Richard Vento v. Robert J. Curry
CA 2017-0157-AGB
| Del. Ch. | Mar 22, 2017Background
- Consolidated Communications agreed to acquire FairPoint in a stock-for-stock merger announced Dec. 3, 2016; the deal requires issuing ~24.2M shares (~28.7% of combined company) and stockholder approval under NASDAQ rules.
- Morgan Stanley served as Consolidated’s lead financial advisor and issued the sole fairness opinion; affiliate Morgan Stanley Senior Funding, Inc. (MSSF) committed to provide part of the $935M debt financing.
- The Amended Form S-4 (filed Feb. 24, 2017) disclosed a $13M advisory fee to Morgan Stanley and aggregated prior fees, but did not quantify financing-related fees Morgan Stanley or affiliates would receive if they provided financing.
- Plaintiff Vento sued (Mar. 3, 2017) for breach of fiduciary duty, alleging inadequate disclosure of Morgan Stanley/MSSF financing fees and sought a preliminary injunction to suspend the March 28, 2017 shareholder vote.
- Court found the financing fees information was material and quantifiable, that the relevant facts were effectively ‘‘buried’’ across filings, and that stockholders should not have to piece together the amount from disparate documents.
- Chancellor Bouchard granted a preliminary injunction: the shareholder meeting was enjoined until Consolidated supplements disclosures to clearly state the amount of financing-related fees Morgan Stanley or its affiliates would receive, and to present that information together with other Morgan Stanley conflict disclosures.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of disclosure re: financing-related fees | Vento: Amended S-4 fails to disclose quantifiable amount of fees Morgan Stanley/MSSF will receive for financing | Consolidated: aggregate data and other filings (Pro Forma $14.025M commitment fees; MSSF 40% commitment) let stockholders infer the amount | Court: Disclosure inadequate — amount is material and should have been clearly disclosed in the S-4 |
| Materiality of the advisor/affiliate fees | Vento: Financing fees create a conflict that affects credibility of fairness opinion | Defendants: did not contest materiality; argued information is inferable from filings | Court: Fees are material because they bear on advisor independence and fairness opinion weight |
| Quantifiability of fees | Vento: Fees are quantifiable and should be disclosed | Consolidated: fees can be pieced together from buried figures in other filings | Court: Fees are quantifiable; requiring stockholders to ‘‘scavenge’’ is unacceptable |
| Equitable relief (preliminary injunction) — irreparable harm and balance of equities | Vento: Uninformed vote causes irreparable harm; injunction needed before vote | Defendants: delay and prejudice from injunction (but did not argue prejudice strongly) | Court: Irreparable harm shown; limited delay justified; granted injunction until supplemental disclosure is made |
Key Cases Cited
- In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813 (Del. Ch. 2011) (investment banker compensation and conflicts require full disclosure)
- In re Transkaryotic Therapies, Inc., 954 A.2d 346 (Del. Ch. 2008) (disclosure claims should be brought pre-vote via preliminary injunction)
- Staples, Inc. S’holders Litig., 792 A.2d 934 (Del. Ch. 2001) (post-hoc damages are an imperfect remedy for disclosure violations; injunction preferred)
- ODS Techs. L.P. v. Marshall, 832 A.2d 1254 (Del. Ch. 2003) (uninformed stockholder vote constitutes irreparable harm)
- In re MONY Group Inc., S’holder Litig., 852 A.2d 9 (Del. Ch. 2008) (disclosure violations can cause irreparable harm because voting stockholders may be misled)