February 14, 2007

Chancellor Chandler Enjoins Caremark Special Meeting: Mailing Supplemental Disclosures

Yesterday, Chancellor Chandler of the Delaware Court of Chancery enjoined any stockholder vote on the pending merger between Caremark and Express Scripts until not earlier than March 9th. The Chancellor issued his decision because of the materiality of supplemental disclosures made by Caremark on February 12th, just 8 days before the stockholder vote scheduled for February 20th. We have posted a copy of the opinion in the “M&A Litigation” Portal.

Here is some analysis from Travis Laster of Abrams & Laster: The 8 days provided by Caremark was definitely towards the short end of the spectrum for supplemental disclosures, but it was not unprecedented. The Chancellor instead appears to have been influenced by the combination of the brief time period and the his view of the significance of the disclosures, which included “the revelation that Caremark has considered, on at least three separate occasions, potential transactions with Express Scripts.”

The Chancellor juxtaposed this disclosure with the Caremark board’s “present protestations that antitrust difficulties loom so large as to prevent the board of directors from even discussing an offer with an admittedly higher dollar value.” (Emphasis in original). The Chancellor also noted the materiality of Caremark’s disclosure that the CVS merger would extinguish stockholder standing to pursue derivative litigation regarding claims for stock option backdating. This statement comes on the heals of the Chancellor’s two recent and quite strong decisions criticizing stock option practices.

At 2 typed pages, the opinion is quite short and worth a first-hand read, particularly for deal counsel and litigators who frequently must consider whether – and when – to make supplemental disclosures.