Law School Case Brief
In re Trulia, Inc. Stockholder Litig. - 129 A.3d 884 (Del. Ch. 2016)
Under Delaware law, when corporate directors solicit stockholder action, they must disclose fully and fairly all material information within the board's control. Delaware has adopted the standard of materiality used under the federal securities laws. Information is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. In other words, information is material if, from the perspective of a reasonable stockholder, there is a substantial likelihood that it significantly alters the "total mix" of information made available.
Defendant Trulia, Inc., a Delaware corporation, and defendant Zillow, Inc., a Washington corporation, entered into a definitive merger agreement under which Zillow would acquire Trulia for approximately for $3.5 billion in stock. The transaction was structured to include two successive stock-for-stock mergers whereby separate subsidiaries of Holdco would acquire both Trulia and Zillow. After the merger was announced, four Trulia stockholders filed class action complaints challenging the Trulia merger and seeking to enjoin it. Each of the complaints alleged essentially identical claims: that the individual defendants had breached their fiduciary duties, and that Zillow, Trulia, and Holdco aided and abetted those breaches. Holdco then filed a registration statement containing Trulia and Zillow’s preliminary joint proxy statement with the United States Securities and Exchange Commission. The parties then entered into an agreement-in-principle to settle. Under the proposed settlement, Trulia agreed to supplement the proxy materials disseminated to its stockholders before they voted on the proposed transaction to include some additional information that theoretically would allow the stockholders to be better informed in exercising their franchise rights. In exchange, plaintiffs dropped their motion to preliminarily enjoin the transaction and agreed to provide a release of claims on behalf of a proposed class of Trulia's stockholders. If approved, the settlement will not provide Trulia stockholders with any economic benefits. Because a class action impacts the legal rights of absent class members, the Court of Chancery, in exercising its independent judgment to determine whether a proposed class settlement is fair and reasonable to the affected class members, considered the settlement agreement.
Should the Delaware Court of Chancery approved the proposed class settlement?
The Court found that the terms of the proposed "disclosure settlement" were found not to be fair or reasonable because none of the supplemental disclosures were material or even helpful to acquired corporation's stockholders, and thus the proposed settlement did not afford them any meaningful consideration to warrant providing a release of claims to defendants; the proxy already provided a more-than-fair summary of the acquired corporation's financial advisor's financial analysis in each of the four respects criticized by plaintiffs. Thus, the approval of the proposed settlement was denied.
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