sc

ient

er, t

he p

lain

tiff m

ust d

emon

stra

te th

at th

e ai

der a

nd a

betto

r had

‘a

ctua

l or c

onst

ruct

ive

know

ledg

e th

at th

eir c

ondu

ct w

as le

gally

impr

oper

.’ A

ccor

ding

ly, t

he q

uest

ion

of w

heth

er a

def

enda

nt a

cted

with

sci

ente

ris

a fa

ctua

l de

term

inat

ion.

”

DU

CA

TL c

onte

mpl

ates

giv

ing

non-

settl

ing

defe

ndan

ts “s

ettle

men

t cre

dit”

in c

erta

in

circ

umst

ance

s fo

r the

“pro

rata

sha

re” o

f any

dam

ages

attr

ibut

able

to th

e co

nduc

t of

“join

t tor

tfeas

ors”

but

the

Cou

rt fo

und

that

dire

ctor

s th

at q

ualif

ied

for e

xcul

patio

n un

der t

he C

ompa

ny’s

102

(b)(

7) c

harte

r pro

visi

on w

ere

not “

join

t tor

tfeas

ors”

und

er

DU

CA

TL a

nd s

houl

d be

exc

lude

d fro

m a

ny s

ettle

men

t cre

dit c

alcu

latio

ns.

As

a co

nseq

uenc

e, R

BC

cou

ld o

nly

get c

redi

t for

the

porti

on o

f the

dam

ages

allo

cate

d to

th

e R

ural

/Met

ro d

irect

or d

efen

dant

s w

ho fa

iled

to q

ualif

y fo

r exc

ulpa

tion

unde

r 10

2(b)

(7).

52

344


Cop

yrig

ht 2

017©

But

Fin

anci

al A

dvis

ors

Are

Not

Gat

ekee

pers

“[O]u

r hol

ding

is a

nar

row

one

that

sho

uld

not b

e re

ad e

xpan

sive

ly to

sug

gest

that

any

fa

ilure

on

the

part

of a

fina

ncia

l adv

isor

to p

reve

nt d

irect

ors

from

bre

achi

ng th

eir d

uty

of

care

giv

es ri

se to

a c

laim

for a

idin

g an

d ab

ettin

g a

brea

ch o

f the

dut

y of

car

e.19

1 ” R

BC

C

apita

l Mkt

s. v

. Jer

vis,

No.

140

, 201

5 (D

el. N

ov. 3

0, 2

015)

____

____

__19

1In

affi

rmin

g th

e pr

inci

pal l

egal

hol

ding

s of

the

trial

cou

rt, w

e do

not

ado

pt th

e C

ourt

of C

hanc

ery’

s de

scrip

tion

of th

e ro

le o

f a fi

nanc

ial a

dvis

or in

M &

A tr

ansa

ctio

ns. I

n pa

rticu

lar,

the

trial

cou

rt ob

serv

ed th

at ‘[

d]ire

ctor

sar

e no

t exp

ecte

d to

hav

e th

e ex

perti

se to

det

erm

ine

a co

rpor

atio

n’s

valu

e fo

r the

mse

lves

, or t

o ha

ve th

e tim

e or

abi

lity

to d

esig

n an

d ca

rryo

ut a

sal

e pr

oces

s. F

inan

cial

adv

isor

s pr

ovid

e th

ese

expe

rt se

rvic

es. I

n do

ing

so,

they

func

tion

as g

atek

eepe

rs.’

Rur

al I,

88

A.3

d at

88

(cita

tions

om

itted

). A

lthou

gh th

is la

ngua

ge w

as d

ictu

m, i

t m

erits

men

tion

here

. The

tria

l cou

rt’s

desc

riptio

n do

es n

ot a

dequ

atel

y ta

ke in

to a

ccou

nt th

e fa

ct th

at th

e ro

le

of a

fina

ncia

l adv

isor

is p

rimar

ily c

ontra

ctua

l in

natu

re, i

s ty

pica

lly n

egot

iate

d be

twee

n so

phis

ticat

ed p

artie

s,

and

can

vary

bas

ed u

pon

a m

yria

d of

fact

ors.

Rat

iona

l and

sop

hist

icat

ed p

artie

s de

alin

g at

arm

’s-le

ngth

sh

ape

thei

r ow

n co

ntra

ctua

l arr

ange

men

ts a

nd it

is fo

r the

boa

rd, i

n m

anag

ing

the

busi

ness

and

affa

irs o

f the

co

rpor

atio

n, to

det

erm

ine

wha

t ser

vice

s, a

nd o

n w

hat t

erm

s, it

will

hire

a fi

nanc

ial a

dvis

or to

per

form

in

assi

stin

g th

e bo

ard

in c

arry

ing

out i

ts o

vers

ight

func

tion.

The

eng

agem

ent l

ette

r typ

ical

ly d

efin

es th

e pa

ram

eter

s of

the

finan

cial

adv

isor

’s re

latio

nshi

p an

d re

spon

sibi

litie

s w

ith it

s cl

ient

. (em

phas

is a

dded

)

53

345


Cop

yrig

ht 2

017©

Rur

al/M

etro

Dis

cuss

ion

Topi

cs

Wha

t are

the

impl

icat

ions

of a

pply

ing

the

Rev

lon

reas

onab

lene

ss s

tand

ard

for p

urpo

ses

of e

valu

atin

g w

heth

er

the

boar

d br

each

ed it

s fid

ucia

ry d

uty?

“Whe

n di

sint

eres

ted

dire

ctor

s th

emse

lves

face

liab

ility

, the

law

, for

pol

icy

reas

ons,

requ

ires

that

they

be

deem

ed to

hav

e ac

ted

with

gro

ss n

eglig

ence

in o

rder

to s

usta

in a

mon

etar

y ju

dgm

ent a

gain

st th

em. T

hat

does

not

mea

n, h

owev

er, t

hat i

f the

y w

ere

subj

ect t

o R

evlo

n du

ties,

and

thei

r con

duct

was

unr

easo

nabl

e,

that

ther

e w

as n

ot a

bre

ach

of fi

duci

ary

duty

.139

The

Boa

rd v

iola

ted

its s

ituat

iona

l dut

y by

faili

ng to

take

re

ason

able

ste

ps to

atta

in th

e be

st v

alue

reas

onab

ly a

vaila

ble

to th

e st

ockh

olde

rs. W

e ag

ree

with

the

trial

co

urt t

hat t

he in

divi

dual

def

enda

nts

brea

ched

thei

r fid

ucia

ry d

utie

s by

eng

agin

g in

con

duct

that

fell

outs

ide

the

rang

e of

reas

onab

lene

ss, a

nd th

at th

is w

as a

suf

ficie

nt p

redi

cate

for i

ts fi

ndin

g of

aid

ing

and

abet

ting

liabi

lity

agai

nst R

BC

.”

But

see

Cor

win

v. K

KR

Fin

. Hol

ding

s LL

C, 2

015

WL

5772

262,

at *

6 (D

el. O

ct. 2

, 201

5) (“

Uno

cal a

nd

Rev

lon

are

prim

arily

des

igne

d to

giv

e st

ockh

olde

rs a

nd th

e C

ourt

of C

hanc

ery

the

tool

of i

njun

ctiv

e re

lief

to a

ddre

ss im

porta

nt M

& A

dec

isio

ns in

real

tim

e, b

efor

e cl

osin

g. T

hey

wer

e no

t too

ls d

esig

ned

with

po

st-c

losi

ng m

oney

dam

ages

cla

ims

in m

ind,

the

stan

dard

s th

ey a

rticu

late

do

not m

atch

the

gros

s ne

glig

ence

sta

ndar

d fo

r dire

ctor

due

car

e lia

bilit

y un

der V

an G

orko

m. .

. .”)

.

Wha

t if R

ural

/Met

ro h

ad b

een

acqu

ired

in a

sto

ck-fo

r-st

ock

mer

ger –

i.e.,

no c

hang

e in

con

trol –

wou

ld a

fin

anci

al a

dvis

or th

at a

llege

dly

enga

ged

in m

any

of th

e sa

me

bad

acts

as

RB

C b

e lia

ble

for a

idin

g an

d ab

ettin

g a

brea

ch o

f fid

ucia

ry d

uty

if th

e ne

cess

ary

pred

icat

e fin

ding

that

dire

ctor

s br

each

ed th

eir f

iduc

iary

du

ty re

quire

d a

findi

ng th

at th

ey w

ere

gros

sly

negl

igen

t?

Is re

quiri

ng a

dire

ctor

act

ing

with

the

ordi

nary

car

e ex

pect

ed o

f a re

ason

ably

pru

dent

fidu

ciar

y to

det

ect

RB

C’s

‘fra

ud o

n th

e B

oard

,’ ta

ntam

ount

to b

lam

ing

the

vict

im fo

r bei

ng k

now

ingl

y an

d in

tent

iona

lly d

uped

by

a th

ird p

arty

’s fr

audu

lent

act

s?54

346


Cop

yrig

ht 2

017©

Rur

al/M

etro

Dis

cuss

ion

Topi

cs(c

ont’d

)

Wha

t is

the

effe

ct o

f the

Del

awar

e S

upre

me

Cou

rt's

defin

ition

of s

cien

terf

or p

urpo

ses

of e

valu

atin

g w

heth

er a

def

enda

nt k

now

ingl

y pa

rtici

pate

d in

a b

oard

's b

reac

h of

fid

ucia

ry d

uty?

Is e

greg

ious

beh

avio

r suc

h as

“a fr

aud

on th

e bo

ard”

requ

ired

or d

oes

“con

stru

ctiv

e kn

owle

dge

that

thei

r con

duct

was

lega

lly im

prop

er” s

ugge

st a

muc

h lo

wer

, po

tent

ially

vag

ue a

nd a

mbi

guou

s st

anda

rd?

55

347


Cop

yrig

ht 2

017©

Rur

al/M

etro

Dis

cuss

ion

Topi

cs(c

ont’d

)

Und

er D

UC

ATL

, doe

s st

ockh

olde

r ado

ptio

n of

a 1

02(b

)(7)

aut

horiz

ed e

xcul

pato

ry

char

ter p

rovi

sion

effe

ctiv

ely

“exo

nera

te” –

i.e.,

in a

dditi

on to

pro

vidi

ng a

shi

eld

agai

nst

dire

ctor

liab

ility,

doe

s D

UC

ATL

allo

w s

tock

hold

ers

to u

se th

e 10

2(b)

(7) a

s a

swor

d to

sh

ift li

abili

ty to

third

par

ty a

ider

s an

d ab

ette

rs–

i.e.,

unde

r Rur

al/M

etro

the

dire

ctor

s ex

culp

ated

from

liab

ility

for t

heir

brea

ches

of t

heir

fiduc

iary

dut

y of

car

e w

ere

not

deem

ed jo

int t

ortfe

asor

san

d an

y da

mag

es a

ttrib

utab

le to

thos

e br

each

es w

ere

excl

uded

from

any

set

tlem

ent c

redi

t cal

cula

tions

.

Whi

le p

lain

tiffs

may

be

able

to p

lead

in th

e al

tern

ativ

e, c

an d

efen

dant

s m

ount

an

effe

ctiv

e de

fens

e to

aid

ing

and

abet

ting

clai

ms

in th

e al

tern

ativ

e?

The

Pris

oner

’s D

ilem

ma

–A

uni

ted

front

am

ongs

t the

fidu

ciar

y an

d ad

viso

r de

fend

ants

faci

ng s

imila

r cla

ims

as th

ose

in R

ural

/Met

ro m

ay n

ot s

erve

the

inte

rest

s of

indi

vidu

al d

efen

dant

s w

ho, i

n or

der t

o m

axim

ize

the

pote

ntia

l for

co

ntrib

utio

n (o

r set

tlem

ent c

redi

t) fro

m jo

int t

ortfe

asor

s, m

ay n

eed

to s

erio

usly

co

nsid

er b

reak

ing

rank

s an

d pr

esen

ting

evid

ence

that

oth

er d

efen

dant

s th

at

parti

cipa

ted

in th

e tra

nsac

tion

acte

d w

rong

fully

eve

n if

thei

r pre

ferr

ed p

rimar

y de

fens

e w

ould

oth

erw

ise

be th

at n

o un

derly

ing

brea

ch o

f fid

ucia

ry d

uty

occu

rred

.

56

348


Cop

yrig

ht 2

017©

Rur

al/M

etro

Dis

cuss

ion

Topi

cs(c

ont’d

)

Wha

t rol

e sh

ould

an

addi

tiona

l/sec

ond

finan

cial

adv

isor

pla

y –

seco

nd o

pini

on;

addi

tiona

l sou

rce

of s

trate

gic

and

finan

cial

adv

ice;

ass

ista

nce

in p

roce

ss o

vers

ight

; as

sist

ance

in c

ondu

ctin

g po

st-s

igni

ng m

arke

t che

ck; e

tc?

Follo

win

g hi

s op

inio

n in

Toy

s-R

-Us,

then

Vic

e C

hanc

ello

r Stri

new

as re

porte

d to

ha

ve c

larif

ied

certa

in o

f his

vie

ws

at th

e 20

06 T

ulan

e C

orpo

rate

Law

Inst

itute

. A

mon

g ot

her t

hing

s, V

C S

trine

was

repo

rted

by C

orpo

rate

Con

trol A

lert

to h

ave

expr

esse

d th

e vi

ew th

at to

get

[a s

econ

d] o

pini

on, a

targ

et m

ust e

ither

pay

a lo

t of

mon

ey to

a fi

rst-t

ier f

irm o

r get

an

opin

ion

from

a le

ss-d

istin

guis

hed

one,

whi

ch, t

he

judg

e sa

id “d

oesn

’t gi

ve m

e a

lot o

f com

fort.

Wha

t’s g

oing

to im

pres

s us

abo

ut

whe

ther

you

got

a g

ood

deal

is th

e qu

ality

of t

he m

arke

t che

ck.”

The

seco

nd

opin

ion

is “b

anke

r pro

tect

ion,

” he

said

, and

doe

s lit

tle to

ben

efit

targ

et s

hare

hold

ers.

Acc

ordi

ng th

e S

upre

me

Cou

rt in

RB

C C

apita

l Mkt

s. v

. Jer

vis,

“[T]

he p

rese

nce

of

Moe

lisfa

iled

to c

lean

se th

e de

fect

s in

the

proc

ess

and

the

defe

ctiv

e fin

anci

al

advi

ce th

e B

oard

rece

ived

from

RB

C. T

he B

oard

trea

ted

its a

dvic

e as

sec

onda

ry to

th

at o

f RB

C a

nd, l

ike

RB

C, M

oelis

’sco

mpe

nsat

ion

was

mos

tly c

ontin

gent

upo

n co

nsum

mat

ion

of a

tran

sact

ion.

”

57

349


Cop

yrig

ht 2

017©

Rur

al/M

etro

Dis

cuss

ion

Topi

cs(c

ont’d

)

Wha

t sho

uld

finan

cial

adv

isor

s be

doi

ng d

iffer

ently

in li

ght o

f the

Rur

al/M

etro

deci

sion

and

ot

her d

evel

opm

ents

?

Min

imum

of t

wo

mee

tings

so

that

the

boar

d as

an

oppo

rtuni

ty to

dig

est f

inan

cial

an

alys

es a

nd a

sk a

dditi

onal

que

stio

ns p

rior t

o ap

prov

ing

trans

actio

n.

Dis

clos

ure

of “l

ongi

tudi

nal c

hang

es” t

o fin

anci

al a

naly

ses

revi

ewed

with

the

boar

d/sp

ecia

l com

mitt

ee.

Chi

ef J

ustic

e S

trine

advo

cate

s bl

ackl

inin

gv.

prio

r Boa

rd b

ook

Man

y ba

nks

iden

tify

key

chan

ges

(ass

umpt

ions

, inp

uts,

etc

.) in

sep

arat

e “lo

ngitu

dina

l ch

ange

” pag

es in

clud

ed in

thei

r boa

rd/s

peci

al c

omm

ittee

dis

cuss

ion

mat

eria

ls:

Cha

nges

to m

anag

emen

t pro

ject

ions

Cha

nges

to s

elec

ted

com

pani

es a

nd tr

ansa

ctio

ns u

sed

for c

ompa

rativ

e pu

rpos

es

Cha

nges

to d

isco

unt r

ate

calc

ulat

ion,

incl

udin

g m

etho

dolo

gy a

nd in

puts

Cha

nges

to s

elec

ted

mul

tiple

rang

e

Oth

er fi

nanc

ial a

dvis

ors

iden

tify

thos

e ch

ange

s or

ally

or i

n fo

otno

tes.

58

350


Cop

yrig

ht 2

017©

Aid

ing

and

Abe

tting

a B

reac

h of

Fid

ucia

ry D

uty

Cla

ims

and

Alle

gatio

ns

Oth

er E

xam

ples

In

adeq

uate

Dis

clos

ure

Reg

ardi

ng M

ater

ial R

elat

ions

hips

and

/or U

lterio

r Mot

ives

City

of D

ayto

na B

each

Pol

ice

and

Fire

Pen

sion

Fun

d v.

Exa

mw

orks

,CA

No.

124

81-V

CL

(Del

. Ch.

Sep

t. 26

, 201

6) (F

irst A

men

ded

Com

plai

nt)

In re

Goo

d Te

chno

logy

, CA

No.

115

80-V

CL

(Del

. Ch.

Sep

t. 1,

201

6) (S

econ

d A

men

ded

Com

plai

nt)

Hav

erhi

ll R

etire

men

t Sys

tem

v. K

erle

y(a

ka P

rovi

denc

e Se

rvic

e), C

A N

o. 1

1149

-VC

L (D

el.

Ch.

Feb

. 9, 2

016)

(Set

tlem

ent H

earin

g an

d P

etiti

on fo

r Atto

rney

’s F

ees

Tran

scrip

t)

In re

Zal

eC

orp.

S’h

olde

rLit.

, CA

No.

938

8-V

CP

(Del

. Ch.

Oct

. 1, 2

015)

(Rul

ing

on M

otio

ns to

Dis

mis

s)

In re

Dol

e Fo

od C

o. S

’hol

derL

it., C

A N

o. 8

703-

VC

L (D

el. C

h. A

ug. 2

7, 2

015)

Labo

rers

’ Loc

al #

231

Pen

sion

Fun

d v.

Mer

rill L

ynch

(aka

Web

sens

e), C

A N

o. 1

2350

-VC

L (D

el. C

h. M

ay 2

0, 2

016)

(Com

plai

nt)

In re

PLX

Tech

nolo

gy S

’hol

ders

Lit.,

CA

No.

988

0-V

CL

(Del

. Ch.

Apr

il 15

, 201

5 (T

rans

crip

t of

Ora

l Arg

umen

t) an

d S

ept.

3, 2

015

(Tel

epho

nic

Rul

ing)

In re

Rur

al M

etro

, CA

No.

635

0-V

CL

(Del

. Ch.

Aug

, 29,

201

2) (S

econ

d A

men

ded

Com

plai

nt)

(VC

Las

ter)

59

351


Cop

yrig

ht 2

017©

Aid

ing

and

Abe

tting

a B

reac

h of

Fid

ucia

ry D

uty

Cla

ims

and

Alle

gatio

ns

Oth

er E

xam

ples

(con

t’d)

Inad

equa

te o

r Ina

ppro

pria

te F

inan

cial

Ana

lyse

s

Che

n v

How

ard-

And

erso

n (a

ka O

ccam

), C

A N

o. 5

878-

VC

L (D

el. C

h. M

arch

23,

201

5)

(Hea

ring

to A

men

d C

ompl

aint

Tra

nscr

ipt)

In re

Tib

coS

oftw

are,

CA

No.

103

19 -

CB

(Del

. Ch.

Nov

. 25,

201

4)

Koe

hler

v. N

etSp

end

Hol

ding

s, C

A N

o. 8

373-

VC

G (D

el. C

h. M

ay 2

1, 2

013)

In re

Rur

al M

etro

, CA

No.

635

0-V

CL

(Del

. Ch.

Aug

, 29,

201

2) (S

econ

d A

men

ded

Com

plai

nt)

In re

McC

orm

ick

& S

chm

ick’

s, C

A N

o. 7

058-

VC

L (D

el. C

h. N

ov. 2

, 201

2) (S

ettle

men

t H

earin

g Tr

ansc

ript)

In re

Cel

era

S’h

olde

rLiti

g.,C

A N

o. 6

304-

VC

P (D

el. C

h. M

arch

23,

201

2)

In re

BJ'

s W

hole

sale

Clu

b, C

A 6

623-

VC

N (D

el. C

h. J

an. 3

1, 2

013)

See

als

o In

re E

l Pas

o C

orp.

S’h

olde

rsLi

tig.,

41 A

.3d

432

(Del

. Ch.

201

2) (C

Stri

ne)

60

352


Cop

yrig

ht 2

017©

Aid

ing

and

Abe

tting

a B

reac

h of

Fid

ucia

ry D

uty

Cla

ims

and

Alle

gatio

ns

Oth

er E

xam

ples

(con

t’d)

Buy

er F

inan

cing

Con

flict

s -W

inni

ng B

idde

r Fin

anci

ng

In re

Del

Mon

te F

oods

Co.

S’h

olde

rsLi

tig.,

No.

602

7-V

CL

201

1 W

L 53

2014

(Del

. Ch.

Feb

. 14

, 201

1) (V

C L

aste

r).

In re

Mor

ton’

s R

esta

uran

ts, C

A N

o. 7

122-

CS

(Del

. Ch.

Jul

y 23

, 201

3) (C

Stri

ne).

See

als

o In

re T

oys

‘R’ U

s, 8

77 A

.2d

975

(Del

. Ch.

200

5) (V

C S

trine

).

Buy

er F

inan

cing

Con

flict

s -S

tapl

ed F

inan

cing

Cle

vela

nd B

aker

s &

Tea

mst

ers

Pen

sion

Fun

d v.

Ben

son

(aka

Em

erge

ncy

Med

ical

Se

rvic

es),

CA

No.

623

0 (D

el. C

h. F

eb. 2

8, 2

011)

(Com

plai

nt) (

C S

trine

).

See

also

In re

Rur

al M

etro

(VC

Las

ter)

(Sec

ond

Am

ende

d C

ompl

aint

).

Inve

stm

ent I

nter

est C

onfli

cts

–O

wne

rshi

p In

tere

sts

in C

ount

erpa

rty

In re

El P

aso

Cor

p. S

’hol

ders

Litig

., 41

A.3

d 43

2 (D

el. C

h. 2

012)

(C S

trine

).

Inve

stm

ent I

nter

est C

onfli

cts

–D

eriv

ativ

es T

rans

actio

ns (e

.g.,

call

spre

ad h

edge

s)

City

of M

onro

e E

mpl

oyee

s R

etire

men

t Sys

tem

v C

apps

(aka

Am

erig

roup

), C

AN

o. 7

788-

CS

(D

el. C

h. A

ug. 1

2, 2

012)

(Com

plai

nt).

Illum

ina,

Wal

l Stre

et J

ourn

al –

Dea

l Pol

itik

Col

umn

by R

on B

arus

ch(F

eb. 8

, 201

2).

61

353


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

the

foot

note

s

____

____

_56

See

, e.g

., In

re M

icro

met

, Inc

. S’h

olde

rsLi

tig.,

2012

WL

6817

85, a

t *11

(Del

. Ch.

Feb

. 29,

201

2)

(reje

ctin

g cl

aim

that

the

boar

d fa

iled

to d

iscl

ose

unde

rlyin

g as

sum

ptio

ns a

nd b

ases

for p

roba

bilit

ies

of

succ

ess

of c

linic

al tr

ial d

rugs

) (“S

tock

hold

ers

are

entit

led

to a

fair

sum

mar

y of

the

subs

tant

ive

wor

k pe

rform

ed b

y th

e in

vest

men

t ban

kers

, but

Del

awar

e co

urts

hav

e re

peat

edly

hel

d th

at a

boa

rd n

eed

not d

iscl

ose

spec

ific

deta

ils o

f the

ana

lysi

s un

derly

ing

a fin

anci

al a

dvis

or’s

opi

nion

.”) (i

nter

nal

quot

atio

n m

arks

om

itted

); In

re C

ogen

t, In

c. S

’hol

derL

itig.

, 7 A

.3d

487,

511

(Del

. Ch.

201

0) (h

oldi

ng

stoc

khol

ders

are

ent

itled

to fa

ir su

mm

ary,

but

not

to m

inut

iae,

and

reje

ctin

g re

ques

ts fo

r add

ition

al

disc

losu

res)

; Rya

n v.

Lyo

ndel

l Che

m. C

o., 2

008

WL

2923

427,

at *

20 &

n.1

20 (D

el. C

h. J

uly

29, 2

008)

(fi

ndin

g th

at fa

ir su

mm

ary

did

not r

equi

re d

iscl

osur

e of

all

proj

ectio

ns, a

s lo

ng a

s it

disc

lose

d de

scrip

tion

of v

alua

tion

exer

cise

s, k

ey a

ssum

ptio

ns, a

nd ra

nge

of v

alue

s ge

nera

ted;

but

not

ing

that

th

e fa

ilure

to d

iscl

ose

that

the

finan

cial

adv

isor

use

d a

sign

ifica

ntly

hig

her W

AC

C in

its

calc

ulat

ion

than

m

anag

emen

t’s W

AC

C e

stim

ate,

eve

n w

hen

it w

as u

sing

man

agem

ent’s

oth

er fi

nanc

ial p

roje

ctio

ns,

coul

d co

nstit

ute

a di

sclo

sure

vio

latio

n), r

ev’d

on o

ther

gro

unds

, 970

A.2

d 23

5 (D

el. 2

009)

. See

als

o D

avid

P. S

imon

etti

Rol

love

r IR

A v

. Mar

golis

, 200

8 W

L 50

4869

2, a

t *9-

10 (D

el. C

h. J

une

27, 2

008)

(d

istin

guis

hing

Pur

e R

esou

rces

as

a ca

se in

whi

ch a

pro

xy s

tate

men

t was

def

icie

nt b

ecau

se it

did

not

di

sclo

se “a

ny s

ubst

antiv

e po

rtion

s of

the

bank

ers’

wor

k”) (

inte

rnal

quo

tatio

n m

arks

om

itted

); In

re

MO

NY

Grp

. Inc

. S’h

olde

rLiti

g., 8

52 A

.2d

9, 2

8 (D

el. C

h. 2

004)

(“Th

e pl

ain

mea

ning

of ‘

sum

mar

y’

belie

s th

e S

tock

hold

ers’

inte

rpre

tatio

n.”).

62

354


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

the

foot

note

s (c

ont’d

)

____

____

_57

See

Glo

bis

P’rs

, L.P

. v. P

lum

tree

Sof

twar

e, In

c., 2

007

WL

4292

024,

at *

12-1

3 (D

el. C

h. N

ov. 3

0,

2007

) (re

ject

ing

disc

losu

re c

laim

s fo

r var

ious

det

ails

that

may

hav

e be

en h

elpf

ul in

det

erm

inin

g ac

cura

cy o

f ana

lysi

s) (“

Del

awar

e la

w d

oes

not r

equi

re d

iscl

osur

e of

all

the

data

und

erly

ing

a fa

irnes

s op

inio

n su

ch th

at a

sha

reho

lder

can

mak

e an

inde

pend

ent d

eter

min

atio

n of

val

ue.”)

; In

re G

en. M

otor

s (H

ughe

s) S

’hol

derL

itig.

, 200

5 W

L 10

8902

1, a

t *16

(Del

. Ch.

May

4, 2

005)

(rej

ectin

g cl

aim

for

info

rmat

ion

that

wou

ld a

mou

nt to

“the

raw

dat

a be

hind

the

advi

sors

’ upd

ated

sum

mar

ies”

) (“A

di

sclo

sure

that

doe

s no

t inc

lude

all

finan

cial

dat

a ne

eded

to m

ake

an in

depe

nden

t det

erm

inat

ion

of fa

ir va

lue

is n

ot, h

owev

er, p

er s

e m

isle

adin

g or

om

ittin

g a

mat

eria

l fac

t. Th

e fa

ct th

at th

e fin

anci

al a

dvis

ors

may

hav

e co

nsid

ered

cer

tain

non

-dis

clos

ed in

form

atio

n do

es n

ot a

lter t

his

anal

ysis

.”), a

ff’d,

897

A.2

d 16

2 (D

el. 2

006)

. One

impo

rtant

qua

lific

atio

n be

ars

men

tion.

Alth

ough

man

agem

ent p

roje

ctio

ns

and

inte

rnal

fore

cast

s ar

e no

t per

se

nece

ssar

y fo

r a fa

ir su

mm

ary,

this

Cou

rt ha

s pl

aced

sp

ecia

l im

porta

nce

on th

is in

form

atio

n be

caus

e it

may

con

tain

uni

que

insi

ghts

into

the

valu

e of

th

e co

mpa

ny th

at c

anno

t be

obta

ined

els

ewhe

re. S

ee In

re N

etsm

artT

echs

., 92

4 A

.2d

at 2

03

(not

ing

that

man

agem

ent p

roje

ctio

ns c

an b

e im

porta

nt b

ecau

se m

anag

emen

t can

hav

e “m

eani

ngfu

l ins

ight

into

thei

r firm

s’ fu

ture

s th

at th

e m

arke

t [do

es] n

ot”).

63

355


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

the

foot

note

s (c

ont’d

)

____

____

_58

See

In re

3C

om S

’hol

ders

Litig

., 20

09 W

L 51

7380

4, a

t *2-

3 (D

el. C

h. D

ec. 1

8, 2

009)

(re

ject

ing

clai

m fo

r om

issi

on o

f fin

anci

al p

roje

ctio

ns b

ecau

se “a

n ad

equa

te a

nd fa

ir su

mm

ary

of

the

wor

k pe

rform

ed b

y [th

e ad

viso

r] [w

as] i

nclu

ded

in th

e pr

oxy”

); In

re C

heck

Free

Cor

p.

S’h

olde

rsLi

tig.,

2007

WL

3262

188,

at *

3 (D

el. C

h. N

ov. 1

, 200

7) (d

istin

guis

hing

Net

smar

tand

re

ject

ing

disc

losu

re c

laim

bas

ed o

n om

issi

on o

f man

agem

ent f

inan

cial

pro

ject

ions

, bec

ause

pr

oxy

stat

emen

t fai

rly s

umm

ariz

ed fi

nanc

ial a

dvis

or’s

met

hods

and

con

clus

ions

); In

re P

ure

Res

., 80

8 A

.2d

at 4

49 (n

otin

g in

fair

sum

mar

y di

scus

sion

that

sto

ckho

lder

s w

ould

find

it m

ater

ial

to k

now

the

advi

sor’s

bas

ic v

alua

tion

exer

cise

s, k

ey a

ssum

ptio

ns o

f tho

se e

xerc

ises

, and

rang

e of

val

ues

prod

uced

).

59 S

ee In

re P

AE

TEC

Hld

g. C

orp.

S’h

olde

rsLi

tig.,

2013

WL

1110

811,

at *

8 (D

el. C

h. M

ar. 1

9,

2013

) (ci

ting

In re

Pur

e R

es.,

808

A.2

d at

449

) (de

clin

ing

to a

war

d se

ttlem

ent f

ees

for

disc

losu

res

that

“pro

vide

a le

vel o

f det

ail b

eyon

d w

hat t

he la

w o

f Del

awar

e re

quire

s”) .

2006

).

64

356


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Subs

eque

nt D

elaw

are

Judi

cial

Com

men

tary

on

Trul

ia

The

Cha

ncer

y D

aily

repo

rted

that

on

June

17,

201

6 V

ice

Cha

ncel

lor L

aste

r spo

ke a

t th

e D

elaw

are

Sta

te B

ar A

ssoc

iatio

n's

Ben

ch a

nd B

ar C

onfe

renc

e an

d co

mm

ente

d on

ce

rtain

asp

ects

of I

n re

Tru

lia.

The

Vic

e C

hanc

ello

r firs

t dis

cuss

ed h

is in

terp

reta

tion

of th

e "p

lain

ly m

ater

ial"

stan

dard

un

der T

rulia

, sug

gest

ing

exam

ples

of t

ests

of w

heth

er d

iscl

osur

es s

atis

fy th

at s

tand

ard

(em

phas

is a

dded

):

In te

rms

of p

ract

ical

ity .

. . 4

out

of 5

dea

l law

yers

oug

ht to

thin

k th

is is

mat

eria

l. . .

. It

shou

ldn'

t be

. . .

whe

re o

nly

5% o

f the

peo

ple

surv

eyed

thou

ght i

t was

mat

eria

l.

Ano

ther

exa

mpl

e of

pla

inly

mat

eria

l --i

f, w

hen

this

com

es u

p, y

ou th

ink

'do

I nee

d to

cal

l my

mal

prac

tice

carr

ier?

'

If it

was

som

ethi

ng th

at, w

hen

you

find

out t

hat s

omet

hing

was

n't d

iscl

osed

, you

ha

ve a

pit

in y

our s

tom

ach

--th

at's

pla

inly

mat

eria

l.

If yo

u fe

el li

ke .

. . b

ecau

se w

e m

isse

d th

is in

a d

iscl

osur

e do

cum

ent,

we'

re g

oing

to

writ

e-of

f a li

ttle

bit o

f our

fees

on

our b

ill. T

hat's

pla

inly

mat

eria

l. . .

.

65

357


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Subs

eque

nt D

elaw

are

Judi

cial

Com

men

tary

on

Trul

ia (c

ont’d

)

Wha

t is

not p

lain

ly m

ater

ial .

. . t

he li

st o

f 26

'tell

me

mor

e' d

iscl

osur

e vi

olat

ions

. 'Te

ll m

e m

ore

abou

t thi

s pa

ragr

aph

in th

e ba

ckgr

ound

of t

he

mer

ger s

tate

men

t.' 'T

ell m

e m

ore

abou

t thi

s as

pect

of t

he b

anke

r's a

naly

sis.

' .

. . T

hose

are

n't p

lain

ly m

ater

ial.

Sho

w m

e so

met

hing

that

's w

rong

, yea

h, th

at's

goi

ng to

be

plai

nly

mat

eria

l. W

rong

an

d m

ater

ial -

-tha

t's p

lain

ly m

ater

ial.

That

's o

ne o

f tho

se o

nes

whe

re y

ou're

like

'oh

my

god

--ho

w d

id w

e m

iss

this

? Th

is is

aw

ful.

I'm w

orrie

d. T

his

is a

pro

blem

for

me.

' Tha

t is

plai

nly

mat

eria

l.

But

whe

n it'

s so

met

hing

that

the

com

plai

nt c

an li

st a

s to

any

dea

l, th

at's

not

pl

ainl

y m

ater

ial."

The

Vic

e C

hanc

ello

r res

pond

ed to

the

obse

rvat

ion

by a

noth

er p

anel

ist t

hat d

iscl

osur

es

on a

com

pany

's fi

nanc

ial p

roje

ctio

ns a

nd d

iscl

osur

es o

n a

disc

ount

ed c

ash

flow

an

alys

is w

ere

foun

d to

sat

isfy

the

"pla

inly

mat

eria

l" st

anda

rd s

hortl

y af

ter t

he is

suan

ce

of T

rulia

, sug

gest

ing

that

he

wou

ld p

roba

bly

not f

ind

such

dis

clos

ures

pla

inly

mat

eria

l.

66

358


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Subs

eque

nt D

elaw

are

Judi

cial

Com

men

tary

on

Trul

ia (c

ont’d

)

Thos

e ar

e di

sclo

sure

s th

at p

roba

bly

wou

ldn’

t pas

s un

der t

he d

escr

iptio

n I g

ave

you.

The

give

us

mor

e in

form

atio

n ab

out t

he d

isco

unte

d ca

sh fl

ow in

puts

was

one

of

the

stan

dard

thin

gs th

at w

e us

ed to

see

all

the

time.

‘You

just

did

n't t

ell u

s th

e co

mpo

nent

s of

the

wei

ghte

d av

erag

e co

st o

f cap

ital.’

‘You

just

did

n't t

ell

us w

hat t

he c

ost o

f equ

ity w

as a

nd w

hat y

ou u

sed

as y

our e

quity

risk

pr

emiu

m.’

. .

If yo

u br

ough

t to

me

that

type

of i

nfor

mat

ion,

I w

ould

say

may

be it

mig

ht b

e m

ater

ial,

may

be I

coul

d ha

ve g

otte

n th

ere

back

in th

e da

y w

hen

we

wer

en't

real

ly c

allin

g m

ater

ialit

y on

this

stu

ff, w

hen

we

wer

e tr

ying

to h

elp

settl

e th

ese

case

s. B

ut u

nder

a p

lain

ly m

ater

ial s

tand

ard,

no.

"

The

Vic

e C

hanc

ello

r exp

ress

ed h

is b

elie

f tha

t Cor

win

did

not

pre

clud

e pr

e-cl

ose

inju

nctiv

e re

lief f

or a

ll di

sclo

sure

cla

ims,

but

that

the

mat

eria

lity

of "t

ell-m

e-m

ore"

di

sclo

sure

cla

ims

shou

ld b

e ad

judi

cate

d, ra

ther

than

add

ress

ed in

a p

re-c

lose

co

ntex

t.

I thi

nk d

iscl

osur

e in

junc

tions

rem

ain

avai

labl

e fo

r rea

l dis

clos

ure

type

s.67

359


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Subs

eque

nt D

elaw

are

Judi

cial

Com

men

tary

on

Trul

ia (c

ont’d

)

So if

wha

t you

're b

ringi

ng is

the

tell-

me-

mor

e st

uff .

. . P

art o

f the

reas

on fo

r Tr

ulia

was

to s

ay to

peo

ple

that

we

don'

t wan

t sui

ts o

n ev

ery

deal

invo

lvin

g th

ese

type

s of

tell-

me-

mor

e th

eorie

s an

ymor

e.

So if

peo

ple

are

wor

ried

abou

t tho

se ty

pes

thin

gs, d

on't

be w

orrie

d. W

e're

sa

ying

that

they

are

n't t

he ty

pe o

f pla

inly

mat

eria

l cla

im th

at's

goi

ng to

cau

se

you

prob

lem

s.

If it

is s

omet

hing

like

, do

you

need

to p

ut th

ese

type

s of

pro

ject

ions

in th

e pr

oxy

stat

emen

t or n

ot, l

et's

act

ually

get

a ru

ling

on it

and

find

out

.

Is [W

illiam

M. S

keen

, et a

l. v.

Jo-

Ann

Sto

res,

Inc.

, et a

l., N

o. 4

48, 1

999,

opi

nion

(D

el. M

ay 3

, 200

0),]

still

the

right

ans

wer

? It'

s ce

rtain

ly c

ontro

lling

aut

horit

y fro

m th

e C

hanc

ery

Cou

rt's

pers

pect

ive.

Let

's a

ctua

lly fi

nd o

ut. L

et's

get

som

e ce

rtain

ty a

nd

som

e an

swer

s th

at w

ay, r

athe

r tha

n ha

ving

the

chur

ning

of p

re-c

losi

ng a

pplic

atio

ns

on th

e sa

me

issu

es th

at d

rove

the

M&

A li

tigat

ion

epid

emic

and

exp

losi

on."

68

360


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Pre

Trul

ia D

elaw

are

Com

men

tary

on

the

Mat

eria

lity

of D

iscl

osur

es

Mat

eria

lity

of “

Tell

Me

Why

and

Tel

l me

Mor

e?”

Dis

clos

ure

Cla

ims

Scul

ly v

. Nig

htha

wk

Rad

iolo

gy H

oldi

ngs

Inc.

, C.A

. No.

589

0-VC

L (D

el. C

h. O

ct. 2

1, 2

010)

“R

oman

ette

(ii) o

n do

wn

to R

oman

ette

(vii)

wer

e al

l of t

he I-

wan

t-to-

follo

w-u

p-te

ll-m

e-a-

little

-m

ore

varie

ty.

And

I fe

lt th

at th

e su

mm

ary

of th

e M

orga

n S

tanl

ey b

ook

was

--w

as fa

ir an

d co

mpl

ete

on a

ll th

ose

issu

es. T

hese

type

s of

und

erly

ing

valu

atio

n ju

dgm

ent c

alls

are

the

type

s of

thin

gs th

at b

anke

rs a

re p

aid

to d

o an

d th

at s

tock

hold

ers

can

do fo

r the

mse

lves

if th

ey w

ant t

o do

this

type

of u

nder

lyin

g an

alys

is”.

See

als

oIn

re S

auer

-Dan

foss

S’ho

lder

sLi

tig.,

No.

516

2-VC

L (D

el. C

h. A

pr. 2

9, 2

011)

"Ask

ing

“why

” doe

s no

t sta

te a

mer

itorio

us d

iscl

osur

e cl

aim

.”. .

. W

hen

a pl

aint

iff’s

“onl

y be

ef is

that

[an

inve

stm

ent b

anke

r] m

ade

mis

take

s in

sub

ject

ive

judg

men

t, ev

en th

ough

thos

e ju

dgm

ents

wer

e di

sclo

sed

to th

e . .

. st

ockh

olde

rs,”

then

the

plai

ntiff

has

not

iden

tifie

d a

mat

eria

l om

issi

on o

r mis

stat

emen

t.. .

. A “q

uibb

le w

ith th

e su

bsta

nce

of a

ban

ker’s

opi

nion

doe

s no

t con

stitu

te a

dis

clos

ure

clai

m” a

nd In

re S

eraC

are

Life

Sci

ence

s,

CA

No.

725

0-VC

G (D

el. C

h. M

arch

20,

201

2)“T

his

Cou

rt,lik

e m

ost c

ourts

, dra

ws

a lin

e at

m

ater

ialit

y. .

. . A

list

ofd

iscl

osur

e re

quire

men

ts o

f the

“mor

e de

tails

ple

ase”

kind

tend

not

to

cons

titut

e co

lora

ble

clai

ms

wor

thy

ofsi

gnifi

cant

exp

ense

thro

ugh

an e

xped

ited

proc

eedi

ng.”

69

361


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Pre

Trul

ia D

elaw

are

Com

men

tary

on

the

Mat

eria

lity

of D

iscl

osur

es

Mat

eria

lity

of F

ailu

re to

Dis

clos

e M

etric

s U

tiliz

ed to

Cal

cula

te D

isco

unt R

ate

In re

Ver

tro,

Inc.

S’h

olde

rs’ L

itig.

, CA

No.

701

0-VC

P (D

el. C

h. H

earin

g Tr

ansc

ript 1

2-21

-11

). "I

n ad

ditio

n, p

lain

tiffs

cla

im th

at th

e de

scrip

tion

of th

e di

scou

nted

cas

h flo

w a

naly

sis

in th

e pr

elim

inar

y pr

oxy

stat

emen

t fai

ls to

des

crib

e th

e m

etric

s ut

ilized

by

AG

C in

det

erm

inin

g V

ertro

'sw

eigh

ted

aver

age

cost

of c

apita

l for

pur

pose

s of

arri

ving

at t

he u

tiliz

ed d

isco

unt r

ate.

It is

wel

l-se

ttled

that

a d

iscl

osur

e th

at d

oes

not i

nclu

de a

ll fin

anci

al d

ata

need

ed to

mak

e an

inde

pend

ent

dete

rmin

atio

n of

fair

valu

e is

not

per

se

mis

lead

ing

or a

n --

one

that

om

its a

mat

eria

l fac

t. In

stea

d, s

tock

hold

ers

are

entit

led

to a

fair

sum

mar

y of

the

subs

tant

ive

wor

k pe

rform

ed b

y th

e in

vest

men

t ban

kers

upo

n w

hose

adv

ice

the

mer

ger [

sic]

of t

heir

boar

d as

to h

ow to

vot

e on

the

mer

ger o

r ten

der r

ely.

The

refo

re, d

efen

dant

s co

mm

itted

no

disc

losu

re v

iola

tion

by fa

iling

to

incl

ude

the

man

ner i

n w

hich

AG

C d

eriv

ed th

e di

scou

nt ra

te it

use

d in

its

anal

ysis

. Del

awar

e co

urts

hav

e re

peat

edly

hel

d th

at a

boa

rd n

eed

not d

iscl

ose

spec

ific

deta

ils o

f the

ana

lysi

s un

derly

ing

a fin

anci

al a

dvis

or's

opi

nion

. . .

. Und

er D

elaw

are

law

, an

omitt

ed fa

ct is

mat

eria

l if a

re

ason

able

sto

ckho

lder

wou

ld c

onsi

der i

t im

porta

nt in

a d

ecis

ion

perta

inin

g to

his

or h

er s

tock

. If

incl

udin

g th

e om

itted

fact

wou

ld s

igni

fican

tly a

lter t

he to

tal m

ix o

f inf

orm

atio

n av

aila

ble

to

stoc

khol

ders

, tha

t fac

t is

mat

eria

l. B

ut o

mitt

ed fa

cts

are

not m

ater

ial s

impl

y be

caus

e th

ey m

ight

be

hel

pful

. So

long

as

the

prox

y st

atem

ent,

view

ed in

its

entir

ety,

suf

ficie

ntly

dis

clos

es a

nd

expl

ains

the

mat

ter t

o be

vot

ed o

n, th

e om

issi

on o

r inc

lusi

on o

f a p

artic

ular

fact

is g

ener

ally

left

to m

anag

emen

t's b

usin

ess

judg

men

t."70

362


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Pre

Trul

ia D

elaw

are

Com

men

tary

on

the

Mat

eria

lity

of D

iscl

osur

es

Mat

eria

lity

of F

inan

cial

Adv

isor

Cal

cula

ted

Free

Cas

h Fl

ows

In re

Ser

aCar

eLi

fe S

cien

ces

(VC

Gla

ssco

ck M

arch

20,

201

2) “I

n th

e re

cent

Nig

htha

wk

case

, V

ice

Cha

ncel

lorL

aste

r pla

inly

foun

d th

at, u

nlik

e a

situ

atio

n w

here

the

boar

d pr

ovid

es fr

ee c

ash

flow

pro

ject

ions

to it

sfin

anci

al a

dvis

or, w

here

the

advi

sor d

eriv

ed th

epr

ojec

tions

on

its o

wn,

th

ose

proj

ectio

ns d

o no

t hav

eto

be

disc

lose

d. T

o m

e, th

is is

con

sist

ent w

ith th

epr

inci

ple

that

th

e bo

ard

need

not

dis

clos

e ev

ery

piec

eof

info

rmat

ion

used

by

its fi

nanc

ial a

dvis

or, s

uch

that

an

inve

stor

cou

ld c

ondu

ct it

s ow

n fa

ir va

lue

anal

ysis

usi

ng th

at s

ame

data

.”

Ngu

yen

v. B

arre

tt, C

A N

o. 1

1511

-VC

G (D

el. C

h. O

ct. 8

, 201

5) (M

otio

n to

Exp

edite

)“O

ur

case

law

pro

vide

s th

at, w

here

the

bank

ers

deriv

e un

leve

red,

afte

r-tax

free

cas

h flo

ws

rath

er

than

rely

ing

on m

anag

emen

t pro

ject

ions

, the

inpu

ts o

n w

hich

they

rely

are

not

per

se

subj

ect t

o di

sclo

sure

.A

s th

is C

ourt

has

prev

ious

ly n

oted

, ‘a

disc

losu

re th

at d

oes

not i

nclu

de a

ll fin

anci

al

data

nee

ded

to m

ake

an in

depe

nden

t det

erm

inat

ion

of fa

ir va

lue

is n

ot p

er s

e m

isle

adin

g or

om

ittin

g a

mat

eria

l fac

t.’”N

guye

n v

Bar

rett,

CA

No.

115

11-V

CG

(Del

. Ch.

Sep

t. 28

, 201

6)

(Mot

ion

to D

ism

iss)

“Afte

r car

eful

revi

ew o

f the

Pro

xy a

nd a

pplic

able

pre

cede

nt, I

det

erm

ined

th

at “a

fair

read

ing

of th

e P

roxy

dis

clos

ed a

ccur

atel

y th

at m

anag

emen

t did

not

pre

pare

fore

cast

s of

unl

ever

ed, a

fter-t

ax fr

ee c

ash

flow

s,”1

2 an

d, “[

w]it

hre

spec

t to

the

argu

men

t tha

t all

inpu

ts

prov

ided

by

man

agem

ent o

n w

hich

the

finan

cial

adv

isor

relie

d in

its

[dis

coun

ted

cash

flow

] va

luat

ion

mus

t, as

a m

atte

r of l

aw, b

e di

sclo

sed

to s

tock

hold

ers,

I fo

und

such

a p

er s

e ru

le

inco

nsis

tent

with

our

cas

e la

w.”

71

363


Cop

yrig

ht 2

017©

Trul

ia

In re

Tru

lia –

Pre

Trul

ia D

elaw

are

Com

men

tary

on

the

Mat

eria

lity

of D

iscl

osur

es

Mat

eria

lity

of F

inan

cial

Adv

isor

Crit

eria

For

Cho

osin

g Se

lect

ed C

ompa

nies

In re

Nes

s Te

chno

logi

es S

’hol

ders

Litig

.,C

A N

o. 6

569-

VCN

(D

el. C

h. A

ug. 3

, 201

1)“[T

]he

Pla

intif

fs s

eek

addi

tiona

l det

ails

rega

rdin

g th

e fin

anci

al a

dvis

ors’

ana

lyse

s su

ch a

s th

e re

ason

s w

hy d

iffer

ent c

ompa

nies

wer

e se

lect

ed fo

r eac

h ad

viso

r’s c

ompa

rabl

e co

mpa

ny a

naly

sis

or

info

rmat

ion

rega

rdin

g ho

w th

ead

viso

rsar

rived

at t

he m

ultip

les

they

use

d fo

r tho

se c

ompa

rabl

e co

mpa

nies

.A

gain

, the

Pre

limin

ary

Pro

xy p

rovi

des

shar

ehol

ders

with

fair

sum

mar

ies

of th

e fin

anci

al a

dvis

ors’

wor

k, a

nd th

e P

lain

tiffs

hav

e no

t sho

wn

that

add

ition

al d

etai

l wou

ld b

e m

ater

ial t

o sh

areh

olde

rs.”

See

als

o In

re S

auer

-Dan

foss

S’ho

lder

sLi

tig.,

No.

516

2-VC

L

(Del

. Ch.

Apr

. 29,

201

1)"A

skin

g “w

hy” d

oes

not s

tate

a m

erito

rious

dis

clos

ure

clai

m.”.

. . T

he

orig

inal

Sch

edul

e 14

D-9

dis

clos

ed th

e ca

lcul

atio

n of

the

com

para

ble

com

pani

es’ m

ultip

les

and

the

bank

er’s

sel

ectio

n of

a m

ultip

le fo

r Sau

er-D

anfo

ssba

sed

on th

ose

mul

tiple

s “in

a m

anne

r th

at a

llow

ed a

reas

onab

ly s

ophi

stic

ated

inve

stor

to s

ee th

e ke

y ju

dgm

ents

that

[the

ban

ker]

mad

e an

d to

mak

e he

r ow

n in

depe

nden

t det

erm

inat

ion

of w

heth

er th

ose

judg

men

ts s

truck

her

as

pro

per.

. . a

nd In

re D

elph

i Fin

anci

al G

roup

S’h

olde

rLiti

g., C

A 7

144-

VC

G (D

el. C

h. M

arch

6,

201

2) d

enyi

ng m

otio

n fo

r pre

limin

ary

inju

nctio

n on

cla

ims

that

, am

ong

othe

r thi

ng:

the

Pre

limin

ary

Pro

xy (i

) fai

led

to id

entif

y th

e co

mpa

nies

or p

rovi

de in

form

atio

n su

ffici

ent t

o ev

alua

te

the

rele

vanc

e of

thes

e co

mpa

nies

to L

azar

d’s

anal

ysis

and

(ii)

faile

d to

pro

vide

info

rmat

ion

suffi

cien

t to

eval

uate

the

rele

vanc

e of

thes

e co

mpa

nies

to L

azar

d’s

anal

yses

.”

72

364


NOTES

365


NOTES

366

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