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An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. 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.
When an investor suggested to Lear Corporation’s chief executive officer (CEO) that a going private transaction was in the corporation's best interest, the corporation's board of directors formed a special committee. The committee authorized Lear’s CEO to negotiate merger terms with a company affiliated with the investor. After agreement upon the terms of the sales process, the board's advisors shopped the corporation to potential buyers. No one made a bid topping the investor's bid. Plaintiff stockholders moved to enjoin an upcoming merger vote, arguing that the Lear board breached its duties under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), and has further failed to disclose material facts necessary for the stockholders to cast an informed vote.
Did the Lear board breach its Revlon duties and fail to disclose material facts necessary for the stockholders to cast an informed vote regarding the merger, necessitating the grant of injunction to prevent the merger vote?
The court found that it was unlikely that the stockholders would have succeeded on their claims as to the sale process because there was no evidence that the committee's permitting the CEO to negotiate the merger terms adversely affected the overall reasonableness of the board's efforts to secure the highest possible value. However, the stockholders were entitled to know that the CEO may have had material economic motivations as to his retirement benefits that differed from their own and could have influenced his negotiating posture. Accordingly, the court largely denied the motion for a preliminary injunction, with the exception that a preliminary injunction be issued preventing the merger vote until supplemental disclosure was issued regarding the CEO's overtures to the corporation's board of directors concerning his retirement benefits.