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Delaware Court Of Chancery Holds That Corwin Cleansing Applies To Claims Related To Reduction Of Acquisition Price
07/17/2024On June 21, 2024, Vice Chancellor Nathan A. Cook of the Delaware Court of Chancery granted a motion to dismiss a putative stockholder class action asserting breach of fiduciary duty claims against the officers and directors of a software company (the “Corporation”) after its acquisition. In re Anaplan, Inc. Stockholders Litigation, C.A. No. 2022-1073-NAC (Del. Ch. June 21, 2024).
Plaintiff contended that certain post-signing equity grants allegedly violated a merger agreement and enabled the acquiror to negotiate a price reduction. The Court, however, dismissed the claims under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), because the transaction was “approved by a fully informed, uncoerced vote of the disinterested stockholders.”
Plaintiff, a pre-merger stockholder, brought the action after the Corporation was acquired by a private equity firm. Under the initial merger agreement—entered in March 2022—the acquisition price was set at approximately $10.7 billion at $66.00 per share. Soon thereafter, according to plaintiff, the Corporation issued certain equity grants to executives and other employees purportedly in violation of covenants in the merger agreement. Plaintiff further alleged that this enabled the private equity acquiror to negotiate a reduction in the acquisition price to $63.75 per share, amounting to a “$400 million haircut,” pursuant to a revised merger agreement entered in June 2022.
Notwithstanding the reduction, the transaction still reflected a substantial per share premium for stockholders as compared to the unaffected stock price before the merger; and the stockholders “overwhelmingly approved the renegotiated transaction.” Plaintiff, however, argued that the challenged conduct involved matters “extrinsic” to the stockholder vote and, therefore, not subject to Corwin.
In dismissing the claims, the Court noted that decisions related to Corwin and its underlying policy are not “intended to apply narrowly.” The Court elaborated: “So long as a stockholder vote under Corwin applies to cleanse the deal process leading to a merger that equity owners choose to accept, I see no basis to demarcate artificially [d]efendants’ actions here in the handful of weeks between signing the [o]riginal [m]erger [a]greement and negotiating and signing an amendment to that agreement.”
The Court also rejected plaintiff’s contentions that the vote was uninformed and coerced. The Court noted that a supplemental proxy was distributed which set forth the board’s position that it believed the Corporation had acted in good faith in compliance with the original merger agreement, but a “bona fide dispute” had arisen and the board made the business judgment to agree to the price reduction to secure the deal.
As to coercion, plaintiff asserted that stockholders had no rational choice other than to approve the renegotiated merger, once that was all that was available. But the Court explained that “it does not follow that a merger, or the vote thereon, is situationally coercive under our law simply because the merger offers a premium relative to the expected trading price for shares if stockholders do not approve the deal.” At bottom, according to the Court, the stockholders “had a choice to accept the revised merger or to vote it down and thereby regain their shares in the standalone company,” and “[t]he difference between good, better, and best” does not amount to coercion.
