ACP Master, Ltd. v. Sprint Corporation & ACP Master, Ltd. v. Clearwire Corporation
CA 8508 & 9042
| Del. Ch. | Jul 21, 2017Background
- Clearwire, a holder of valuable 2.5 GHz spectrum, was majority-controlled by Sprint (initially 51%, later 50.4%) and faced severe liquidity and technology problems (WiMAX → LTE transition) that made a strategic transaction with Sprint central to survival.
- Sprint and Softbank negotiated parallel deals: Softbank would acquire control of Sprint and Sprint would acquire the remaining Clearwire minority shares; Softbank/ Sprint contemplated paying ~$2.00–2.97 initially but later raised the offer amid competing bids.
- A Special Committee of independent Clearwire directors negotiated with Sprint; initial agreement set merger consideration at $2.97/share plus convertible interim financing (Note Purchase Agreement) that critics said was dilutive/coercive.
- Multiple alleged instances of unfair dealing by Sprint/Softbank emerged (blocking spectrum buyers, vote-buying with Intel, pressure/dilution threats), producing substantial shareholder opposition and intervention by DISH, which made higher competing offers and ultimately triggered a bidding dynamic.
- Sprint increased its final offer to $5.00/share after DISH’s bids and other developments; the merger closed July 9, 2013; plaintiffs (Aurelius) sued for breach of fiduciary duty (and aiding/abetting) and sought appraisal relief.
- At trial the court: (1) evaluated fiduciary claims under entire fairness (defendants bore the burden) and held the merger was entirely fair; (2) in the appraisal proceeding determined fair value at $2.13 per share (appraisal award to petitioners plus statutory interest).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Sprint (controller) breached fiduciary duties in connection with the merger (entire fairness) | Sprint and Softbank engaged in unfair dealing (blocking buyers like Qualcomm/Google, vote-buying via Intel, coercive interim financing, misstatements) that tainted the process/price | The Special Committee was independent and negotiated at arm's-length; later competition (DISH) produced $5.00 which cured earlier defects; defendants must show entire fairness and did so | Even assuming controller status and attributing Softbank conduct, the court found the merger was entirely fair given the competitive post-2.97 process and ultimate $5.00 price |
| Burden of proof allocation for entire fairness | Aurelius: defendants bear burden (traditional rule) | Sprint sought to shift burden to plaintiffs based on Special Committee and majority-of-minority protections | No pretrial burden shift was proven; defendants bore the burden to prove entire fairness at trial |
| Whether Softbank can be liable for aiding and abetting breach | Aurelius: Softbank aided and abetted Sprint’s alleged breach | Softbank: no underlying breach by Sprint, so no secondary liability | Because no fiduciary breach was found, aiding-and-abetting claim against Softbank fails |
| Appraisal: fair value of Clearwire shares as of merger date | Aurelius’s expert (Jarrell) relied on Sprint’s “Full Build” projections yielding a much higher valuation | Defendants’ expert (Cornell) used Clearwire’s contemporaneous Single-Customer projections and market evidence (DISH proposal) to value unused spectrum | Court adopted Cornell: fair value is $2.13 per share (excluding deal synergies); appraisal remedy awarded with legal interest compounded quarterly |
Key Cases Cited
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (articulates unitary entire fairness test: fair dealing and fair price)
- Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988) (procedure for addressing controller fiduciary claims and ordering of remedies)
- Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014) (standards on controlling-stockholder transactions and entire fairness burden rules)
- M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513 (Del. 1999) (appraisal framework and court's discretion to adopt expert models)
- Tri-Continental Corp. v. Battye, 74 A.2d 71 (Del. 1950) (defines "going concern" fair value under appraisal statute)
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (elements of aiding-and-abetting claim require underlying fiduciary breach)