July 1, 2009
Delaware Court Allows Expedited Proceedings to Seek Injunctive Relief Based on Revlon Claims
Kevin Miller of Alston & Bird notes: In this order on Friday, Delaware Chancellor Chandler granted plaintiff’s motion for expedited proceedings to seek injunctive relief to address a board’s alleged failure to fulfill its Revlon duties.
Highlighting the significance that the procedural posture of a case can have, the Court noted that the Delaware Supreme Court’s recent decision in Lyondell Chemical v. Ryan may preclude an award of monetary damages for a breach of the duty of care where the target company’s charter contains a 102(b)(7) exculpatory provision. But exculpation for monetary damages does not preclude injunctive relief -“[t]hus, in cases such as this one, the shareholders’ only realistic remedy for certain breaches of fiduciary duty in connection with a sale of control transaction may be injunctive relief.”
Background/Allegations (for purposes of motion, the court treats plaintiff’s well plead allegations as true):
– In March 2009, Data Domain began discussions with NetApp regarding a potential business combination
– On May 11, the Data Domain board was informed that EMC was interested in meeting with Data Domain and a meeting was subsequently scheduled for May 27.
– On May 20, Data Domain and NetApp entered into a merger agreement pursuant to which Data Domain would become a wholly owned subsidiary of NetApp and Data Domain’s shareholders would receive $25 in a combination of cash and Net App stock. The merger agreement allegedly contains a number of deal protection provisions including a no-shop clause, a matching right and a termination fee and certain officers and directors of Data Domain entered into an agreement to vote approximately 20% of Data Domains shares in favor of the merger with NetApp.
– On June 1, EMC launched an all cash tender offer for Data Domain at $30 per share.
– On June 3, NetApp increase the cash component of its offer by $5, raising the overall value of its offer to $30 per share. Data Domain agreed to NetApps revised offer and left all the deal protection measures in place.
Plaintiffs alleged that Data Domain’s directors violated their fiduciary duties in the context of a sale of control of the company under Revlon v. MacAndrews & Forbes – i.e., that Data Domain’s directors breached their fiduciary duties by failing to take steps to obtain the best price reasonably available, by granting/permitting preclusive deal protection provisions and by failing to inform themselves.
[Note: where the consideration is cash and stock, Delaware case law is unclear as to whether and when Revlon duties apply. Here it appears a majority of the consideration is cash.]