Maric Capital Master Fund, Ltd. v. PLATO Learning, Inc., C.A. No. 5402-VCS (Del. Ch. May 13,
2010), read opinion here.
Whether a proposed merger should be enjoined due to the breach of the
disclosure duty in connection with the proxy statement.
Although the Court rejected an argument that the Revlon duty was
breached, the Court did enjoin a proposed merger after a preliminary
injunction hearing in light of the Court concluding that corrective disclosures
were required on three issues in the proxy statement.
The Court explained three parts of the proxy statement that breached the disclosure
duty and warranted injunctive relief. See In Re Transkaryotic Therapies,
Inc., 954 A.2d 346, 360-61 (Del. Ch. 2008)(breach of the disclosure duty
leads to irreparable harm).
This short decision was issued on the same day as the
preliminary injunction hearing. At the preliminary injunction hearing the Court
initially denied a request for a preliminary injunction based on the Revlon issue,
but later the same day, after reviewing the record, issued this opinion that did
grant a preliminary injunction until corrective disclosures in the proxy
statement were made. The three parts to the proxy statement that the Court
reasoned were in need of correction before the merger could proceed, were the
1) The proxy statement presented a materially misleading
description of how the investment bank that provided the board with a fairness
opinion, came to its discount rate for the discounted cash flow valuation. See
In Re MONY Group Inc. S'holder Litig., 852 A.2d 9, 25 (Del. Ch. 2004)(Once
directors take it upon themselves to disclose information, that information
must not be misleading); See also Lynch v. Vickers Energy Corp., 383
A.2d 278, 281 (Del. 1977)(holding that defendants violated their duty of
disclosure when they disclosed a "floor value, but not an equally reliable
'ceiling' value, because 'full disclosure . . . was a prerequisite to endorsing
one value over another'").
2) The Court determined that the proxy statement selectively
disclosed projections relating to PLATO's future performance. In particular,
the Court reasoned that "the proxy statement for some inexplicable reason
excised the free cash flow estimates that had been made by PLATO's management
and provided to [the investment banker]." See Simonetti Rollover IRA v.
Margolis, 208 WL 5048692, at * 10 (Del. Ch. June 27, 2008)("A proxy
statement should 'give the stockholders the best estimate of the company's
future cash flow as of the time the board approved the transaction'").
3) The third corrective disclosure the Court required was
based on the proxy statement not providing sufficient information about the
discussions between management and the prospective purchaser regarding the
retention of existing management. The Court referred to handwritten notes and
other documents indicating the discussions that current management had with the
prospective purchaser. The Court concluded as follows: "Although I see no
reason in the record or from my understanding of industry practices to believe
that PLATO's management would not have rationally believed that another private
equity buyer would provide incumbent management with similar incentives, the
proxy statement in my view creates the materially misleading impression that
management was given no expectations regarding the treatment they could receive
from Thomas Bravo.
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Pileggi, of Fox Rothschild LLP.