In Re MeadWestvaco Stockholders Litigation
2017 WL 3526326
Del. Ch.2017Background
- MeadWestvaco and RockTenn negotiated an on-again, off-again stock-for-stock merger of equals announced January 2015 and closed July 2015; MeadWestvaco shareholders received 0.78 shares of the combined company (≈9.1% premium).
- Eight of nine MeadWestvaco directors were independent; board had Wachtell Lipton and three financial advisors (Bank of America Merrill Lynch, Goldman Sachs, Greenhill), each opined the deal was fair.
- Negotiations spanned ~9 months; MeadWestvaco twice terminated talks and rejected an initial at-market 0.71 exchange ratio before RockTenn agreed to 0.78; merger agreement included customary deal protections and a $230 million breakup fee.
- Activist Starboard accumulated a stake and threatened a proxy contest during the period; MeadWestvaco announced a planned spin-off of its specialty chemicals business (to occur after the merger).
- Plaintiffs (MeadWestvaco shareholders) sued for breach of fiduciary duty (board) and aiding and abetting (RockTenn), alleging directors acted in bad faith and left ~$3 billion of value on the table; plaintiffs took limited discovery and waived disclosure claims before the shareholder vote, which approved the merger with 98% of votes cast.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs pleaded directors acted in bad faith (conscious disregard) in approving the merger | Directors "flew blind," failed to value or preserve four non-core assets, and knowingly approved an unfair exchange leaving ~$3B behind | Board employed advisors, held multiple meetings over nine months, twice terminated talks, obtained a 9.1% premium, and used customary deal protections; pleadings do not allege extreme facts | Dismissed — complaint fails to plead bad faith; conduct does not plausibly show intentional dereliction or an inexplicable decision only explainable by bad faith |
| Whether Corwin cleansing (stockholder approval) applies | Plaintiffs did not rely on Corwin in primary argument (focus on bad faith) | Defendants contend overwhelming, informed shareholder approval would cleanse any breach | Court found dismissal on bad-faith grounds dispositive and did not reach Corwin analysis |
| Whether aiding-and-abetting claim against RockTenn is adequately pleaded | RockTenn knowingly participated in directors’ breach and caused damages | No predicate fiduciary breach adequately alleged; no non-conclusory facts showing RockTenn knew of wrongdoing or colluded | Dismissed — aiding and abetting fails for lack of underlying breach and scienter |
| Whether price/inadequate premium can, by itself, support a bad-faith claim | Plaintiffs argue price was so low relative to true value that only bad faith explains it | Defendants note fairness opinions, market premium, and absence of other bidders despite long post-signing period | Court: price not so egregious or irrational as to support bad-faith inference; mere low premium insufficient |
Key Cases Cited
- Lyondell Chem. Co. v. Ryan, 970 A.2d 235 (Del. 2009) (directors’ decisions must be reasonable, not perfect; extreme facts required to plead bad faith)
- Corwin v. KKR Fin. Holdings, LLC, 125 A.3d 304 (Del. 2015) (post-closing, fully informed stockholder approval can cleanse fiduciary breaches)
- Savor, Inc. v. FMR Corp., 812 A.2d 894 (Del. 2002) (motion-to-dismiss standard in fiduciary duty cases: well-pleaded facts accepted and dismissal appropriate only if recovery not reasonably conceivable)
- White v. Panic, 783 A.2d 543 (Del. 2001) (to state waste or bad-faith claim, decision must be so egregious it could not have been based on a valid assessment of the corporation’s interests)
- Malpiede v. Townson, 780 A.2d 1075 (Del. 2001) (elements of aiding-and-abetting a breach of fiduciary duty)
- Cede & Co. v. Technicolor, Inc., 634 A.2d 345 (Del. 1993) (business judgment rule presumption: directors acted on informed basis, in good faith, and in honest belief their actions were in the company's best interests)