OPINION
I.
The plaintiffs request a preliminary injunction against a stockholder vote on a stock-for-cash merger between two companies engaged in the insurance industry. The plaintiffs allege that the defendant board, having decided to put the company
The plaintiffs also challenge the adequacy of disclosures made in a proxy statement sent out to stockholders of the selling company in anticipation of the stockholder vote. The plaintiffs argue that, for a number of reasons, certain parts of that proxy statement are either incomplete or misleading.
After careful consideration of the exhibits and depositions submitted to the court, as well as the parties’ briefs and arguments made before the court, the court grants a limited injunction, relating solely to proxy statement disclosures concerning payments under certain change-in-control agreements. The court holds that the harm, if any, caused by requiring a supplemental disclosure is far outweighed by the benefits associated with a fully and fairly informed stockholder vote.
II.
A. The Parties
Defendant MONY Group Inc. (“MONY” or the “Company”) is a publicly traded Delaware corporation whose business is selling life insurance to high-income individuals. MONY relies on the “career agent system” to sell its insurance, as opposed to a centralized, advertising-based model. The career agent system employs salespersons in offices throughout the country who actively solicit business for MONY.
Defendants Tom. H. Barrett, David L. Call, G. Robert Durham, Robert Holland, Jr., James L. Johnson, Robert R. Kiley, Jane C. Pfeiffer, Thomas C. Theobald, Frederick W. Kanner, David M. Thomas and Margaret M. Foran (the “Outside Directors”) are outside directors of MONY. Defendants Michael I. Roth, Samuel J. Foti and Kenneth M. Levine (the “Inside Directors,” together with the Outside Directors, the “Board”) are inside directors. Roth is Chairman and CEO, Foti is President and Chief Operating Officer, and Levine is Executive Vice President and Chief Investment Officer.
Defendant AXA is a Delaware corporation also engaged in selling insurance. It is a wholly owned subsidiary of AXA, S.A., a French corporation whose shares trade on the Paris Bourse. AXA’s insurance products business is conducted principally by its wholly owned subsidiary, The Equitable Life Assurance Society of the United States. Like MONY, AXA uses the career agent system. AIMA Acquisition Co. (“AIMA”) is a wholly owned Delaware subsidiary of AXA created to affect the proposed merger with MONY.
Plaintiffs E.M. Capital, Inc., Elm Realty, Inc., Congregate Investors, Ltd., Abbott Hill Partners, L.P., Alan Martin, Amanda Kahn-Kirby, The Jewish Foundation for Education of Women, Edward Cantor, and Jerome Muskal (the “Stockholders,” or the “plaintiffs”) have continuously owned MONY common stock during the time period at issue. The Stockholders seek to act as class representatives for all holders of MONY common stock besides the defendants and their affiliates.
B. MONY’s Problems And Merger Talks
The complaint suggests that MONY is a company "with significant problems. The
In November 2002, the Board met to discuss what to do about MONY’s problems. MONY’s financial advisor, Credit Suisse First Boston LLC (“CSFB”), gave a report to the Board. Among other things, CSFB’s report suggested potential partners and acquirors for MONY, listing 12 companies including AXA. The Board considered and rejected the idea of publicly auctioning the Company, fearing that a failed auction would glaringly display the Company’s weaknesses and provide competitors with information they could use to steal its career agents. Instead, the Board instructed Roth to quietly explore merger opportunities.
On December 4, 2002, Roth met with the CEO of AXA, Christopher Condron. Con-dron expressed interest in acquiring MONY. That same day, Roth reported to the Board his discussions with Condron and prior discussions that he had with other potential partners. The Board was enthusiastic about a potential deal with AXA because it was a large, stable company operating under the same business model, and thus could take full advantage of MONY’s local agency network. The Board authorized solicitations of interest from AXA, but not from any other potential partner.
AXA contacted Roth in January 2003 to offer an initial transaction price of between $26 and $26.50 per MONY share. Roth negotiated with AXA over the next three months, during which time MONY and AXA entered into a confidentiality agreement that allowed AXA access to some of MONY’s nonpublic information to facilitate its due diligence. Roth summarized the negotiations to the Board on March 18, 2003.
C. Change In Control Agreements And AXA’s Initial Bid
MONY’s senior management hold Change In Control agreements (“CICs”) as part of their compensation packages. The CICs are golden parachute provisions that are triggered if MONY is acquired. During negotiations, Roth estimated to AXA that these CICs, were worth $120 million.
. On March 31, 2003, AXA proposed to acquire MONY for $28.50 per share. Sometime in April, however, AXA determined that'the CICs were actually worth about $163 million. Accordingly, on April 16, 2003, AXA lowered its offer to $26.50 per share. Around that time, Roth also met with the CEO of another insurance company, New York Life, to discuss a possible transaction, but nothing came of that.
On May 5, 2003, Roth updated the Board on his negotiations with AXA. CSFB also offered a financial analysis of a transaction at $26.50 a share. Neither Roth nor CSFB reported on soliciting oth
During these negotiations, AXA informed MONY that it would only agree to a form of stock-for-stock merger using American Depository Receipts (“ADRs”) at a fixed exchange ratio. 2 The Board met again on May 21 to discuss an ADR-for-stock merger. AXA’s proposal was 1.92 AXA ADRs for each MONY share, subject to a real dollar cap of $37 and a real dollar floor of $17 (the “Original Offer”). Uncomfortable with that wide range and the corresponding lack of clarity about the value stockholders would receive, the Board rejected the offer.
The record also suggests that the Board thought that the CICs were too large and that AXA’s offered price would have been higher if not for the CICs. The Board resolved not to approve any transaction until it could amend the CICs. Although the Stockholders argue that the CICs were the principal reason the Board rejected the merger proposal, the record testimony uniformly describes this reason for the Board’s decision as secondary.
D. The Board Amends The CICs
In June 2003, the Board engaged the compensation consulting firm Frederic W. Cook & Co. (“Cook”) to analyze the CICs (the “Cook Analysis”). On June 25, 2003, Cook reported to the Board that CICs typically amount to 1% to 3% of a proposed transaction, and sometimes up to 5%. Cook reported that MONY’s CICs were worth about $205 million, or 15.4% of the proposed merger with AXA. Cook presented information as to how the MONY CICs compared to those in similar transactions in the form of charts. The Board reviewed these charts on a number of occasions during the course of the summer of 2003.
In July 2003, the Board informed senior management that it would not renew the CICs when they expired on December 31, 2003. The Board offered management new CICs that lowered the payout provisions to 5% — 7% of the AXA transaction’s value. The Board presented the new CICs as a “take-it-or-leave-it” offer, and all management parties signed on. The total value of the CICs to all management parties if the merger consummates is approximately $79 million, of which the three Inside Directors will receive about $47 million.
In late summer, MONY received notice that the major ratings houses were again going to downgrade its credit rating. Roth was able to convince the ratings agencies to delay that event until after September 2003. Roth told those agencies that MONY was likely to have completed a strategic partnership agreement by then that would resolve its difficulties. The ratings agencies placed MONY on a “downgrade watch,” but agreed to postpone a downgrade until after September.
E. AXA’s Current Bid
Condron contacted Roth in late August to ask if MONY would be interested in a cash transaction. The Board had forbidden Roth to engage in sale negotiations
On September 17, 2003, MONY and AXA announced that they had signed a merger agreement (the “Agreement”) providing for the payment of $31 cash for each share of MONY. This price represents a 7.3% premium to MONY’s then-current trading price of $28.89. .The merger values MONY’s equity at $1.5 billion; the total transaction including liabilities is worth approximately $2.1 billion. MONY also accepted a broad “window-shop” provision and a “fiduciary out” termination .clause. The latter allows the Board to respond to a superior offer if MONY pays AXA a $50 million termination fee, which is about 3.3% of the equity value of the deal and 2.4% of the transaction value.
In the five months since the merger was announced, no one has made a competing proposal. The only other interest expressed in MONY came in a letter from the CEO of Lincoln Financial Group in October 2003 (the “2003 Letter”) indicating an interest in talking with MONY if the AXA deal failed. The 2003 Letter attached an October 2001 letter from Lincoln (the “2001 Letter”) that contained an expression of interest in exploring an acquisition of MONY. The 2001 Letter said: “If the two of us were willing to sign a confidentiality agreement that would permit mutual due diligence we could find the way to agree to a price that would be fair and appropriate for MONY stockholders. I would expect the premium to the existing price [then trading at $29.87] to be quite large.” 3
On January 16, 2004, MONY filed a final proxy statement (the “Proxy Statement”) that includes, inter alia, a description of the background of the transaction, the fairness analysis from CSFB, and the Board’s recommendation to stockholders to approve the merger. A stockholder vote is scheduled for February 24, 2004.
F. The Claims
The Stockholders make three claims in their bid to stop the merger. First, they claim that the Board breached its fiduciary duties under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. 4 by failing to procure the best possible price for MONY, presumably through a public auction. Second, they claim that the Board violated its disclosure duties in the Proxy Statement. Third, they claim that AXA and AIMA aided and abetted these breaches.
For the reasons expressed below, the
Revlon
claim lacks merit, as do most of the disclosure claims, and the aiding and abetting claim. The Stockholders have succeeded, however, in showing a probability of success on their claim that MONY’s disclosure regarding the CICs is materially misleading. This disclosure violation threatens irreparable harm because stockholders may vote “yes” on a transaction they otherwise would have voted “no” on if they had access to full or nonmisleading disclosures regarding the CICs. That harm
III.
The standard for a preliminary injunction is well established. The moving party “must establish that there is a reasonable probability of success on the merits, that irreparable harm will result if an injunction is not granted, and that the balance of equities favors the issuance of the injunction.” 5 Moreover, “in the absence of a competing offer a plaintiff must make a particularly strong showing on the merits to obtain a preliminary injunction because an injunction in such circumstances risks significant injury to shareholders.” 6
IV.
The Stockholders claim that the Board is in breach of its fiduciary duties to stockholders because it failed to maximize stockholder value. “The consequences of a sale of control impose special obligations on the directors of a corporation. In particular, they have the obligation of acting reasonably to seek the transaction offering the best value reasonably available to the stockholders.” 7 As made clear in Revlon, this mandate requires a board to get the best short-term price for stockholders in a sale of control. 8 This requirement, however, “does not demand that every change in the control of a Delaware corporation be preceded by a heated bidding contest.” 9 Rather, the basic teaching of Revlon and its progeny is that “the directors must act in accordance with their fundamental duties of care and loyalty.” 10
Specifically, the Delaware Supreme Court has held that a board can fulfill its duty to obtain the best transaction reasonably available by entering into a merger agreement with a single bidder, establishing a “floor” for the transaction, and then testing the transaction with a post-agreement market check. 11 Here, the plaintiffs challenge the Board’s determination to forego an active auction process for a post-agreement market check, the Board’s determination that the AXA offer presented the best short-term deal for stockholders, and the adequacy of any market check in the life insurance industry.
In determining whether the Board met its duty to obtain the best transaction reasonably available to the stockholders, the traditional inquiry of whether the Board was adequately informed and acted in good faith is heightened. In a change-of-control transaction, the directors have the burden of proving that they were adequately informed and acted
reasonably.
The court will scrutinize “the adequacy of the decisionmaking process employed by the directors, including the information on which the directors based their decision [and] ... the reasonableness of the directors’ action in fight of
[t]here are many business and financial considerations implicated in investigating and selecting the best value reasonably available. The board of directors is the corporate decisionmaking body best equipped to make these judgments. Accordingly, a court applying enhanced judicial scrutiny should be deciding whether the directors made a reasonable decision, not a perfect decision. If a board selected one of several reasonable alternatives, a court should not second-guess that choice even though it might have decided otherwise or subsequent events may have cast doubt on the board’s determination. 13
The plaintiffs first argue that because the Board relied upon Roth to determine and explore alternatives it breached its fiduciary duties. Specifically, the plaintiffs allege that “[t]he Board’s exclusive reliance on Roth was particularly inappropriate in view of the fact that Roth and other members of MONY’s senior management stood to gain excessive payments under the CIC Agreements if MONY was sold.” 14 The Stockholders argue that the Board should have established a special committee to continue negotiations with AXA.
This “lone wolf’ theory, as described at oral argument, cannot stand up against the record, and fails as a matter of law. A board appropriately can rely on its CEO to conduct negotiations, and the involvement of an investment banker is not required. 15 Here, it was the Board, not Roth, that decided back in November 2002 that it needed to “find a home for [the] company.” 16 The Board actively supervised Roth’s negotiations. And during this pursuit, Roth acted diligently in securing improvements for. MONY. 17 Further, the Board repeatedly demonstrated its independence and control, first in rejecting the proposed ADR-for-stock transaction and second in reducing the insiders’ CICs. Moreover, that the CICs would improperly influence Roth is doubtful. As discussed, it was the Board that made the decision to find the Company a home. Once that decision is made, the CICs, acquiror neutral, would not tilt the balance in favor of one bidder over another. For all these reasons, the independent Board’s rebanee on Roth to conduct negotiations was reasonable and well founded.
The plaintiffs next argue that the decision to forego an auction and utilize a market check was in error. Specifically, the plaintiffs point to a decision by the Board not to solicit interest from several potential acquirors, contrary to the suggestion of CSFB. The Board, however, acted in a reasonable manner in making its
The Board took into consideration a number of factors in deciding not to pursue a public auction or active solicitation process, and not to make out-going calls to potentially interested parties after receiving AXA’s cash proposal. These include a concern that an earlier attempt by Allmer-ica Financial to conduct a public auction in the life insurance industry resulted in no buyer emerging and very harsh consequences thereafter to that company’s business and the market performance of its stock; 19 that an auction or active solicitation would jeopardize MONY’s career agency force; 20 that competitors might use the process to obtain due diligence from MONY and gain access to MONY’s career agents; 21 and the knowledge of the possibility of a post-agreement market check. 22 Given the nature of MONY’s business, specifically its career agency force, the Board’s judgment was reasonable that the risks of a pre-agreement auction, as opposed to a post-agreement market check, outweighed the benefits.
The Stockholders also argue that after utilizing the nonpublic, single-bidder process, the Board did not reasonably conclude that the Agreement would result in the best transaction reasonably available. Specifically, they argue that the Board had only the slightest knowledge of Roth’s negotiations with AXA. Further, they argue that although the Board retained CSFB, it did not ask CSFB why an adjusted base case was being used, or why it was fair that AXA pay a premium below that paid in other “precedent transactions.” The plaintiffs go on to note “no director ever questioned CSFB or asked them to perform an analysis as to the relationship between MONY’s purportedly low ROE and the lack of premium in a transaction.” 23
Again, the record shows the Board acted reasonably in making its determination.
24
At the root of a judicial inquiry into whether a board met its
Revlon
duties is whether the board acted
reasonably.
In describing a board’s actions in a
Revlon
inquiry, Vice Chancellor Strine wrote, “While one would not commend the ... board’s actions as a business school model of value maximization, the process the directors used to sell the company cannot be characterized as unreasonable.”
30
Similarly here, the Board might have asked more questions of CSFB; it might have required more frequent reports of Roth.
Finally, the Stockholders challenge the adequacy of that post-agreement market check.
31
They argue that hostile bids in the insurance industry are rare and, therefore, that any “market check” mechanism is suspect. This argument presupposes that a bid during the market check would be hostile, which is simply not true. The Stockholders confuse a friendly alternative transaction proposal with a hostile bid;' the two are not the same. The Stockholders further argue that due to the complexity of the insurance industry and MONY, as well as of the CICs, other potential bidders would have to perform extensive due diligence which could not be done in time. Market checks brought before this court typically last between one and two months.
32
In
In re Ft. Howard Corp. Stockholders
Litigation,
33
this court upheld a six-week market check as a proper alternative to an active auction. Surely, the five-month period since September 17, 2003, is adequate time for a competing
The Stockholders further argue that the added costs to a competing bidder from the termination fee and CICs prevent an adequate market check. The termination fee is well within the range of reasonableness; here representing only 3.3% of MONY’s total equity value, and only 2.4% of the total transaction value. 35 And the CICs are bidder neutral; they would affect any potential bidder in the same fashion at they affected AXA. Finally, to the extent the Agreement led to an unsettled market reaction, this would not lead to a dampening of bidder interest, but an increase.
For all the foregoing reasons, in the circumstances presented by the Agreement, the court finds a five-month market check more than adequate to determine if the price offered by AXA was the best price reasonably available. At least on the preliminary record, the evidence supports a conclusion that the Board acted reasonably in determining its course of action and has met its Revlon duties.
y.
The Stockholders claim that the proxy materials were materially false and/or misleading in several respects. Directors of Delaware corporations, in order to fulfill their fiduciary duties to stockholders when seeking stockholder action, must disclose fully and fairly all material information within the board’s control. 36 In Rosenblatt v. Getty Oil Co., the Delaware Supreme Court adopted the United States Supreme Court’s test for materiality:
An omitted fact is material if there is a substantial likelihood th'at a reasonable stockholder would consider it important in deciding how to vote.... [This standard] does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable stockholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the “total mix” of information made available. 37
This objective standard is augmented by the rule that while directors do not have to provide information that is simply “ ‘helpful,’ ” once they take it upon themselves to disclose information, that information must
With this standard in mind, the court addresses the plaintiffs’ disclosure claims. The plaintiffs’ claim regarding disclosure of a comparative analysis of CICs in comparable transactions is discussed first; followed by a discussion of the proxy claims which do not have a reasonable probability of success on the merits.
A. Misrepresentations Regarding The CICs
The plaintiffs argue that the Proxy Statement is misleading because it fails to disclose the percentage of transaction value of aggregate payments to be made under the amended CICs as compared to payments in similar transactions. The Cook Analysis included in the Company’s minutes from the Board’s July 1, 2003 meeting shows that the mean CIC payment as a percentage of deals for selected financial services industry transactions is 3.37%. 41 The 25th and 75th percentile for such transactions is .94% and 4.92%, respectively. The base case under the original CICs for MONY would have been 15.39% of the Original Offer. The amended CICs lowered that number to 6.37%, still well above the 75th percentile. 42
At oral argument, counsel on both sides spent considerable time discussing whether the Board considered this analysis in deciding whether or not to approve the Agreement. Whether it did or not, notwithstanding the Pure Resources standard for disclosure of analysis relied upon by a board, the fact that the payments under the CICs were above the 75th percentile in this analysis is material under the Rosenblatt standard for materiality, and thus is required to be disclosed as material information within the Board’s control as dictated by Stroud v. Grace, 43
The history of AXA’s bidding shows that there is essentially a 1:1 ratio between the value of the CICs and the amount per share an acquiror offers. The Cook Anal
Moreover, disclosure of comparative information is made necessary by the extensive disclosure in the Proxy Statement about steps the Board took to lower the payments under the CICs. This disclosure creates the strong impression that the amended CICs are in line with those in comparable transactions. Specifically, the Proxy Statement informs:
Together with their independent advis-ors, the independent directors developed a proposal for amended CIC agreements that would substantially reduce the cost of these agreements. The independent directors concluded, with the assistance of their advisors, that the amended CIC agreements would be more consistent with current market practices than the then existing control transactions.
The amended CIC agreements made a number of changes to the prior CIC agreements, as a result of which the potential payments to the executives in the aggregate were reduced by slightly more than one-half of the potential payments under the prior CIC agreements .... The aggregate amount of the potential payments to the individuals under the amended CIC agreements, based on certain assumptions, was estimated by the advisors to the independent members of the board of directorsin July 2003 to be approximately $79 million on a pre-tax basis when compared to the prior CIC agreements. .
... Mr. Roth stated to [Mr. Condron] that he believed AXA Financial should increase the price to be paid to MONY’s stockholders in the potential transaction by the potential reduction in payments to the executives under the amended CIC agreements that was in excess of the potential cost savings under the pri- or CIC agreements that had been preliminarily agreed to in May with AKA Financial.
... In considering the proposed adjustments, the MONY board of directors reviewed and discussed the substantial cost savings to MONY that resulted from the executives’ decision to enter into the amended CIC agreements in replacement of the then-existing CIC agreements, and the resulting enhancement of stockholder value in the merger.... 46
Thus, even if the Board was under no separate duty to disclose the comparative analysis, it has, by what it did elect to include in the Proxy Statement, “traveled down the road of partial disclosure of the history leading up to the Merger,” and thus has “an obligation to provide the stockholders with an accurate, full, and fair characterization of those historic events.” 47 By so heavily emphasizing the reduction in payments under the CICs and the direct correlation between that reduction and the price per share Roth was able to negotiate, without mentioning the comparative analysis, the Proxy Statement misleadingly implies that the payments under the CICs are consistent with current market practices. Of course, they are considerably more lucrative than is normal.
Disclosure of this information would not be a form of “self-flagellation” Delaware courts have rejected. “Self-flagellation,” as that term is described in Stroud, involves the drawing of “legal conclusions implicating [the board] in a breach of fiduciary duty from surrounding facts and circumstances prior to a formal adjudication of the matter.” 48 If anything, facts presented in both briefs, as well as those in the Proxy Statement, seem to point toward acceptable board behavior in the approval of the CICs. Rather than simply requiring the Board to engage in “self-flagellation,” disclosure here would serve the important purpose of providing information likely to alter the total mix of information available to MONY stockholders.
B. Comparative Companies And Transaction Analysis
The Stockholders next complain that the Proxy Statement did not disclose the alternative groupings of companies that CSFB used for comparison in the appendix of its report to the Board, and that it did not reveal that 18 of the 71 similar transactions analyzed by CSFB lacked sufficient data to provide a proper comparison. This, the Stockholders claim, amounts to withholding information upon which the Board relied in making its recommendation.
The only authority the Stockholders cite for this stretch is
Pure Resources,
which does not support their position.
Pure Resources
requires a “fair summary”
. It is also immaterial, as a matter of law, that CSFB could not obtain next-12-month earnings on 25% of similar transactions over the last 8 years. The Stockholders do not explain what weight that fact could have to the Board or the Stockholders, nor do they suggest that 53 similar transactions was an insufficient number for CSFB to analyze. 52 The only change the Stockholders seem to want is from “CSFB analyzed 71 transactions” to “CSFB analyzed 71 transactions, but decided that relevant information was available for only 53 of them.” This triviality could not reasonably be expected to affect the total mix of information.
C. MONY’s Book Value
The Stockholders’ complaint about CSFB’s methodologies fails for similar reasons. In order to show the Board how an acquiring company would view MONY, CSFB valued the Company utilizing a technique under the purchase method of accounting. This analysis included certain hypothetical adjustments to MONY’s balance sheet that resulted in an increase in MONY’s expected earnings, but a decrease in its book value. Because CSFB’s “adjusted” case resulted in a lower book value, the Proxy Statement contains certain disclosures comparing the $31 deal price to this adjusted book value, as well as to the unadjusted book value, Since the “adjusted” ratios make the $31 price per share look better, the Stockholders argue that their disclosure is misleading.
Neither use of the purchase accounting method in this analysis, not mere disagreement with a financial advisor’s chosen methodology creates a disclosure claim. 53 The Stockholders have not suggested that MONY was for some reason barred from presenting CSFB’s analysis, an analysis recognized under GAAP, rather than their preferred book value analysis. The nature of the CSFB exercise is fully disclosed, and the Proxy -Statement presentation of that information does not appear to be misleading.
The Stockholders also complain that the Proxy Statement does not disclose whether CSFB applied a purchase accounting adjustment to the 13 compared companies, and thus may present a flawed and misleading “apples-to-oranges” comparison. This claim fails because the Proxy Statement contains an express disclaimer on that subject, warning that “[t]he tables
D. Disclosure of the 2003 And 2001 Letters
The plaintiffs challenge the adequacy of the Proxy Statement’s disclosure regarding the 2003 and 2001 Letters. The Proxy Statement discloses the history of MONY’s receipt of, and the content of, these letters as follows:
On October 3, 2003, the Chief Executive Officer of MONY received a personal letter from the Chief Executive Officer of a third party who, in 2001, had expressed an interest in a possible business combination with MONY. The letter conveyed best wishes for success in closing the merger with AXA Financial and expressed confidence that the transaction would be consummated. The letter went on to indicate that in the unlikely event that the transaction did not close, MONY should not hesitate to contact the third party.” 57
The plaintiffs argue that both the 2003 and 2001 Letters constituted firm offers, and are ispo facto material. Alternatively, they argue that even if those letters did not constitute firm offers, the partial disclosure offered by the Proxy Statement is misleading and makes the full disclosure of those letters material.
As the Delaware Supreme Court stated in Bershad v. Curtiss-Wright Corp., “[e]fforts by public corporations to arrange mergers are immaterial under the Rosenblatt v. Getty standard, as a matter of law, until the firms have agreed on the price and structure of the transaction.” 58 The 2003 Letter did not provide a price or structure; it was not a definitive offer. It simply expressed an interest in discussing the possibility of a combination if the AXA deal fell through; indeed, it did so at the same time as expressing a confidence that the AXA deal would go through. The 2003 Letter thus is not, by itself, material under Bershad. 59
Finally, the court must consider whether the disclosures in the Proxy Statement regarding these matters are partial and misleading. 61 As discussed, a proxy statement disclosing the history leading to the transaction must contain an “accurate, full, and fair characterization of those historic events.” 62 In Arnold v. Society for Savings Bankcorp. Inc., the Delaware Supreme Court found a partial disclosure in a proxy statement to be misleading. In Arnold, a subsidiary of a company had been the subject of a highly contingent bid. for $275 million in the context of a prior, failed auction. The company, with its subsidiaries, ultimately merged in a transaction valued at only $200 million. The proxy statement sent out in connection with the merger did not disclose the $275 million figure of the earlier bid. The Supreme Court concluded that given partial disclosures regarding the history of the board’s process, a reasonable stockholder might conclude that “there only was an ‘evaluation,’ an ‘investigation,’ ‘certain potential indications of interest,’ and that there were no ‘genuine’ bids for actual dollar amounts in an ‘auction.’ ” 63 Without deciding whether or not the contingent bid by itself would be material, the Supreme Court ruled that the partial disclosures were misleading, especially given that the later merger transaction was valued at 37% less than the bid for the subsidiary.
Arnold involved nondisclosure of genuine offers for a subsidiary above the value of the actual transaction, coupled with misleading statements implying the board only received potential indications of interest. The 2008 and 2001 Letters are in no way comparable to the contingent offer in Arnold. Thus, the Proxy Statement is not misleading as a result of its nonde-tailed description of those letters. For the foregoing reasons, the Proxy Statement discloses all material information in connection with communications from Lincoln Financial Group in an adequate fashion under Delaware fiduciary duty law.
E. Statements Regarding The Sale Process
The Stockholders’ next claim is that the Proxy Statement misleadingly implied that MONY shopped itself by disclosing that Roth had conversations with po
Without belaboring the point, I cannot find that a reasonable stockholder would interpret “we had conversations from time to time as opportunities arose” as meaning “we actively shopped the Company.” That interpretation piles inference upon inference relatively far afield from the disclosed facts, which are themselves truthful. 64
F. Rejection Of The Original Offer
The plaintiffs take issue with the discussion in the Proxy Statement of the Original Offer. The plaintiffs’ brief notes: “The Proxy Statement states that the MONY Board ‘was not willing to accept AXA Financial’s current offer principally due to concerns regarding the potential volatility of AXA’s American Depository Receipts.’ ” 65 The plaintiffs take this statement out of context. Read fully, the Proxy Statement discloses that “[l]ater that evening, Mr. Roth informed Mr. Con-dron that the MONY board of directors was continuing to consider MONY’s strategic alternatives, but was not willing to accept AXA. Financial’s current offer principally due to concerns regarding the potential volatility of AXA’s American Depository Receipts.” 66 The plaintiffs do not present any record to the court challenging that this is what Roth conveyed to Condron, and one can conceive of many reasons for conveying this information, as opposed to concerns over the CICs, to a potential acquiror. Further, the following sentence in the Proxy Statement, “[a]s a result, on May 21, 2003, MONY and AXA Financial ceased negotiations regarding the proposed transaction,” merely conveys that, as a result of the conversation between Roth and Condron, negotiations ceased.
Moreover, the proceeding paragraph in the Proxy Statement does not misleadingly describe the May 21, 2003 Board meeting. While the bulk of the paragraph discusses Board concern over a transaction involving ADRs, it concludes with the statement, “[t]he MONY board of directors also
extensively discussed
the CIC agreements, including the potential payments to the executives in the event of a transaction with AXA Financial followed by termination of their employment under the circumstances described in the CIC agreements.”
67
The plaintiffs mistakenly concentrate on the length of the passage without looking to the words themselves. The Proxy Statement, read in full, makes clear the centrality of the CICs to the Board’s overall concern. The Proxy Statement reports on a July 3, 2003 Board meeting: “The MONY board of directors ... directed that MONY and its advisors cease all discussions with any third parties relating to the sale of MONY or any other transaction that would result in a change in control of MONY under the agreements until such time as the existing agreements expired or the amended CIC agreements were entered into.”
68
Based upon the
G. Misrepresentation Of Reasons For Increase In MONY Value
The Proxy Statement discloses that the Board believed that MONY’s stock price around September 17, 2008 was inflated by speculation about a possible acquisition and that the $31 offer was fair given the result of that speculation. 69 The Stockholders do not challenge the truth of the disclosure, and it is difficult to see how they could considering it only states the subjective belief of the Board at the time. Instead they lamely complain that this statement of belief conditioned stockholders to think that MONY would not eventually recover from its recent troubles and should be immediately sold.
This claim is without merit. The disclosure at issue states that the Board came to its belief about speculative inflation based on the advice it received from CSFB. It is hardly misleadingly for the Board to disclose that it relied on its financial advisor to determine the underlying value of its shares, and that speculation was one factor that the advisor considered. The Proxy Statement does not say that all of the price increase was due to speculation or that the Board was providing an objective analysis of the price increase; it only states the Board’s belief that there was some speculation-based increase. This would not.have altered the total mix of information for a reasonable stockholder. 70
YI.
Delaware courts “recognize the irreversible harm which would occur by permitting a stockholder vote on a merger to proceed without all material information necessary to make an informed decision.” 71 Indeed, “the irreversible nature of a stockholder vote on a merger supports the argument that any possible harm caused by a tainted voting process would be irreparable.” 72 The misleading CIC disclosure in this case would likely cause some stockholders to accept the proposed cash-out when they otherwise would not.
Here, an injunction would remedy the wrong caused to the Stockholders’ right to cast a vote after a full and fair disclosure of material facts. Because the
VII.
For the foregoing reasons, and to the limited extent already described, the plaintiffs’ motion for preliminary injunction is granted. The parties shall submit an order in conformity with this opinion.
Notes
. Durham Dep., at 24-25. Depositions submitted to the court and cited herein will be referred to as Name Dep.
. ADRs are a mechanism for sponsoring dollar-denominated trading in foreign securities. A bank holds a number of foreign shares in custody overseas and assigns ADRs to represent interests in those shares. The ADRs can then be traded on American markets like traditional stock. ADRs can carry more risk, however, in that they are subject to fluctuations between the dollar and the currency of the foreign market, in this case the euro.
. Transmittal Aff. of Seth D. Rigrodsky in Supp. of Pis.' Mot. for a Prelim. Inj. ("Rigrod-sky Aff.”), Ex. 24.
.
.
In re Aquila, Inc. S’holders Litig.,
. Id.
.
Paramount Communications, Inc. v. QVC Network, Inc.,
.Revlon
.
Barkan v. Amsted Indus., Inc.,
. Id.
.
Id.
at 1287;
see also In re Pennaco Energy, Inc. S’holders Litig.,
.
Paramount Communications, Inc.,
. Id.
. Pl.'s Opening Br. in Support of their Mot. for a Prelim. Inj. ("Opening Br.”), at 39.
.
See In re Pennaco,
. See Durham Dep., at 218-19.
.See Stoddard Dep., at 147 (reporting on management’s attempt to seek more money, and stating, ”[t]he results of the negotiations were what ultimately ended up being a higher exchange ratio than the 1.8 indicated previously”); Condron Dep., at 32 (recalling an April 22 meeting where "Michael Roth was pushing for a higher price”); Roth Dept., at 207-09 (discussing negotiations with Henri de Castries, chairman of AXA's managing board).
.
In re Pennaco,
. See Durham Dep., at 37, 210-11; Roth Dep., at 181, 304-05; Foti Dep., at 83. The plaintiff stockholders describe reference to Allmerica as a red herring because “by the third quarter of 2003 Allmerica had turned itself around and reported a 2003 profit of $1.63 per share compared to a $5.79 per share loss in 2002.” Pis.’ Reply Br. in Supp. of their Mot. for a Prelim. Inj. (“Reply Br.”), at 24. The Board’s decision to proceed with the merger was made during the third quarter of 2003, during which it did not have the benefit of this information. And, as the plaintiffs concede, ”[i]n the short term, the failure of the Allmerica transaction may have looked like a debacle to shareholders.” Id. This poor short-term result not only could have, but should have been considered by a company already faced with the prospect of a downgrade in credit ratings.
. See Durham Dep., at 210-11; Stoddard Dep., at 224; Roth Dep., at 181, 304-05; Foti Dep., at 83.
. See Stoddard Dep., at 224-25; Roth Dep., at 133, 305.
. See Durham Dep., at 210-11; Foti Dep., at 83.
. Reply Br., at 26.
. Although in their reply brief, the plaintiffs state, ”[i]n fact, as recently as October 2003 another bidder, which MONY has refused to talk to, has surfaced,” the plaintiffs conceded at oral argument that they were not basing a
.
Cf. In re Pennaco,
. See Durham Dep., at 209; Roth Dep., at 39; 86; Stoddard Dep., at 174; Foti Dep., at 42-43, 55, 59-60; see also Rigrodsky Aff., Ex. 12, at MONY 05726 (Minutes of the Board Meeting on May 13, 2003) (“Mr. Roth then again proceeded to discuss the potential alternatives to the transaction under discussion. In this regard, he once again reviewed the history of other alternative transactions which had been considered by management dating from the 1990 timeframe to the present.”).
.
See McMillan v. Intercargo Corp.,
.
Accord In re Vitalink Communications Corp. S’holders Litig.,
. Stoddard Dep., at 243. And while CSFB did not participate directly in the negotiations, this was due to a reasonable concern that CSFB's involvement could cause AXA to get its own investment banker, which MONY believed would "increase the risk of leaks and might result in a more extensive due diligence process” to its detriment. Id., at 242.
.
In re Pennaco,
.The market check, as structured in the Agreement, is quite open and broad. A "window-shop” provision in the Agreement prohibits MONY from "solicit[ing], initiating] or knowingly encourage[ing], or tak[ing] any other action to in any way knowingly facilitate, any inquiries or the making of any proposal that constitutes or could reasonably be expected to lead to an Alternative Transaction Proposal.” Rigrodsky Aff. Ex. 2, at A-30. There is a very broad out attached to this prohibition:
Notwithstanding the foregoing, at any time prior to obtaining the Company Stockholder Approval, in response to a bonafide written Alternative Transaction Proposal that the board of directors of the Company determines in good faith by resolution duly adopted, after consultation with outside legal counsel and a financial advisor of nationally recognized reputation, constitutes or is reasonably likely to constitute a Superior Proposal, and which Alternative Transaction Proposal was unsolicited and made after [September 17, 2003] ... the Company may, subject to compliance with Section 7.4(c) [a notice provision], and after giving AFI written notice of such action, (x) furnish information with respect to the Company and the Company Subsidiaries to the Person making such [a proposal] pursuant to an executed confidentiality agreement containing terms and provisions at least as restrictive as those contained in the Confidentiality Agreement, provided that all such information has previously been provided to AFI or is provided to AFI prior to or substantially concurrently with the time it is provided to such Person, and (y) participate in discussions or negotiations with the Person making [the proposal] regarding [the proposal].
Id. at A-30. Alternative Transaction Proposals are defined to include "any inquiry, proposal or offer from any Person relating to, or that could reasonably be expected to lead to” a business combination with MONY. Id. at A-42. To be considered a Superior Proposal, the Alternative Transaction Proposal must be a bona fide written proposal for at least 50% of the voting power of the common stock or 50% of the consolidated assets of MONY that is not dependent on financing not then committed, and that the Board, in good faith, determines would (A) result in a transaction that, if consummated, is more financially favorable to holders of Common Stock than the Merger; and (B) is reasonably capable of being completed on the terms proposed. See id. at A-44. A termination fee of $50,000,000 is provided for.
Thus, while MONY could not actively solicit offers during the market check period, it could, subject to a reasonable termination fee, pursue inquiries that could reasonably be expected to lead to a business combination more favorable to stockholders than the Agreement and are reasonably capable of being completed on the terms proposed.
.
See, e.g., Kohls,
. 1988 Del. Ch. Lexis 110, at *37-46 (Del. Ch. Aug. 8, 1988).
. See N.Y. Ins. Law § 7312(v) (McKinney 2004).
.
See Kysor Indus. Corp. v. Margaux, Inc.,
.
Stroud v. Grace,
.
.
In re Staples, Inc. S’holders Litig.,
.
Arnold v. Soc’y for Sav. Bankcorp.,
.
. Rigrodsky Aff. Ex. 18, at MONY 05994 (Minutes of the Board Meeting on June 25, 2003).
. AXA argues that the 6.48% is the maximum percentage of the amounts that can be paid pursuant to the amended CICs, and the amounts set forth in the comparative analysis are the percentage of amounts actually paid in comparable transactions. See Cook Aff., at 291-92. The court does not agree that as a result, this comparison can be described as "apples-to-oranges." Def. AXA’s Answering Br. in Opp'n to Pis.’ Mot. for a Prelim. Inj. ("AXA Br.”), at 40. Further, while Durham testified that the numbers may shrink, he guessed that they would shrink to about 4.5%, still above the 75th percentile. Durham Dep., at 155.
.
. As recently as September 9, 2003, the Compensation Committee reviewed comparative information about CICs in comparable transactions. See Ex. A to MONY Def.’s Feb. 17, 2004 Letter to the Hon. Stephen P. Lamb, at'MONY 07183. That information, together with information presented to the Board at its September 17, 2003 meeting, see Rigrodsky Aff., Ex. 21, at MONY 07357, should give stockholders meaningful information about the relationships between the CICs and the $31 per share merger price.
.
Rosenblatt,
. Rigrodsky Aff., Ex. 2, at 25-28 (emphasis added).
.
Arnold,
.
.
.
See In re Vitalink,
. The only piece of the record the Stockholders cite indicates that the Board relied not on the appendix material, but on CSFB's opinion, the crux of which was the 13-company comparison in the body of the presentation. Opening Br. at 24, citing Roth Dep., at 292-309.
. Even if they did, a complaint about the accuracy or methodology of a financial advis- or's report is not a disclosure claim.
Cf. In re JCC Holding Co., Inc. S’holders Litig.,
. Id.
. Rigrodsky Aff., Ex. 2, at 34.
. Id.
. This court considered and rejected a similar “apples-to-oranges” problem in
In re Wheelabrator Tech’s Inc. S'holders Litig.,
. Rigrodsky Aff. Ex. 2, at 31.
.
. The plaintiffs point to a letter from Roth stating that the Company's outside counsel believed the letter "arguably constitutes an ‘Alternative Transaction Proposal.' ” Rigrod-sky Aff. Ex. 24. Alternative Transaction Pro-
.Opening Br. at 28.
.
Cf. Arnold,
. Id. at 1280.
. Id. at 1282.
.
See Emerald Partners v. Berlin,
. Opening Br. at 32.
. Rigrodsky Aff. Ex. 2, at 24 (emphasis added).
. Id. (emphasis added).
. Id. at 25-26.
. Id. at 29-30 ("The belief of the MONY Board of directors, based on discussions with MONY's management and MONY’s financial advisors and publicly available research analysts' reports, that the market price of MONY common stock in the months immediately preceding the September 17, 2003 public announcement of the proposed merger was inflated by the speculation concerning a possible acquisition of MONY and the premium that AXA Financial’s offer of $31 per share represented after taking into account this likely inflation.”).
. The court notes in passing that the Stockholders would have required the Board to account for alternative reasons for the price increase, such as investor optimism regarding a general recovery in equity markets. Not only is a board not required to engage in such speculation (which in any case is not mandated in a subjective statement of belief), it is likely forbidden from doing so.
See Loudon v. Archer-Daniels-Midland Co.,
.
State of Wis. Inv. Bd. v. Bartlett,
.
In re IXC Communications, Inc. v. Cincinnati Bell, Inc.,