In re OM Group, Inc. Stockholders Litigation
CA 11216-VCS
| Del. Ch. | Oct 12, 2016Background
- OM Group was a diversified chemicals/technology company facing activist pressure from FrontFour and operational underperformance; FrontFour threatened a proxy contest proposing operational changes and board nominees.
- The OM board engaged BNP Paribas and later Deutsche Bank as financial advisors while soliciting potential buyers; board limited outreach to bidders likely to buy the whole company and prioritized financial sponsors (Apollo/Platform) over strategic, unit-by-unit sales.
- Apollo/Platform agreed to acquire OM for $34.00 per share; BNP Paribas and Deutsche Bank provided fairness opinions; the merger included a ~one-month go-shop and provisions (matching rights, termination fees, board resignations) that Plaintiffs allege insulated the deal.
- Plaintiffs sued post-closing alleging the board breached fiduciary duties (Revlon enhanced-scrutiny) by rushing a sale to avoid FrontFour, mishandling banker conflicts (Deutsche Bank), excluding strategic buyers, and using depressed projections; stockholders nevertheless approved the merger overwhelmingly.
- Defendants moved to dismiss, arguing (a) Plaintiffs failed to plead unreasonable board conduct under Revlon, (b) a fully informed, uncoerced vote of disinterested stockholders invokes Corwin and the business judgment rule, and (c) any loyalty/bad-faith claims are barred by charter exculpation.
- The Court concluded the proxy disclosures were not materially misleading as a matter of law, the stockholder vote was fully informed and uncoerced, Corwin applied, the business judgment rule governed, and the complaint was dismissed (no waste alleged).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Revlon (enhanced scrutiny) govern the sale process? | Board rushed and favored a financial buyer, excluding strategic buyers, so Revlon applies and board acted unreasonably. | Even if Revlon applies, the disinterested, informed stockholder vote cleanses the board under Corwin. | The court did not need to resolve Revlon; Corwin cleansing was dispositive because vote was fully informed. |
| Was the stockholder vote fully informed or rendered uninformed by disclosure omissions? | Proxy omitted/materially mischaracterized key facts: Advanced’s post-signing bid and the Board’s refusal to grant time; Demetriou’s Apollo connections; Deutsche Bank conflict details and fee evolution. | Proxy disclosed the existence and context of the Advanced overture, Deutsche Bank’s contingent fee and that it received "significant" fees from Apollo (with €140M disclosed); Demetriou’s limited contacts were not material. | The court held the proxy disclosures were not materially misleading as a matter of law; vote was fully informed and uncoerced. |
| Were alleged director conflicts (Demetriou) material? | Demetriou’s role as Aleris CEO and Apollo’s minority ownership and a lunch meeting suggested a conflict that should have been disclosed. | The contacts were remote/conclusory and insufficient to show material influence or control; no basis to infer materiality. | Omission not material; allegations were conclusory and insufficient to show a substantial likelihood a reasonable investor would view them as important. |
| Were banker conflicts and engagement terms (Deutsche Bank) materially misstated? | Board concealed timing/extent of Deutsche Bank’s Apollo fees and converted an intended flat engagement to a contingent fee to induce a favorable fairness opinion. | Proxy disclosed Deutsche Bank’s contingent fee arrangement and that it had received significant fees from Apollo (with €140M disclosed); timing/evolution is immaterial play-by-play. | Disclosures were adequate; timing/evolutional details were not material as a matter of law; no misleading omission. |
| Could plaintiffs defeat Corwin by alleging waste? | The sale price and process left substantial value on the table; plaintiffs implied waste. | Plaintiffs did not plead a waste claim. | Plaintiffs did not allege waste; Corwin’s cleansing shifted review to business judgment and dismissal followed. |
Key Cases Cited
- Corwin v. KKR Fin. Hldgs., 125 A.3d 304 (Del. 2015) (majority-of-disinterested, fully informed stockholder approval invokes the business judgment rule and cleanses board conduct)
- Rosenblatt v. Getty Oil Co., 493 A.2d 929 (Del. 1985) (materiality standard for disclosure; reasonable investor test)
- Stroud v. Grace, 606 A.2d 75 (Del. 1992) (directors’ duty to disclose material information and limits on self-incriminating disclosure)
- Malone v. Brincat, 722 A.2d 5 (Del. 1998) (fiduciary duties of directors and disclosure obligations tied to care, loyalty, good faith)
- TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (U.S. 1976) (test for materiality: substantial likelihood a reasonable shareholder would consider fact important)
- Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531 (Del. 2011) (Delaware pleading/"conceivability" standard on dismissal)
- In re Trados Inc. S’holder Litig., 73 A.3d 17 (Del. Ch. 2013) (entire fairness and review standards in sale-of-company contexts)