262 F. Supp. 3d 742
S.D. Ind.2017Background
- Remy International agreed to be acquired by BorgWarner; Definitive Proxy (Aug. 18, 2015) included UBS Securities’ valuation work (DCF and UFCF) and financial summaries. Supplemental disclosures were filed Sept. 14–15, 2015 after plaintiffs sued and before the shareholder vote.
- Three near-identical shareholder class actions challenged the Definitive Proxy as materially incomplete under the Exchange Act and SEC proxy rules; plaintiffs sought disclosure-only settlement and release of related claims.
- Parties executed an MOU settling for supplemental disclosures and a release; defendants agreed to pay up to $400,000 in fees and up to $15,000 in expenses; plaintiffs sought final approval and $409,844.50 in fees.
- An objector argued the supplemental disclosures were not plainly material, the release was overbroad, and the class received no benefit; nearly 99.1% of shares voted to approve the merger.
- The court certified the class for notice purposes, held a hearing, and denied final approval of the settlement and the fee application because the supplemental disclosures were not plainly material and therefore yielded no benefit to the class.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether supplemental disclosures reconciled GAAP and non‑GAAP measures were plainly material | Reconciliation of EBITDA to GAAP net income was required and material under Regulation G; supplemental disclosure remedied omission | Definitive Proxy warned non‑GAAP measures and forecasts were not public disclosures; reconciliation not shown to be required or plainly material in a proxy | Denied — reconciliation not shown to be plainly material because proxy forecasts were not necessarily subject to §7261 and plaintiffs offered no binding authority requiring reconciliation in this context |
| Whether disclosure of UFCF line items underlying UBS’s DCF was plainly material | Omissions of unlevered taxes, working capital, and restructuring meant shareholders could not evaluate or replicate UBS’s DCF; supplemental items were material | Definitive Proxy provided a fair summary and methodology; Trulia permits summaries that need not contain all underlying data; shareholders need not be able to perform their own valuation | Denied — additional line‑item figures were extraneous to a fair summary and did not alter UBS’s DCF results, so not plainly material |
| Whether disclosure of individual market multiples and transaction details was plainly material | Listing individual multiples and transaction figures provided necessary context and allowed better comparison to peers | Mean/median multiples and methodology were already disclosed; individual figures were publicly available and did not change conclusions | Denied — individual multiples and transaction figures were publicly available and did not alter the total mix of information |
| Whether additional disclosures about potential conflicts (Ruchim, UBS) were plainly material | Supplemental details on Ruchim and UBS fees revealed incentives/conflicts that shareholders should know | Proxy already disclosed Ruchim’s connection and UBS’s compensation and contingent fee; historical fee details were not shown to be material | Denied — potential conflicts were already disclosed sufficiently; added details were immaterial |
Key Cases Cited
- In re Walgreen Co. Stockholder Litig., 832 F.3d 718 (7th Cir. 2016) (disclosure‑only settlements require plainly material supplemental disclosures and benefits to the class)
- In re Trulia, Inc. Stockholder Litig., 129 A.3d 884 (Del. Ch. 2016) (proxy must provide a fair summary of financial advisor’s work but need not disclose all underlying data)
- In re Netsmart Techs., Inc. Shareholders Litig., 924 A.2d 171 (Del. Ch. 2007) (failure to disclose projections used in a DCF can render a proxy materially incomplete)
- Chen v. Howard-Anderson, 87 A.3d 648 (Del. Ch. 2014) (management projections can be materially important in cash‑out mergers)
- Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175 (Del. Ch. 2010) (selective disclosure of cash‑flow estimates can warrant relief)
- In re Aqua Dots Products Liab. Litig., 654 F.3d 748 (7th Cir. 2011) (courts should reject class settlements that confer no benefit on the class)