January 30, 2023

Del. Chancery Applies MFW to Controller’s Take-Private Despite Higher 3rd Party Offer

Last month, in SMART Local Unions and Councils Pension Fund v. BridgeBio Pharma, (Del. Ch.; 12/22) the Chancery Court dismissed breach of fiduciary duty allegations against a controlling stockholder and certain directors of the target in connection with a take-private transaction, despite the target’s receipt of  higher competing offers from an unaffiliated third party. Instead, Vice Chancellor Fioravanti held that the transaction satisfied the MFW standard and dismissed the plaintiffs’ complaint.

The case arose out of a 2021 merger in which BridgeBio Pharma, which owned 63% of the stock of Eidos Therapeutics, acquired the remaining 37% of Eidos’s common stock in a merger. Under the terms of the merger agreement, Eidos stockholders had the right to elect to receive either 1.85 shares of BridgeBio common stock or $73.26 in cash for each share of their Eidos common stock. The definitive merger agreement was entered into in October 2020 was the result of a process which saw Eidos’s special committee successfully negotiate significant increases in the consideration to be paid by BridgeBio.

Subsequently, GlaxoSmithKline made a proposal to acquire Eidos for $120 per share in cash. The Eidos board concluded that this could lead to a “superior proposal,” and exercised its right under the agreement to negotiate with Glaxo. However, BridgeBio had previously indicated that it was not interested in selling its stake in the company and reiterated this in response to this proposal. Ultimately, Glaxo withdrew from the process and the take-private transaction with BridgeBio was approved by 80% of the minority stockholders.

Prior to entering into the transaction, BridgeBio made an aborted attempt to acquire Eidos in August 2019, and renewed that effort in August 2020.  Each of BridgeBio’s acquisition proposals was conditioned upon approval of a deal by a majority of the minority stockholders, and Eidos formed a special committee to evaluate the 2020 proposal.  The plaintiffs did not challenge the deal’s compliance with these MFW conditions. Instead, they contended that MFW should not apply where the target has received a clearly superior proposal from an unaffiliated third party. Vice Chancellor Fioravanti rejected those arguments, and this excerpt from Dechert’s memo on the decision summarizes his reasoning:

The Court rejected plaintiff’s threshold argument that the Merger was not subject to MFW protection because GSK made an offer for the minority shares that was substantially higher than the consideration offered by BridgeBio and BridgeBio rejected it. The Court reasoned that, under Delaware law, a controlling stockholder is not required to accept a third-party sale or to give up its control, and MFW itself approved a transaction where the controller was explicit that it would not sell its shares to a third party.

The Vice Chancellor also rejected the plaintiff’s arguments that the special committee wasn’t properly empowered and that the vote of the minority stockholders was coerced.  He also rejected challenges to several proxy disclosures. Interestingly, one of these was the common practice of not identifying a competing bidder by name in the proxy statement.

In BridgeBio’s Form S-4, Glaxo was identified as “Company C.”  The Vice Chancellor noted that Company C was described as being a “large international pharmaceuticals company” and that the special committee concluded that its proposals were superior to BridgeBio’s, and concluded that this was sufficient for stockholders to conclude that Glaxo’s offers were bona fide.

John Jenkins