In re Synthes, Inc. Shareholder Litigation
2012 Del. Ch. LEXIS 196
| Del. Ch. | 2012Background
- Synthes, a Delaware company with a Swiss listing, pursued a strategic sale after its controlling stockholder Wyss dominated board influence.
- Wyss owned ~38.5% of Synthes and purportedly controlled ~52% when including family trusts, enabling influence over sale negotiations.
- The Board engaged in a multi-stage sale process, soliciting a private equity consortium (PE Club) and Johnson & Johnson (J&J), and negotiated a merger with J&J at 65% stock and 35% cash.
- The Partial Company Bid from the PE Club required Wyss to roll substantial equity into the post-merger entity and conditioned the sale on Wyss remaining as a major investor.
- Ultimately, the Merger with J&J proceeded on terms providing equal per-share consideration to Wyss and other stockholders, with a 3.05% termination fee and other protections.
- Plaintiffs allege Wyss and the board breached fiduciary duties by biasing the process toward J&J and disfavoring the PE Club bid, seeking to apply entire fairness or Revlon scrutiny.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Wyss’s liquidity interests created a disabling conflict. | Wyss’s liquidity motive harmed minority by preferring his exit. | Wyss’s interest aligned with maximizing value for all through pro rata treatment. | No disabling conflict; pro rata treatment preserves business judgment. |
| Whether Revlon scrutiny applies to the Merger. | Merger was an end-stage change of control requiring Revlon review. | Merger did not constitute a change of control; stock in a broadly traded acquirer market undermines Revlon. | Revlon does not apply; no violation under its framework. |
| Whether the board breached fiduciary duties by excluding the PE Club bid. | Board improperly sidelined the higher-value PE Club offer to favor Wyss. | Board reasonably considered options, solicited bidders, and negotiated to maximize value. | No loyalty breach; process was deliberative and probative of maximizing value. |
| Whether the deal protections precluded a topping bid in violation of Unocal or fiduciary duties. | Protections restrained competition and harmed minority value. | Protections were standard, narrow, and adopted after an open market process. | Deal protections were permissible; not coercive or anti-competitive. |
Key Cases Cited
- Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del.1986) (enhanced scrutiny in change-of-control sales)
- In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59 (Del.1995) (altered control sale; limited applicability of Revlon)
- Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del.2003) (Omnicare non-change-of-control context; disclosure and loyalty standards)
- Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34 (Del.1994) (principles governing enhanced scrutiny; reasonableness of choices)
- Cede Co. v. Technicolor, Inc., 634 A.2d 345 (Del.1993) (conflicts and market-based fairness considerations)
- In re BHC Communications S'holder Litig., Inc., 789 A.2d 1 (Del.Ch.2001) (loyalty claim requiring divergent interests to rebut business judgment rule)
- In re Toys 'R' Us, Inc. S'holder Litig., 877 A.2d 975 (Del.Ch.2005) (deal protections and market process considerations in mergers)