January 9, 2020

M&A Disclosure: Fed Ct. Rejects Claims Based on Fairness Opinion Description

Over the years, descriptions of fairness opinions in proxy statements have proven to be fertile ground for disclosure litigation.  However, in Hurtado v. Gramery Properties, (D. Md. 12/19), a federal court recently rejected disclosure claims premised on alleged omissions with respect to a merger proxy statement’s description of a banker’s fairness opinion.  Here’s an excerpt from this Shearman & Sterling blog summarizing the decision:

Plaintiff claimed that the comparable public company analysis (“CPC Analysis”) underlying the fairness opinion was flawed because it failed to list the REIT classifications of the five comparable companies included in the analysis. According to plaintiff, this allegedly flawed analysis, which formed the basis for the fairness opinion cited in the proxy, rendered the proxy materially misleading.

In dismissing all claims as to all defendants, the Court concluded that the omitted REIT classifications were not material in light of the proxy’s “thorough and accurate” summary of the financial advisor’s seven financial analyses, the proxy’s explicit, cautionary language, and the fact that the omitted REIT classifications were “easily accessible in the public domain.” The Court further held that, even assuming these omissions were material, they still did not render the fairness opinion misleading because the proxy specifically explained how the comparable REITs were selected and disclosed that they “were not identical to Gramercy.”

The Court held that omitted information was not material in light of the extensive information provided in the proxy of all of the banker’s financial analyses, as well as by language expressly disavowing that any of the companies used in the comp companies analysis were a “perfect match.”  It also noted that since REIT classifications were publicly available, their absence was immaterial because “an interested shareholder had the option of researching the comparators and determining for herself whether the comparators were good ones.”

John Jenkins