289 F. Supp. 3d 1162
D. Or.2018Background
- FEI (an Oregon company) prepared two internal financial projection sets in fall 2015: a more optimistic "Higher Projections" (aggregate of business-unit forecasts) and a tempered "Lower Projections" (senior-management adjustments). Both were updated after FEI's December 2015 acquisition of DCG Systems.
- Thermo Fisher initiated acquisition discussions in Feb–Mar 2016; negotiations produced a final cash offer of $107.50 per share, accepted by FEI's board in May 2016 and approved by shareholders in August 2016.
- FEI's proxy (the Proxy) disclosed both projection sets but explained the Board directed Goldman Sachs to base its fairness analysis on the Lower Projections because the Board believed the Higher Projections were an upside case inconsistent with FEI's historical experience; the Proxy included cautionary language about forward-looking statements.
- Plaintiff (a former FEI shareholder) alleges the Proxy was false/misleading under § 14(a) for four reasons: (1) the Board falsely claimed it believed the Higher Projections were unrealistic; (2) Goldman Sachs' DCF fairness opinion "double-discounted" value; (3) the Proxy omitted certain accounting line items from the Higher Projections (changes in net working capital, capex, unlevered free cash flow); (4) the Proxy failed to disclose key assumptions/underlying data for Goldman Sachs' analysis.
- Defendants moved to dismiss the Second Amended Complaint. The court considered PSLRA safe-harbor protection for forward-looking statements, materiality of omissions, and whether plaintiff pleaded objective and subjective falsity and scienter with particularity.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Board's assessment favoring the Lower Projections is actionable under § 14(a) or protected by PSLRA safe harbor | Board's assessment was an actionable misstatement: the Board secretly disbelieved the Lower Projections and adopted them to make Thermo's offer appear fair | Board's assessment is a forward-looking statement, identified as such, accompanied by meaningful cautionary language, so PSLRA safe harbor applies | Court: Board's assessment is a forward-looking statement protected by the PSLRA safe harbor because it was identified as forward-looking and accompanied by sufficient cautionary language; dismissal on this ground (no need to resolve scienter) |
| Whether plaintiff pled objective and subjective falsity of the Board's opinion adequately | The Higher Projections were used elsewhere and given to Thermo; Board knew reliance on Lower Projections would depress intrinsic value to justify the deal | The divergence between projections begins in 2017; disclosures and timing do not support strong inference of bad faith or that Board secretly disbelieved the Lower Projections | Court: Plaintiff failed to plead objective and especially subjective falsity with particularity; allegations insufficient to raise strong inference of scienter |
| Whether Goldman Sachs' fairness opinion (DCF) was false/misleading ("double-discounting") | Goldman Sachs improperly double-discounted risk by applying high discount rates to already risk-adjusted Lower Projections | Discount rates convert future cash flows to present value; disagreement over rate or methodology is subjective and not a § 14(a) violation if inputs/assumptions are disclosed | Court: Plaintiff's double-discounting theory fails as a matter of law; disagreement over discount rate is not actionable absent objective flaws or omitted/misrepresented inputs; dismissal of claim related to fairness opinion |
| Whether omission of changes in net working capital, capex, and unlevered free cash flow from the Higher Projections rendered the Proxy misleading | Omitted accounting line items prevented shareholders from fairly comparing Higher and Lower Projections; omissions were material | The Proxy disclosed management's inside view (both projection summaries) and most line items; omitted items are arithmetic inputs and not shown to have altered the total mix | Court: Plaintiff failed to allege why the omitted accounting details would have significantly altered the total mix; omissions not shown material — claim dismissed |
Key Cases Cited
- Police Retirement System of Kansas City v. Intuitive Surgical, Inc., 759 F.3d 1051 (9th Cir.) (PSLRA safe-harbor and forward-looking statement analysis)
- In re Quality Sys., Inc. Securities Litigation, 865 F.3d 1130 (9th Cir.) (mixed forward-looking and current-fact statements; safe-harbor limits)
- Ashcroft v. Iqbal, 556 U.S. 662 (legal conclusions not entitled to pleading-stage credit)
- Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleadings)
- TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (materiality standard for omissions in proxy solicitations)
- Va. Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (opinion statements can be actionable; need objective and subjective falsity)
- Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156 (9th Cir.) (requirement to plead opinion falsity objectively and subjectively under PSLRA)
- In re Netsmart Technologies, Inc. Shareholders Litigation, 924 A.2d 171 (Del. Ch.) (shareholders rely on management's inside view; valuation disagreements available to investors)