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The Chancery Court recently dismissed breach of fiduciary duty claims arising out of a $400 million reduction in the purchase price to be paid to target stockholders as a result of post-signing equity awards to insiders that allegedly violated the terms of the merger agreement.  In In re Anaplan, Inc. Stockholders Litigation, (Del. Ch.; 6/24), Vice Chancellor Cook held that because the transaction was approved by a fully informed and uncoerced vote of the target’s stockholders, it was subject to business judgement review under Corwin.

The key takeaway from this decision may just be that if you want to make a quick exit from a lawsuit based on Corwin cleansing, your best bet is to lay the whole situation out in your proxy disclosure without sugar coating it.  This excerpt from Vice Chancellor Cook’s opinion suggests that’s exactly what the target did here:

Immediately up front in the Supplemental Proxy, the Board set forth its position, which was readily understandable to any stockholder reading it—that the Board believed the Company and its directors and officers had acted in good faith and in compliance with the Original Merger Agreement, but that a bona fide dispute had arisen with Thoma Bravo on that issue.

Stockholders would further understand that, rather than continue to dispute the issue and risk losing the deal, the Board made the business judgment that it was in the best interests of Anaplan and its stockholders to agree to a price reduction in return for securing the still premium transaction and enhanced closing certainty. This explanation was followed by an additional eight pages laying out in substantial detail the Board’s position, Thoma Bravo’s position, the dispute between the counterparties, and the negotiations over an amended merger agreement over a roughly two-week period.

In order to satisfy Corwin, it’s not enough that the stockholder vote is fully informed – it must also be uncoerced. The plaintiffs argued that the circumstances of the transaction involved “situational coercion,” because the status quo was so unpalatable that stockholders had no alternative but to vote for the deal at the reduced price.  Specifically, they argued that if the stockholders didn’t approve the deal, the stock price would plummet.  Vice Chancellor Cook rejected that argument as well:

To be sure, a stockholder would prefer more money for her shares to less, all things being equal. This would seem to hold true in all transactions involving rational economic actors. But it does not follow that a merger, or the vote thereon, is situationally coercive under our law simply because the merger offers a premium relative to the expected trading price for shares if stockholders do not approve the deal.

Anaplan stockholders had a choice to accept the revised merger or to vote it down and thereby retain their shares in the standalone company. Plaintiff does not allege the Company, or its shares, would be worthless or even materially impaired in terms of their intrinsic value. Anaplan stockholders had the opportunity to retain an interest in a multibillion-dollar company with significant revenue. The difference between good, better, and best here is not grounds for situational coercion.

The Vice Chancellor also rejected arguments that the transaction was “structurally coercive,” holding that those arguments boiled down to “a beef with Corwin itself.”  He concluded that the plaintiffs were essentially arguing that the stockholders’ overwhelming vote to approve the deal shouldn’t be accorded any weight because it was bound up in their desire to receive a premium.  VC Cook concluded that this ain’t the way it works:

Plaintiff’s argument seems to suggest that corporations, and our courts, have been missing structural coercion inherent in merger votes for nearly a decade. Corwin, however, establishes a framework in which our law respects equity owners’ fully informed decision to cash out their shares for a premium via a merger and accords that decision cleansing effect rather than labeling it coercion. That is a very deliberate feature, not a bug, of the system.

– John Jenkins