Filed: August 19, 2016
Opinion by: Judge Wright, Jr.
Holding: The mere statement of the existence of an offer, which is in excess of an accepted offer in a strategic transaction, is not sufficient to constitute a breach of a fiduciary duty to maximize value when the offer is subject to variability and is in close proximity to the price per share in the accepted offer.
Facts: Target, a Maryland corporation, discussed a strategic transaction with three companies at various points over several months – Party A, Party B and the acquirer. Target declined Party A’s proposal, which demonstrated an interest in acquiring target’s common stock for $58.00 per share. On May 22, 2014, Party B entered into a non-disclosure agreement with target. After three meetings of target’s board of directors on June 2, 2014, June 4, 2014 and June 5, 2014, target entered into exclusive negotiations with the acquirer. During the exclusive negotiations, Bloomberg published a news article speculating that target and acquirer were nearing a possible transaction. The price of target’s common stock rose from $57.71 on June 16, 2014 to $66.33 on June 17, 2014. Also on June 17, 2014, Party B contacted target noting the Bloomberg article and expressed further interest in a potential transaction. Party B later submitted a non-binding indication of interest to acquire target in an all-cash transaction at a price range of $67.00 to $70.00 per share, subject to a number of assumptions and contingencies.
Target was acquired by acquirer in a $5.3 billion all-cash tender offer, at a purchase price of $68.00 per share, followed by a short-form merger. Certain stockholders filed complaints against target and its board of directors alleging the price and the process used to negotiate that price were unfair, breach of fiduciary duties, including value maximization duties, and aiding and abetting such breaches. The circuit court granted defendant’s motion to dismiss.
Analysis: When parties assert that the selling price of a company is inadequate, courts require a “showing of lack of diligence, failure to exercise judgment, lack of good faith or the existence of such conflicting interests…as to raise doubts of the ability of the trustee to live up to the duty of loyalty he owes to the beneficiaries.” Madden v. Mercantile (27 Md. App. 17 (1975)). Maryland courts have recognized that fair value is a variable sum, dependent on a multitude of factors. “A price of [the stock] cannot be determined unreasonable ‘unless falsified by something more tangible than the unverified book value of the corporation, especially when those in control, with their intimate knowledge of the present and prospective affairs of the corporation, were willing to part with that control and sell their stock at the price offered.’”
Plaintiffs pled that there was a tentative offer from Party B that, at best, proposed $70.00 per share. The Court provided: “[s]tating that an offer of such nature existed is not nearly sufficient to constitute breach of fiduciary duty, especially considering its variability and proximity” to the agreed price per share. The Court noted that several statements made by the plaintiffs subverted the stated $70.00 per share price and therefore made it speculative. The Court further noted that plaintiffs could not point to a deal protection device that prevented another company from bidding and stated that, therefore, the target did not favor the acquirer. The Court dismissed the breach of duties claim.
The opinion is available in PDF.
This is an unreported opinion. See Md. Rule 1-104.