(Article from Securities Law Alert, April 2017)
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On March 23, 2017, the Delaware Supreme Court affirmed an August 2016 Chancery Court decision holding that the board of C&J Energy Services had no obligation to provide shareholders with details concerning an offer that the directors deemed not worth pursuing. City of Miami Gen. Emps. and Sanitation Emps. Ret. Trust, 2017 WL 1093185 (Del. 2017) (en banc).[1]
C&J shareholders contended that the company “should have given stockholders more information regarding the potential alternate bidders who materialized during the [c]ourt-ordered solicitation process”, in particular details regarding a competing bid from Cerberus. City of Miami Gen. Emps. and Sanitation Emps. Ret. Trust v. Comstock, 2016 WL 4464156 (Del. Ch. Aug. 24, 2016) (Bouchard, C.). The Chancery Court found that “Delaware law does not require disclosure of a play-by-play of negotiations leading to a transaction or of potential offers that a board has determined were not worth pursuing.”
The Proxy Statement did disclose that “the Special Committee had determined that the Cerberus bid was not reasonably likely to lead to a proposal superior to the” offer from a subsidiary of Nabors Industries, which the C&J Board ultimately accepted. The Chancery Court found that plaintiffs’ “substantive disagreement with that decision [could not] be recast as a disclosure claim.”
On appeal, the Delaware Supreme Court held that plaintiffs “failed to plead facts supporting a rational inference that the one bid made [by Cerberus] would have been regarded as material.” The court found plaintiffs “pled no fact supporting the inference that the one bid was financially superior, much less that the bidder was willing to raise its bid to a level that was in fact superior to the Nabors deal.” The court also emphasized that “the go-shop process involved a broad outreach to every plausible bidder, [and] the investment bank running the go-shop process had a large incentive to get a superior deal.” The court concluded that plaintiffs failed to allege that the proxy statement was materially misleading.
[1] Please click here to read our discussion of a related decision in the case issued by the Delaware Supreme Court.