City of Warren General Employees' Retirement System v. Talbott Roche ( 2020 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
)
CITY OF WARREN GENERAL )
EMPLOYEES’ RETIREMENT SYSTEM, )
individually and on behalf of all others )
similarly situated, )
)
Plaintiff, )
)
v. ) C.A. No. 2019-0740-PAF
)
TALBOTT ROCHE and WILLIAM Y. )
TAUSCHER, )
)
Defendants. )
)
MEMORANDUM OPINION
Date Submitted: August 10, 2020
Date Decided: November 30, 2020
Joel Friedlander, Jeffrey M. Gorris, Christopher P. Quinn, FRIEDLANDER &
GORRIS, P.A., Wilmington, Delaware; R. Bruce McNew, COOCH AND
TAYLOR, P.A., Wilmington, Delaware; A. Rick Atwood, Jr., Randall J. Baron,
ROBBINS GELLER RUDMAN & DOWD LLP, San Diego, California;
Christopher H. Lyons, ROBBINS GELLER RUDMAN & DOWD LLP, Nashville,
Tennessee; Attorneys for Plaintiff.
Berton W. Ashman, Jr., Kevin R. Shannon, Callan R. Jackson, POTTER
ANDERSON & CORROON LLP, Wilmington, Delaware; William Savitt, Anitha
Reddy, Adam M. Gogolak, Zachary M. David, WACHTELL, LIPTON, ROSEN &
KATZ LLP, New York, New York; Attorneys for Defendants.
FIORAVANTI, Vice Chancellor
This case concerns the acquisition of Blackhawk Network Holdings, Inc.
(“Blackhawk” or the “Company”) by two private equity firms, Silver Lake Partners,
L.P. (collectively, with its affiliates, “Silver Lake”) and P2 Capital Partners
(collectively, with its affiliates, “P2”). Plaintiff alleges that two Blackhawk officers,
CEO and President, Talbott Roche, and Executive Chairman, William Y. Tauscher,
feared for their employment at Blackhawk because of pressure from an activist
stockholder, Jana Partners LLC (“Jana”). Plaintiff alleges that Roche and Tauscher
manipulated Blackhawk’s Board of Directors (the “Board”) into selling Blackhawk
to Silver Lake and P2 in 2018 (the “Buyout”) both to secure their own employment
and to obtain equity in Blackhawk after the Buyout. The complaint also alleges that
the proxy statement disseminated to Blackhawk’s stockholders seeking their
approval of the transaction was materially deficient.
Defendants have moved to dismiss the complaint in its entirety under Court
of Chancery Rule 12(b)(6) for failure to state a claim upon which relief can be
granted. The complaint does not contest that ten of Blackhawk’s twelve directors—
all of whom approved the merger agreement (the “Merger Agreement”) along with
Roche and Tauscher—were disinterested and independent. The complaint does not
contain well-pleaded allegations that Roche and Tauscher manipulated the board’s
deliberative process or otherwise misled the rest of the board into approving the
transaction. The allegations that Roche and Tauscher were threatened by Jana lack
2
potency because Jana made no threat and because Jana sold its stock before Silver
Lake and P2 proposed the Buyout. There are no well-pleaded allegations that Roche
and Tauscher were motivated by the prospect of post-closing employment. The
complaint thus does not state a claim that Roche and Tauscher breached their
fiduciary duties by deceiving the rest of the Board into approving the transaction.
The complaint alleges that Roche and Tauscher were involved in preparing
the proxy statement recommending the Buyout and are liable for materially
misleading disclosures and omissions therein. The Court concludes that the
Complaint states a claim that Roche breached her fiduciary duty of care as to
disclosures concerning the management projections of potential earnings from
acquisitions and the effect of the Merger Agreement’s go-shop provision. Because
disclosure claims against Roche for breach of fiduciary duty survive, the motion to
dismiss is granted in part and denied in part.
I. BACKGROUND
The facts recited in this opinion are drawn from the Verified Complaint (Dkt.
1) (the “Complaint” or “Compl.”) and documents integral thereto, including
documents produced in response to Plaintiff’s demand under 8 Del. C. § 220. 1
1
The parties agreed that the documents produced to the Plaintiff in response to the 220
demand are incorporated by reference in the Complaint. Defs.’ Opening Br. 5 n.1. In
addition, the Complaint incorporates by reference the proxy statement recommending that
the Company’s stockholders approve the Buyout (the “Proxy”). The Proxy is attached as
Exhibit 1 to the Transmittal Affidavit of Callan R. Jackson (“Jackson Aff.”).
3
A. The Company, Roche, and Tauscher
Blackhawk sells prepaid gift cards and reward cards. The Company operates
three business segments: (1) U.S. Retail, which principally sells gift cards through
U.S. retailers; (2) Incentives & Rewards, which provides prepaid products to
businesses to support employee rewards and customer loyalty programs; and (3)
International, which sells prepaid gift cards through retailers and directly to
businesses outside of the U.S.2
Roche co-founded Blackhawk in 2001 as a division of Safeway, Inc.
(“Safeway”), a publicly traded supermarket company. 3 Blackhawk was
incorporated as a Delaware corporation in 2006. 4 In April 2013, Blackhawk
completed an initial public offering of common stock.5 After its initial public
offering, Safeway remained Blackhawk’s controlling stockholder. 6
Tauscher served as the CEO of Blackhawk between 2013 and 2016.7
Tauscher then became the Company’s Executive Chairman (an executive officer
position at the Company) and Head of International and Corporate Development.8
2
Compl. ¶ 76.
3
Id. ¶¶ 8, 12.
4
Id. ¶ 12.
5
Id.
6
Id.
7
Compl. ¶ 9.
8
Id.
4
In February 2016, Roche succeeded Tauscher as CEO and became a director of the
Company. After the Buyout, Roche continued to serve as Blackhawk’s President
and CEO. The Complaint alleges that Tauscher continued to serve as the Executive
Chairman of the Company after the Buyout. 9
B. Jana Persuades Safeway to Spin Off Blackhawk.
In September 2013, not long after the Blackhawk IPO, Jana, a prominent
activist investor,10 disclosed that it had accumulated 6.2% of Safeway’s common
stock. Jana also disclosed that it had discussed with Safeway’s management the
prospect of Safeway transferring its stake in Blackhawk to Safeway’s stockholders.11
Seven months later, Safeway spun off Blackhawk by distributing its remaining
Blackhawk shares to Safeway’s stockholders. 12 After the spin-off, no single
stockholder owned more than 9% of the total voting power of Blackhawk’s common
stock. 13 P2 was one of the Company’s largest stockholders after the spin-off, and
held more than 5% of the total voting power of the common stock. 14
9
See id. ¶ 111 (“As of the filing of the Complaint, Roche remains CEO and President of
Blackhawk, and Tauscher remains Executive Chairman.”). As discussed below,
Defendants dispute this allegation.
10
Jana waged approximately 75 activist campaigns between 2001 and 2017. Id. ¶ 38.
11
Id. ¶ 13.
12
Id. ¶ 14.
13
Id. ¶ 15.
14
Id.
5
C. Jana and Blackhawk Enter into a Cooperation Agreement.
After Safeway spun off Blackhawk, Jana and Blackhawk entered into a
Cooperation Agreement, dated March 16, 2017. 15 Pursuant to the Cooperation
Agreement, Blackhawk expanded the Board from eleven to thirteen members and
filled the two new seats with Jana’s designees. 16 The agreement committed
Blackhawk to include the two Jana designee directors in the Company’s slate of
director nominees for its 2017 annual meeting of stockholders. The Cooperation
Agreement also required Blackhawk to form a “Cost Savings Committee” to review
opportunities to increase cost savings.17 In exchange for the benefits of the
Cooperation Agreement, Jana agreed to standstill provisions. 18 One of the
provisions prevented Jana from participating in a proxy solicitation regarding
Blackhawk until the expiration of the Cooperation Agreement prior to the
Company’s 2018 annual stockholder meeting.19
In conjunction with the Cooperation Agreement, Tauscher “notified the
Company of his intent to resign from his international and corporate development
15
Id. ¶ 39.
16
Id.
17
Id.
18
Id.
19
Compl. ¶ 42. See also Blackhawk Current Report (Form 8-K) (Mar. 20, 2017). The
Court can take judicial notice of this public filing. Fortis Advisors LLC v. Allergan W.C.
Hldg., Inc., 2019 WL 5588876, at *4 (Del. Ch. Oct. 30, 2019) (citing Wal-Mart Stores, Inc.
v. AIG Life Ins. Co., 860 A.2d 312, 320 n.28 (Del. 2004)).
6
responsibilities,” but that he would remain the Company’s Executive Chairman and
the Chairman of the Board. 20 Tauscher remained Executive Chairman throughout
the Buyout process. 21 Blackhawk’s CFO, Jerry Ulrich, also notified the Company
that he would retire by the end of 2017.22
D. Silver Lake and P2 Explore an Investment in the Company and the
Company Retains a Financial Advisor.
After the IPO, a key element of the Company’s strategy was growth through
acquisitions. From November 2013 through August 2017, Blackhawk bought 16
businesses—foreign and domestic—for an aggregate price of more than $1.1
billion.23 In a February 2017 analyst call, Roche said, “We believe acquisitions can
fuel our growth, even as growth rates slow in our traditional U.S. retail business.”24
Roche said that management viewed “acquisitions along with the buildout of our
digital capabilities and platforms as the best allocation of our free cash flow and
available borrowings.” 25
In early 2017, Silver Lake and P2 considered a minority investment in the
20
Compl. ¶ 40.
21
Id. ¶ 109.
22
Id. ¶ 40.
23
Id. ¶ 16.
24
Id. ¶ 27.
25
Id.
7
Company, with proceeds to fund future acquisitions.26 Blackhawk’s management
met with Silver Lake and P2 to discuss the potential investment. 27 In May 2017, the
Company executed confidentiality agreements with Silver Lake and P2 to facilitate
their discussions. 28 In July 2017, Silver Lake and P2 proposed an investment. The
Company permitted Silver Lake and P2 to conduct due diligence, but the Company
took no action on the proposal.29
Around August 2017, the Company retained the investment banking firm
Sandler O’Neill & Partners, L.P. (“Sandler”) as its financial advisor to advise on
acquisitions and to assist with considering funding sources for the Company’s
acquisition strategy, including the potential investment from Silver Lake and P2.30
Plaintiff alleges that Sandler had conflicts of interest in considering any
transaction between Blackhawk and Silver Lake. In particular, the co-founder of
Sandler served on the board of directors of the Nasdaq with the co-founder of Silver
Lake for ten years. 31 Sandler also served as the lead joint bookrunner for a Silver
Lake portfolio company in its initial public offering to cash out Silver Lake’s pre-
26
Id. ¶ 43.
27
Id.
28
Id.
29
Id. ¶¶ 44–45.
30
Id. ¶¶ 46–47.
31
Id. ¶ 114.
8
IPO shares in 2015. 32 Beyond these business relationships, Plaintiff alleges that one
of the Silver Lake Managing Partners responsible for the Buyout, Michael Bingle,
has golfed with James J. Dunne, III, the head of Sandler and representative of the
Company, including as recently as January 2019.33 Plaintiff further alleges that one
of the attorneys representing Blackhawk in connection with the Buyout golfed with
Bingle and Dunne in September 2017. 34 Plaintiff alleges that the lead lawyer
representing the Company, Silver Lake Managing Partner Greg Mondre, and Dunn
are all members of two exclusive golf clubs.35
E. The Board Considers Financing for the Company’s Acquisitions,
and Jana Sells Its Stock.
On October 9, 2017, Sandler made a presentation to the Board regarding the
potential acquisition of a company named Stored Value Solutions and identified
potential sources of financing for future acquisitions (the “October 9
Presentation”).36 The October 9 Presentation reviewed the Company’s post-IPO
acquisition history37 and stated that management had prepared a model for a 2018–
2020 budget assuming “aggregate M&A ‘spending’ of $1.1 billion over three years
32
Id.
33
Id.
34
Id.
35
Id.
36
Id. ¶¶ 48–49.
37
Id. ¶ 49.
9
to be funded by the Company’s free cash flow and debt financing.” The Board,
however, requested a budget reflecting a “more aggressive M&A strategy.”38
Accordingly, “[m]anagement also prepared an expanded model with $1.5 billion
allocated to acquisitions; the incremental $400 million to be funded by issuing
common stock as debt capacity limits were reached.” 39 The October 9 Presentation
analyzed the budgets prepared by management and possible sources of funding for
future acquisitions. Based on its analysis, Sandler determined that there was a “full
range of options to finance an aggressive M&A strategy,” and concluded that,
regardless of the “funding approach,” the “expanded M&A strategy delivers
significant value to shareholders.”40
Plaintiff alleges that the expanded M&A strategy prepared by management
and discussed by Sandler was uncertain because “the question remained whether an
acquisition strategy could be pursued if Jana (and potentially other activists) agitated
against it.”41 According to Plaintiff, in October 2017, Roche and Tauscher
“understood that engineering a sale of Blackhawk to a private equity firm could
allow them to profit personally from the pursuit of an acquisition strategy,” without
38
Id.
39
Id.
40
Id. ¶¶ 50–55.
41
Id. ¶ 54.
10
interference by activist investors like Jana.42 However, by the time Sandler made
the October 9 Presentation, Jana’s influence on the Company had waned. According
to undisputed public filings submitted by Defendants that are subject to judicial
notice, 43 Jana had sold its entire stake in Blackhawk no later than September 30,
2017. Further, on October 6, 2017, one of Jana’s two director designees resigned
from Blackhawk’s board. 44 Other than Jana, the Complaint does not identify any
activist investor that exerted or attempted to exert influence on Blackhawk.
F. Blackhawk Announces Negative Guidance.
On October 11, 2017, Blackhawk announced that it was lowering previously
disclosed revenue guidance and that it expected the Company’s adjusted EBITDA
for 4Q 2017 and fiscal year 2017 to be “below the midpoint” of previously disclosed
guidance. 45 Roche attributed the revised guidance to “increasing competitive
pressures” that would “result in lower growth in our U.S. retail physical channels
going forward.”46 The day after the announcement, the Company’s stock price
dropped from $44.20 per share to $35.15 per share.47
42
Id. ¶ 55.
43
See Jana, Form 13F Information Table (Nov. 14, 2017) (Jackson Aff. Ex. 4).
44
Jackson Aff. Ex. 5.
45
Compl. ¶ 58.
46
Id.; see also Blackhawk, Current Report (Form 8-K) (Oct. 11, 2017).
47
Compl. ¶ 59.
11
G. Silver Lake and P2 Submit Their First Indication of Interest.
Within a week of the Company’s announcement of lowered earnings
guidance, Silver Lake and P2 contacted Roche to express their interest in taking the
Company private. On October 20, 2017, Silver Lake and P2 jointly submitted a
written indication of interest to pay $47 to $49 per share for the Company (the “First
Indication of Interest”). 48 Silver Lake and P2 addressed the First Indication of
Interest to Roche and Tauscher.49 The First Indication of Interest stated that Silver
Lake and P2 had “utmost respect and admiration for Blackhawk’s leadership,” that
Silver Lake would be “a supportive investor” and “value-added partner,” and that
the capital structure resulting from any buyout would “permit management to pursue
an aggressive, growth-oriented business plan.” 50 The First Indication of Interest
suggested that Silver Lake and P2 were “uniquely well-positioned to complete this
transaction efficiently” because they had already begun due diligence work with the
Company.51 The First Indication of Interest further noted that any transaction could
include a “customary post-signing ‘go-shop’ process allowing the Board to fulfill its
duties.”52 The Company’s management permitted Silver Lake and P2 to conduct
48
Id. ¶ 60.
49
Id.
50
Id.
51
Id. ¶ 61.
52
Id. ¶ 62.
12
further due diligence.53 In late October and early November, Blackhawk’s senior
management team, along with Sandler, met with Silver Lake and P2 to discuss the
First Indication of Interest. 54
H. The November 6, 2017 Board Meeting
On November 6, 2017, the Board met to discuss the First Indication of
Interest.55 Management reported that Silver Lake and P2 were conducting due
diligence.56 According to Blackhawk’s management, the parties had “deferred any
further discussion regarding transaction price” until additional due diligence had
been completed.57 Sandler advised the Board that it “could always reject [the]
proposal if it was not satisfied with the terms of the potential transaction.”58 Roche
and Tauscher told the Board that management had not been active in due diligence
with the Company’s potential acquisition of Stored Value Solutions because
“management’s current focus was on the potential transaction with Silver Lake and
P2.”59
In its November 6, 2017 Board presentation (the “November 6
53
Id. ¶ 63.
54
Id.
55
Id. ¶ 64.
56
Id.
57
Id.
58
Id.
59
Id. ¶ 65.
13
Presentation”), 60 Sandler summarized Silver Lake’s background, the terms of the
First Indication of Interest, and the status of due diligence.61 The November 6
Presentation compared two sets of management forecasts for 2017-2020—one
prepared in July 2017 (the “July Forecast”) and one prepared in November 2017 (the
“November Forecast”). The July Forecast and the November Forecast both
projected future EBITDA from acquisitions, in addition to other earnings metrics.
The November Forecast assumed that the Company would spend $700 million in
acquisitions from 2018 through 2020.62 As compared to the July Forecast, the
November Forecast generally projected lower revenue, adjusted EBITDA, and
earnings per share, but higher EBITDA from acquisitions.63
I. The November 21, 2017 Board Meeting
On November 21, 2017, Blackhawk’s management provided the Board with
a status update on the discussions with Silver Lake and P2. Roche told the Board
that the Company was undertaking a “bottoms-up” financial analysis to create a 2018
budget.64 Roche said that “the Company’s expected performance in 2018 was likely
to be lower than the range that had previously been provided to the Board as
60
The November 6 Presentation is attached as Exhibit A to the Complaint.
61
Compl. Ex. A at HAWK0000061–62.
62
Id. at HAWK0000068.
63
Id.
64
Compl. ¶ 71.
14
projected in the 5-year plan.”65 Although not stated in the November 21, 2017 Board
minutes, the Proxy discloses that Roche anticipated that the Company’s performance
in 2018 would be lower than previously expected because of “challenges in [the
Company’s] U.S. retail sector that would limit organic growth.” 66 Roche reported
that due diligence was “largely complete,” and “Silver Lake and [P2] had been
provided with a 5-year financial model that did not yet reflect the bottoms-up 2018
analysis that was currently underway,” but that “management . . . provided Silver
Lake and P2 . . . with a general overview of potential factors affecting the Company’s
future performance.”67
At the November 21 meeting, Sandler presented a “preliminary valuation
analysis . . . based on preliminary information provided by the Company” (the
“November 21 Presentation”).68 The November 21 Presentation contained a table
of implied EBITDA multiples based on illustrative ranges of the Company’s
adjusted EBITDA for 2018 and potential prices for the Company ranging from $45
to $51 per share.69 For purposes of this presentation, Sandler considered
65
Id.; see also Jackson Aff. Ex. 10.
66
Compl. ¶ 71; Proxy 30.
67
Jackson Aff. Ex. 10.
68
Compl. ¶ 71; Jackson Aff. Ex. 11.
69
Jackson Aff. Ex. 11 at 10 & 12. The November 21 Presentation is dated November 17,
2017, but is alleged to have been presented at the November 21 meeting.
15
management projections of the Company’s 2018 adjusted EBITDA of $240 to $280
million, without acquisitions, and further assumed that adjusted EBITDA would
grow by $20 million with acquisitions.70
The November 21 Presentation also contained a short list of “Key Dates” for
a potential transaction with Silver Lake and P2. Sandler identified “February 9, 2018
– March 11, 2018,” the “period during which [Blackhawk] shareholders can make
proposals for annual meeting” as one of the “Key Dates.”71
J. The December 4, 2017 Board Meeting
At a December 4, 2017, Board meeting, Sandler presented an update on the
transaction process and an updated discounted cash flow analysis (the “December 4
Presentation”). 72 The discounted cash flow analysis used a management forecast of
$260 million in 2018 adjusted EBITDA, excluding acquisitions.73 The December 4
Presentation also contained financial forecasts for 2018 adjusted EBITDA for each
of the Company’s business segments. 74
Plaintiff alleges that a comparison between the segment analyses in the
December 4 Presentation and the November Forecast contained in the November 6
70
Compl. ¶¶ 71–72; Jackson Aff. Ex. 11 at 13, 17.
71
Jackson Aff. Ex. 11 at 22.
72
Jackson Aff. Ex. 12.
73
Id. at 4.
74
Id. at 5.
16
Presentation reveals that Roche’s statement to the Board on November 21 that
“challenges in [the Company’s] U.S. retail sector . . . would limit organic growth”
was false.75 Specifically, Plaintiff alleges that, between November 6 and December
4, the “2018 Adjusted EBITDA forecast for the U.S. Retail segment was essentially
unchanged” because the December 4 Presentation only reflected a 1.0% decrease in
the forecast earnings from U.S. retail, and so Roche’s statement at the November 21
meeting must have been false.76
K. Silver Lake and P2 Send a Second Indication of Interest.
On December 11, 2017, Silver Lake and P2 sent Tauscher and Roche a second
indication of interest to acquire the Company for $44 to $45 per share (the “Second
Indication of Interest”). 77 The Second Indication of Interest stated that Silver Lake
and P2 were “100% supportive of the management team,” and “very enthusiastic
about the opportunity to partner with you and the Blackhawk team to grow and
maximize the value of the business.” 78 The Second Indication of Interest said that
Silver Lake’s and P2’s “plan” was to “support management in pursuing . . .
opportunities in a private setting,” and that Silver Lake had “significant experience
75
Proxy 30.
76
Compl. ¶ 76.
77
Id. ¶ 77.
78
Id.
17
partnering with management of market leading technology companies.”79
L. The December 13 Board Meeting
On December 13, 2017, the Board met to consider the Second Indication of
Interest.80 Roche “discussed the likelihood of challenges in pursuing the Company’s
long-term strategy of growing organically as well as by acquisition.” 81 Roche noted
that the Company faced limitations in the retail sector and difficulties in pursuing an
acquisitive strategy as a public company, including because there was “pressure on
the Company to return capital to shareholders, and the Company’s high liquidity
needs to fund acquisitions.” 82 Roche thus advocated accepting the proposal.83
Sandler’s December 13, 2017 Board presentation discussed Blackhawk’s
value and the difficulties the Company faced in achieving organic growth (the
“December 13 Presentation”).84 The presentation summarized the Company’s
“Current Situation,” including that Sandler had assisted the Company in August and
September 2017 in “[u]sing the strength of a $42 – $45 stock price to pursue
financing options to execute a robust acquisition strategy of $700 million to $1.5
79
Id.
80
Id. ¶ 79.
81
Jackson Aff. Ex. 14.
82
Id.
83
Compl. ¶ 79.
84
Jackson Aff. Ex. 15.
18
billion over several years.”85 According to Sandler, because of “headwinds facing
organic growth, [the Company’s] strategy requires it to be an active acquirer to
achieve its growth objectives.” 86 Sandler also noted that, “[i]n November, through
[the Company’s] diligence process . . . and in conversations with investors,
challenges relating to [the Company’s] ability to pursue its M&A strategy effectively
surfaced.”87 One of the listed challenges was that Blackhawk’s stockholders had
become “more vocal in demanding a return of capital through stock buybacks.”88
Sandler observed that the Company’s stockholders were “unsupportive of pursuing
[an] M&A strategy” and were “impatient with reinvestment in the business.”89
Sandler advised that “it appears that the greatest value to current [Company]
shareholders may be recognized by pursuing a take private transaction.” 90
The Board unanimously determined to pursue a potential transaction with
Silver Lake and P2, and directed management to begin negotiating a transaction on
the terms described in the Second Indication of Interest.91
85
Id. at 3.
86
Id. at 5.
87
Id. at 4.
88
Id.
89
Id. at 5.
90
Id. at 6.
91
Jackson Aff. Ex. 14 at 3; Compl. ¶ 81.
19
M. Thoma Bravo Expresses Interest in Acquiring Blackhawk.
On January 4, 2018, Thoma Bravo, LP (“Thoma Bravo,” referred to as “Party
A” in the Proxy) emailed Roche to express interest in discussing a potential
acquisition of Blackhawk. 92 Roche responded that she was “focused on year-end
matters but that she would follow up[.]” 93 In reality, Blackhawk’s management was
focused on the potential transaction with Silver Lake and P2. 94 On January 8, 2018,
Blackhawk’s management returned a revised version of the Merger Agreement to
Silver Lake and P2. 95 According to Plaintiff, the revisions “almost entirely
accepted” Silver Lake/P2’s proposed deal protection measures, which Plaintiff
characterizes as “extreme.” 96
N. The Board Approves the Buyout.
At a January 11, 2018 Board meeting,97 Roche reported on Thoma Bravo’s
expression of interest. 98 The Board decided not to engage Thoma Bravo before entry
into a merger agreement with Silver Lake and P2 because Thoma Bravo “would
likely need to do significant diligence in order to finalize a potential transaction,”
92
Id. ¶ 82; Defs.’ Opening Br. 18.
93
Compl. ¶ 82.
94
Id. ¶ 83.
95
Id.
96
Id.
97
Id. ¶ 84.
98
Id. ¶ 86.
20
and engagement with Thoma Bravo “could result in the loss of the potential
transaction” with Silver Lake and P2. 99 The Board reasoned that “the ‘go-shop’
provisions of the draft merger agreement would permit the Company to solicit an
acquisition proposal from [Thoma Bravo] after signing a definitive merger
agreement.”100
Sandler’s January 11 Board presentation (the “January 11 Presentation”)101
discussed decreased expectations for the Company’s value. First, Sandler noted that,
based on the Company’s lowered guidance for the third quarter of 2017, the
Company’s stock had decreased from $44 per share to approximately $35 per
share. 102 Further, Sandler explained that management expected to project the
Company’s 2018 adjusted EBITDA in the range of $240–250 million, which was
below the median consensus estimate of $270 million. 103 Sandler also observed that
there had been a “turnover in shareholders,” and, as a result, “activists have been
buying shares and requesting time with management” and that “shareholders have
become more vocal in demanding a return of capital through share buybacks.”104
99
Id.
100
Id.
101
Jackson Aff. Ex. 17.
102
Id. at 3.
103
Id. at 4.
104
Id.
21
Sandler indicated that, to achieve the value implied by an acquisition by Silver Lake
and P2 for $44–$45 per share, the Company would need to achieve management’s
2018 projections for 2018 and then “grow [a]djusted EBITDA at a compound annual
rate of 10–18% per year for the 3 years ending 2021.”105
During the following three days, the Company and Silver Lake/P2 negotiated
the per-share purchase price. The process concluded with Silver Lake and P2
increasing the proposed purchase price from $44–$45 per share to $45.25.106
On January 14, 2018, the Board met to review the final terms of the
transaction.107 Roche provided “management’s recommendation that the Board
approve the proposed merger.” 108 Sandler provided a final overview of the
transaction terms and the value of the Company based on management’s projected
2018 adjusted EBITDA of $240–$250 million, excluding acquisitions (the “January
14 Presentation”). 109
The Board unanimously approved entry into the Merger Agreement at the
purchase price of $45.25 per share. 110 At that time, Blackhawk’s Board consisted of
105
Id. at 5.
106
Compl. ¶ 88.
107
Id. ¶ 89; Jackson Aff. Ex. 19.
108
Compl. ¶ 89.
109
Compl. ¶ 90; Jackson Aff. Ex. 18.
110
Compl. ¶¶ 89–91; Jackson Aff. Ex. 19.
22
twelve members: Tauscher, Roche, Anil Aggarwal, Richard H. Bard, Thomas
Barnds, Steven A. Burd, Robert L. Edwards, Mohan Gyani, Paul Hazen, Robert B.
Henske, Arun Sarin, and Jane J. Thompson. 111 Of the twelve directors on the Board,
only Tauscher and Roche were employees of Blackhawk.
O. The Company Issues the Proxy, and the Buyout Closes.
On March 2, 2018, the Company disseminated the Proxy to its stockholders.112
The Proxy disclosed the terms of the go-shop provision and the results of the go-
shop process.113 The Proxy also attached a copy of the Merger Agreement. In
describing the go-shop provision, the Proxy stated:
Right to Receive Higher Offers. The Blackhawk board of directors
considered the Company’s rights under the merger agreement to solicit
higher offers during the go-shop period and to consider and negotiate
certain higher offers thereafter, including:
the Company’s right to solicit offers with respect to acquisition
proposals during a 25-day go-shop period and to terminate the merger
agreement to enter into an agreement with respect to a superior proposal
during the go-shop period, subject to Parent’s right to receive payment
of a termination fee.114
The Proxy stated (and Plaintiff does not dispute) that Thoma Bravo contacted
Blackhawk shortly after the announcement of the merger to express interest in
111
Id.
112
Compl. ¶ 116.
113
Compl. ¶¶ 116, 131–33; see also Proxy 33 (discussing results of go-shop process).
114
Id. ¶ 132; Proxy 35.
23
pursuing a transaction during the go-shop period.115 Thoma Bravo and the Company
engaged in due diligence during the go-shop period, but Thoma Bravo did not submit
a bid before the go-shop period expired. 116 According to the Proxy, Sandler
contacted eight strategic entities and five financial sponsors during the go-shop that
Sandler believed might be interested in acquiring the Company, but no one other
than Thoma Bravo expressed any interest in pursuing a transaction during the go-
shop period.117
The Proxy contained four sets of financial projections prepared by
management. The Proxy defined the first set of projections as the “Initial
Projections”:
Blackhawk’s management prepared non-public, unaudited financial
forecasts with respect to Blackhawk’s business, as a standalone
company, for fiscal years 2017 through 2020, which are referred to as
the “Initial Projections.” The Initial Projections were based on the
information contained in Blackhawk’s financial model, which was
prepared by Blackhawk’s management during the Summer of 2017
from financial models used in connection with its annual internal
planning processes, and were provided to Sandler O’Neill, the Sponsors
and the Blackhawk board of directors in late October and early
November 2017.118
With respect to the Initial Projections, the Proxy disclosed projected adjusted
115
Id. at 33.
116
Id.
117
Id.
118
Id. at 38.
24
EBITDA of $233 million for 2017, $275 million for 2018, $330 million for 2019,
and $402 million for 2020, without acquisitions.119 The Proxy also disclosed
adjusted operating revenue, adjusted net income, and adjusted earnings per share for
2017 through 2020, without acquisitions. The Initial Projections correspond to the
projections presented to the Board on November 6, 2017.
The Proxy defined the second set of projections as the “November Estimate
Range.”120 The November Estimate Range refers to the projections in the November
21 Presentation, projecting $240–$280 million in adjusted EBITDA for 2018,
without acquisitions. 121 The Proxy defined the third set of projections as the
“Preliminary 2018 Plan.” 122 The Preliminary 2018 Plan refers to the estimate
provided to the Board on December 4, 2017 that the Company would earn $260
million in adjusted EBITDA, without acquisitions. 123 The Proxy defined the fourth
set of projections as the “Revised Projections.”124 The Revised Projections refer to
the Company’s projection that it would earn $240–$250 million in adjusted
EBITDA, without acquisitions, as used in the January 11 Presentation and the
119
Id.
120
Id. at 38–39.
121
Id.
122
Id.
123
Id.
124
Id.
25
January 14 Presentation.125
On March 20, 2018, the Company filed a Proxy supplement (the “Proxy
Supplement”). The Proxy originally noted that, after the Buyout, there would be a
“new equity incentive plan for certain employees of Blackhawk,” and that “the terms
of such equity incentive plan or any other post-closing compensation or benefits
arrangements have not been agreed to otherwise determined as of the date” of the
Proxy.126 The Proxy Supplement stated: “[b]etween October 18, 2017 when [Silver
Lake and P2] expressed interest in an acquisition of the Company and the execution
of the merger agreement on January 15, 2018, there were no discussions between
[Silver Lake and P2] and the Blackhawk executive officers regarding any terms
pursuant to which the Blackhawk executive officers might be retained after the
closing.”127 The Proxy Supplement stated that “none of the Blackhawk executive
officers entered into any agreements with respect to post-closing employment”
during the same period. 128
On March 30, 2018, Blackhawk’s stockholders approved the Merger
Agreement. Ultimately, 99.6% of voting shares voted in favor of the merger.129 The
125
Id.
126
Id. at 52; Compl. ¶ 112.
127
Jackson Aff. Ex. 21.
128
Id.
129
Jackson Aff. Ex. 22.
26
Buyout closed on June 15, 2018. 130
II. PROCEDURAL HISTORY
On March 27, 2018, Plaintiff served on Blackhawk a demand to inspect books
and records pursuant to 8 Del. C. § 220. On May 11, 2018, Plaintiff filed an action
in this Court to compel inspection. See City of Warren Gen. Empls.’ Ret. Sys. v.
Blackhawk Network Holdings, Inc., C.A. No. 2018-0339-TMR (Del. Ch.). The
parties resolved the books and records litigation, with the Company producing books
and records in response to the demand. Plaintiff later utilized those books and
records in drafting the Complaint in this action, which was filed on September 13,
2019.
Defendants moved to dismiss the Complaint in its entirety on January 8, 2020
under Court of Chancery Rule 12(b)(6) for failure to state a claim for relief. 131 On
August 10, 2020, the Court heard oral argument on the motion.
III. ANALYSIS
On a motion to dismiss for failure to state a claim under Court of Chancery
Rule 12(b)(6):
(i) all well-pleaded factual allegations are accepted as true; (ii) even
vague allegations are well-pleaded if they give the opposing party
notice of the claim; (iii) the Court must draw all reasonable inferences
in favor of the non-moving party; and ([iv]) dismissal is inappropriate
130
Jackson Aff. Ex. 23.
131
Dkt. 20.
27
unless the plaintiff would not be entitled to recover under any
reasonably conceivable set of circumstances susceptible to proof.
Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (internal citations and
quotation marks omitted); accord Central Mortg. Co. v. Morgan Stanley Mortg.
Cap. Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011).
“[A] trial court is required to accept only those ‘reasonable inferences that
logically flow from the face of the complaint’ and ‘is not required to accept every
strained interpretation of the allegations proposed by the plaintiff.’” In re Gen.
Motors (Hughes) S’holder Litig., 897 A.2d 162, 168 (Del. 2006) (quoting Malpiede
v. Townson, 780 A.2d 1075, 1083 (Del. 2001)). “Moreover, a claim may be
dismissed if allegations in the complaint or in the exhibits incorporated into the
complaint effectively negate the claim as a matter of law.” Malpiede, 780 A.2d at
1083.
Directors of a Delaware corporation owe the fiduciary duties of care and
loyalty. Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). Under Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc., “[i]n the sale of control context, the directors
must focus on one primary objective—to secure the transaction offering the best
value reasonably available for the stockholders—and they must exercise their
fiduciary duties to further that end.” Paramount Commc’ns Inc. v. QVC Network
Inc., 637 A.2d 34, 44 (Del. 1994) (citing Revlon, 506 A.2d at 182). Revlon tests
directors’ conduct for reasonableness: “directors are generally free to select the path
28
to value maximization, so long as they choose a reasonable route to get there.” In
re Dollar Thrifty S’holder Litig., 14. A.3d 573, 595–96 (Del. Ch. Sept. 8, 2010).
“[T]here is no single blueprint that a board must follow to fulfill its duties.” Barkan
v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989).
In this action, Plaintiff does not assert any claim against any member of the
Board in their capacities as directors. Rather, the Complaint contains a single count
alleging Roche and Tauscher breached their fiduciary duties in their capacities as
officers of Blackhawk. 132 Plaintiff advances two theories in support of its claim.
First, Plaintiff alleges that Roche and Tauscher manipulated the Board to favor the
Buyout at the expense of the Company and its stockholders in order to maintain their
employment and earn equity in the post-Buyout entity. Second, Plaintiff alleges that
Roche and Tauscher breached their fiduciary duties by misleading Blackhawk’s
stockholders through a materially misleading Proxy. This Opinion addresses each
claim in turn.
132
Compl. ¶ 141 (“Roche and Tauscher, acting as officers, have violated their fiduciary
duties owed to the public stockholders of Blackhawk.”). Under Delaware law, officers of
a corporation owe the same fiduciary duties as directors. Gantler v. Stephens, 965 A.2d
695, 708–09 (Del. 2009).
29
A. The Complaint Does Not State a Claim that Roche and Tauscher
Breached Their Fiduciary Duties by Misleading or Manipulating
the Board.
The Buyout was a sale of control of the Company, and as a result, the Revlon
standard of review would ordinarily apply to a challenge to the Board’s action in
approving the Buyout. Paramount, 637 A.2d at 48. The Court of Chancery has held
that the “paradigmatic . . . good Revlon claim” is “when a supine board under the
sway of an overweening CEO bent on a certain direction, tilts the sales process for
reasons inimical to the stockholders’ desire for the best price.”133 The Complaint in
this case, however, does not directly challenge any board action, but rather the
actions of Roche and Tauscher as officers. 134 Plaintiff’s legal theory is grounded in
a line of recognized “iconic cases . . . that are premised on independent board
members not receiving critical information from conflicted fiduciaries” and where
133
In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 1002 (Del. Ch. 2005); see also
In re Mindbody, Inc., 2020 WL 5870084, at *12 (Del. Ch. Oct. 2, 2020) (discussing the
same).
134
The Complaint thus offers no occasion to directly evaluate the reasonableness of the
Board’s transaction process under the heightened scrutiny standard imposed by Revlon.
See, e.g., In re Mindbody, Inc., 2020 WL 5870084, at *32 n.287 (“It is an open issue of
Delaware law as to whether Revlon applies to an officer’s actions.”); In re Baker Hughes
Inc. Merger Litig., 2020 WL 6281427, at *15 n.149 (Del. Ch. Oct. 27, 2020) (assuming
that a “breach of an officer’s duty of care should be assessed under the traditional gross
negligence standard with respect to actions taken in the context of a sale of control
transaction because it is the members of the board of directors—not the officers—who are
responsible for the type of decisions that are the focus of enhanced scrutiny review under
Revlon and its progeny.”). As discussed further below, the Board’s process is nevertheless
relevant to the extent it concerns whether Roche and Tauscher breached their fiduciary
duties as officers.
30
“impartial board members did not oversee conflicted members sufficiently.” Kahn
v. Stern, 2018 WL 1341719, at *1 n.4 (Del. 2018) (TABLE). The progenitor case
in this area is Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1279 (Del.
1989), in which the Delaware Supreme Court held that an officer may breach her
fiduciary duty during a sale process where the officer has engaged in “illicit
manipulation of a board’s deliberative processes” in pursuit of the officer’s own self-
interest.
To state a claim for breach of the fiduciary duty under this theory, Plaintiff
must plead that Roche and Tauscher “were interested in the transaction, lacked
independence, or acted in bad faith.” 135 In particular, to prevail on a Macmillan
claim and rebut the business judgment rule, Plaintiff must “allege that [the officers
were] acting out of self-interest and [the officers] deceived the rest of the board into
approving the transaction.” 136 Plaintiff contends its “Complaint pleads detailed facts
‘that support a rational inference of bad faith’ on the part of Roche and Tauscher.”137
This Opinion first addresses Plaintiff’s argument that Roche and Tauscher were self-
interested before addressing Plaintiff’s contentions that the Board was supine and
that Roche and Tauscher deceived the Board into approving the Buyout.
135
Morrison v. Berry, 2019 WL 7369431, at *13 (Del. Ch. Dec. 31, 2019).
136
City of Miami Gen. Emps. and Sanitation Emps. Ret. Trust v. Comstock, 2016 WL
4464156, at *19 (Del. Ch. Aug. 24, 2016), aff’d, 158 A.3d 885 (Del. 2017) (TABLE).
137
Pl.’s Ans. Br. 3 (quoting Stern, 2018 WL 1341719, at *1).
31
1. The Complaint Does Not Adequately Allege that Roche and
Tauscher Were Tainted by Self-Interest in the Buyout.
Plaintiff contends that Defendants were self-interested because activist
stockholders threatened their employment with Blackhawk. Plaintiff further
contends that Defendants sought to secure post-closing employment with
Blackhawk to earn part of a “typical management equity pool following a private
equity buyout” and then profit from the Company’s acquisition strategy.138
a. Activist Pressure Did Not Threaten Roche and
Tauscher’s Jobs.
The Complaint lacks any allegation that Jana or any other activist stockholder
communicated any threat to remove Roche or Tauscher from their employment with
the Company. Plaintiff instead argues that the Court should infer that Jana
threatened Roche’s and Tauscher’s employment from the Company’s announcement
of the Cooperation Agreement on the same date that Tauscher announced that he
would limit his executive responsibilities and Blackhawk’s CFO announced that he
was going to retire.139 This allegation does not support a reasonable inference that
Roche and Tauscher feared for their jobs.
As an initial matter, even assuming that Tauscher’s announcement coinciding
with the announcement of the Cooperation Agreement was Jana’s doing, it is not
138
See Pl.’s Ans. Br. 52–62.
139
Id. at 54–55.
32
reasonable to infer that Roche was similarly threatened. Plaintiff argues that Roche
was the “logical next target” because a Wall Street Journal article reported that in
early 2017 activists were “a perennial nuisance for chief executives” and that they
“helped push out the leaders of three high-profile S&P 500 companies.”140 The news
article cannot substitute for well-pleaded allegations. No activists announced any
campaign targeting Blackhawk’s management. It is not reasonably conceivable that
Roche felt threatened for her job at Blackhawk because a Wall Street Journal article
attributed to certain activist investors the demise of three CEOs at companies other
than Blackhawk. Indeed, the Complaint does not even allege that any of the activist
stockholders mentioned in the article held any Blackhawk stock.
Plaintiff’s allegations based on Jana’s potential threat to Roche and
Tauscher’s positions are not reasonable. First, there is no allegation that Jana made
a statement that could be construed as a threat to Roche or Tauscher’s positions.
Plaintiff’s attempt to leverage the timing of the announcements concerning Tauscher
and Blackhawk’s CFO that coincide with the Cooperation Agreement also lack any
persuasive force. That inference relies on the existence of Jana as a continuing threat
to Roche and Tauscher. But the facts do not support that inference because Jana had
already sold its Blackhawk stock by the time Silver Lake and P2 submitted the First
140
Compl. ¶ 110 n.4 (quoting David Benoit, “Activist Investors Have a New Bloodlust:
CEOs,” Wall St. J. (May 16, 2017) (available at https://www.wsj.com/articles/activist-
investors-have-a-new-bloodlust-ceos-1494936001); see also Pl.’s Ans. Br. 54–55 (same).
33
Indication of Interest. Silver Lake and P2 submitted the First Indication of Interest
on October 20, 2017, and Jana disclosed that it had sold all of its stock in the
Company no later than September 30, 2017.141 Thus, even drawing all reasonable
inferences in favor of Plaintiff, Jana was no longer in a position to exert pressure on
the Company or management after it sold its shares and is not alleged to have done
so.142
After Defendants pointed in their Opening Brief that Jana sold its Blackhawk
stock by no later than September 30, 2017, Plaintiff brushed it off as “irrelevant.”143
In its Answering Brief, Plaintiff argued that Sandler’s presentations support an
inference that Roche and Tauscher feared that other, unidentified activists sought to
remove them. According to Plaintiff, Roche and Tauscher feared for their jobs
141
Plaintiff does not contest that Jana sold its shares by the time of the Buyout. Pl.’s Ans.
Br. 55.
142
It is notable that the Complaint does not mention that Jana sold its stock in the Company
before Silver Lake and P2 proposed the Buyout. The Complaint focused on Jana to the
exclusion of other stockholders. Compl. ¶ 1 (“This case is about a CEO’s and an Executive
Chairman’s response to activist pressure.”); id. ¶ 3 (“In 2017, Blackhawk was under activist
pressure. Famed activist hedge fund Jana Partners LLC (“Jana”) had gained two seats on
the Company’s board of directors (the “Board”) in a settlement of a potential proxy fight.
Jana had forced Tauscher’s ouster from his job leading Blackhawk’s international and
corporate development efforts and had also forced the ouster of Blackhawk’s CFO. Jana
was also demanding stock buybacks in lieu of acquisitions and reinvestment in the
Company’s business.”).
143
Pl.’s Ans. Br. 55 (arguing that “Jana’s sale of shares is irrelevant” because Sandler
reported on other activists and “[t]he identity of the specific activist . . . Roche and Tauscher
feared at the end of the process is irrelevant to this motion.”). Plaintiff neither alleges nor
argues that the remaining director appointed by Jana, Robert Henske, sought to replace
Roche or Tauscher or expressed dissatisfaction with their performance.
34
because Sandler listed the “period during which [Blackhawk] shareholders can make
proposals for [the] annual meeting” as a “Key Date” in the November 21
Presentation and because Sandler reported in the January 11 Presentation that
unnamed activists had purchased shares and “request[ed] time with management.”144
Plaintiff analogizes the Complaint to In re Xura, Inc. S’holder Litig., 2018
WL 6498677 (Del. Ch. Dec. 10, 2018), which involved an activist stockholder’s
threat to replace an officer. The analogy highlights what is missing from the
Complaint. In Xura, the CEO “knew that both the Board and stockholder activists
were displeased with his performance and likely would remove him from office if a
sale of the Company did not occur.” Id. at *13. In Xura, “[m]ajor stockholders . . .
openly questioned” the CEO’s performance. Id. at *8. These threats were concrete:
in Xura, the stockholder plaintiff had declared that it “intended to launch a proxy
contest” and “made clear to both [the CEO] and the Board its view that Xura should
find a new CEO.” Id. The Chairman of Xura “privately advised [the CEO] that the
Board was considering major changes if there was no deal, including changes at . . .
the highest rank of management.” Id. Plaintiff’s allegations here are not remotely
comparable. 145 Because there are no well-pleaded allegations that Roche and
144
Compl. ¶¶ 73, 87.
145
Nor is this case similar to In re Answers Corp. S’holder Litig., 2012 WL 1253072 (Del.
Ch. Apr. 11, 2012), where the company’s 30% stockholder “informed the Board that if [the
company] could not be sold in the near future, then [the company’s] entire management
35
Tauscher were in danger of losing their employment at Blackhawk, it is not
reasonably conceivable that they sought to avoid any threat by engineering the
Buyout. See Wayne Cty. Emps.’ Ret. Sys. v. Corti, 2009 WL 2219260, at *11–13
(Del. Ch. July 24, 2009) (“That Kotick and Kelly did not have to pursue the
transaction with Vivendi in order to retain their positions as managers significantly
alleviates the concern that Kotick and Kelly were acting out of an impermissible
‘entrenchment’ motive”), aff’d, 996 A.2d 795 (Del. 2010); Comstock, 2016 WL
4464156, at *20 (dismissing a Macmillan claim in part because “there is no
allegation that [the CEO’s] position was in danger”). 146
b. Plaintiff Has Not Adequately Pleaded Defendants
Were Disloyal Because They Sought Post-Closing
Employment.
Plaintiff contends that Roche and Tauscher had a conflict of interest because
they were motivated by the prospect of continued employment at Blackhawk after
team, including [the CEO], would be replaced” and the CEO discussed the prospect of
keeping his position at the company after the buyout with the acquirer. Id. at **2, 7.
146
Plaintiff contends that Corti and Comstock are distinguishable because they involved
strategic acquirers rather than a management-sponsored buyout. Pl.’s Ans. Br. 59–60. But
the Buyout is not a management-sponsored buyout. “[A]n MBO is a transaction ‘where,
when it is negotiated, senior management was a participant in the transaction as an
acquirer.” In re Appraisal of Solera Hldgs., Inc., 2018 WL 3625644, at *23 (Del. Ch. July
30, 2018). Neither Roche nor Tauscher are alleged to be affiliated with Silver Lake and
P2. See Corti, 2009 WL 2219260, at *13 (“There is much less cause for concern where
managers will continue their employment with the combined post-transaction entity, than
when the conflicted managers are bidders in an auction for control of the company, and are
thereby seeking to transfer control of the company to themselves personally.”).
36
the Buyout. There are no allegations that any employment offers were extended or
that employment discussions were had prior to closing the transaction. Instead, the
Complaint seizes on complimentary statements in the indications of interest that
Silver Lake and P2 were “100% supportive of the management team,” “very
enthusiastic about the opportunity to partner with you,” and a reference to prior
discussions of a “capital structure . . . for Blackhawk [that] would permit
management to pursue an aggressive, growth-oriented business plan.”147 Plaintiff
also alights on the Proxy’s disclosure that there would be a “new equity incentive
plan” for “certain employees of Blackhawk” after the Buyout.148 Plaintiff seeks to
buttress these allegations by quoting a law review article’s observation that
management can reap “generational wealth” from a private equity buyout because,
according to Plaintiff, the “typical management equity pool following a private
equity buyout is 10% to 15% of total equity.” 149
The Complaint’s allegations are insufficient, and the law review article
quotation cannot make up for their inadequacy. The Complaint does not allege that
Roche and Tauscher knew at any time before entry into the Merger Agreement that
147
Compl. ¶¶ 60, 130.
148
Proxy 52.
149
See Compl. ¶¶ 55–57; Pl.’s Ans. Br. 16, 26, 57 (citing Guhan Subramanian & Annie
Zhao, Go-Shops Revisited, 133 HARV. L. REV. 1215 (2020)).
37
they would continue their employment in any capacity at Blackhawk after closing.150
Likewise, there are no allegations that Roche and Tauscher entered into employment
agreements or discussed terms of employment with Silver Lake and P2 during the
Buyout process. There are no allegations that Roche or Tauscher otherwise acted to
secure post-close employment during the Buyout process. The Proxy’s disclosure
that there would be a “new equity incentive plan” for “certain employees” does not
support a reasonable inference that Roche and Tauscher knew that they would
participate in the equity plan, let alone to what degree. 151 Nor are there any
allegations that Roche or Tauscher had any discussions with Silver Lake or P2 about
post-closing employment prior to execution of the Merger Agreement.152 Even if
150
It is undisputed that Roche continued to serve as the Company’s CEO and President
after closing. Compl. ¶ 111. There is, however, a disputed question of fact as to whether
Tauscher was employed by Blackhawk after closing. In their briefing, Defendants disputed
that Tauscher held any “executive position” at Blackhawk after the Buyout and asserted
that Plaintiff had not pleaded as much. See Defs.’ Opening Br. 2–3. The Complaint,
however, pleads that Tauscher “remain[ed] Executive Chairman” after closing. Compl.
¶ 111. In its Answering Brief, Plaintiff states the basis for this allegation is a reference to
Tauscher’s then-current profile on the social media site LinkedIn. Pl.’s Ans. Br. 56 n.12.
As the Court must, this Opinion takes as true the well-pleaded allegation that Tauscher
remained as the Company’s Executive Chairman after the Buyout.
151
Contra City of Ft. Myers Emps.’ Pension Fund v. Haley, 235 A.3d 702, 705 (Del. 2020)
(concluding complaint alleged that the company’s CEO and lead negotiator was materially
interested in the merger when he was presented with a compensation proposal during price
renegotiations that would provide him with a more than five-fold increase in equity
compensation).
152
According to the Proxy Supplement, the Second Indication of Interest “did not discuss
retention of Blackhawk’s executive officers after the closing of the potential transaction.”
Jackson Aff. Ex. 21. It further states that between the time that Silver Lake/P2
38
Roche and Tauscher thought they would be employed post-closing, there is no
allegation or reasonable inference that they knew or believed that any equity
incentive plan would be superior to their prospects with Blackhawk as a standalone
entity. In this regard, Plaintiff’s assertion that Roche and Tauscher stood to receive
“generational wealth” is entirely speculative: there is nothing in the Complaint
supporting a reasonable inference that Roche and Tauscher knew that any post-
closing employment would be materially better than the employment terms that
Roche and Tauscher already enjoyed.153
The foundation for Plaintiff’s argument that Roche and Tauscher were self-
interested is built on the alleged management-friendly language in the indications of
interest. For this, Plaintiff again relies on Xura. But Xura was vastly different. In
Xura, the Court held that stockholders were not fully informed by the Proxy in part
because a prospective buyer “made clear its intention to work with management
communicated their Initial Indication of Interest in October 2017 and the execution of the
Merger Agreement “there were no discussions between [Silver Lake/P2] and the
Blackhawk executive officers regarding any terms pursuant to which the Blackhawk
executive officers might be retained after the closing of the potential transaction, and none
of the Blackhawk executive officers entered into any agreements with respect to post-
closing employment.” Id.153
See In re Alloy, Inc. S’holder Litig., 2011 WL 4863716, at *9 (Del. Ch. Oct. 13, 2011)
(“allegations of pecuniary self-interest must allow the Court to infer that the interest was
of a sufficiently material importance, in the context of the [fiduciary]’s economic
circumstances, as to have made it improbable that the [fiduciary] could perform her
fiduciary duties without being influenced by her overriding personal interest.”) (internal
quotation marks omitted).
39
(including [the CEO]) after consummation of the Transaction in all of its offer letters
to the Company.” Xura, 2018 WL 6498677, at *12. As in Xura, the indications of
interest submitted by Silver Lake and P2 promised cooperation with the future
management team, implying a wish to hire the Company’s managers after the
Buyout. Compare id. at *2 (offer letter indicating the buyer was “impressed by the
senior leadership team” and was “excited about the prospect of partnering with
them”), with Compl. ¶ 60 (indication of interest stating that Silver Lake would serve
as a “value-added partner to the Company” and that, “as we have discussed before,
the capital structure we envision for Blackhawk … would permit management to
pursue an aggressive, growth-oriented business plan”).
As before, Xura is distinguishable because the Complaint does not allege
misbehavior comparable to the panoply of culpable conduct alleged in Xura. Among
other things, the Xura CEO was engaged in unauthorized discussions with the
acquirer, which included potential future acquisitions. Xura, 2018 WL 6498677, at
*6. The plaintiff in Xura also alleged that the company’s CEO deliberately injured
his own company’s ability to bargain with a bidder to save his own job. As one
example, the Court observed that it was “remarkable to see evidence that a CEO
undermined the authority and questioned the competency of his CFO in direct
communications with a potential acquirer at the peak of negotiations during a sale
process. Yet, that is what the pled evidence reveals here.” Id. at *13 n.129. As
40
another example, the conflicted CEO advised the prospective buyer at what price it
should bid. Id. at *5–6 (“With a gentle nudge, [the CEO] told [the acquirer] that the
offer price should be $28 per share . . . . [the CEO] did not inform anyone at Xura .
. . about his meeting with [the acquirer] either before or after it occurred.”).
Cast against this backdrop, the offer letters by the acquirer in Xura took on an
import beyond what is reasonably attributable to the indications of interest by Silver
Lake and P2 in the context of the Complaint. There are no allegations of: (1) a
specific threat to Roche or Tauscher; (2) that Roche and Tauscher feared for their
jobs, or (3) that they conspired with Silver Lake and P2 to corrupt the transaction
process. Instead, the Complaint bears more similarity to Comstock, where the
allegations “failed to demonstrate the type of deceitful conduct necessary to trigger
entire fairness under a Macmillan theory” and there was “no allegation that [the
CEO’s] position was in danger or that his new employment terms were materially
different than his existing terms.” Comstock, 2016 WL 4464156, at *19–22. As in
Comstock, at the time of the Proxy, Roche and Tauscher held significant amounts of
stock—510,205 shares and 1,093,0637 shares, respectively 154—that aligned their
interest with the Company’s stockholders. See id. at *20; see also Chen v. Howard-
Anderson, 87 A.3d 648, 670–71 (Del. Ch. 2014) (discussing the alignment of
154
Proxy 82.
41
interests between fiduciaries and stockholders where fiduciaries own material
amounts of common stock). For those reasons, the Complaint does not adequately
allege that Roche and Tauscher were self-interested during the Buyout process.155
2. The Complaint Does Not Adequately Allege that Roche and
Tauscher Manipulated or Deceived the Board into
Approving the Buyout.
Plaintiff alleges Roche and Tauscher breached their fiduciary duties as
officers by preventing the Board from properly exercising its business judgment.
This Court recently addressed a similarly targeted claim against corporate officers
in In re Baker Hughes, Inc. Merger Litig., 2020 WL 6281427 (Del. Ch. Oct. 27,
2020). There, as here, the “key issue” was whether the Complaint pleaded facts “to
support a reasonably conceivable claim that [the officers] tainted the decisionmaking
of [the] concededly independent and disinterested directors[.]” Id. at *19. Here,
even assuming the Complaint contained sufficient allegations that Roche and
Tauscher suffered from a material conflict of interest (and it does not), the Complaint
fails to allege that Roche and Tauscher breached their fiduciary duty of loyalty by
manipulating or deceiving the Board into approving the Buyout.
155
In Xura, the plaintiff had the benefit of additional discovery from a related appraisal
action. In the event that Plaintiff later obtains information indicating that Roche and
Tauscher engaged in deceitful conduct only absent from the Complaint for lack of
discovery, the Court is not precluded from revisiting this issue. See In re Dell Techs. Inc.
Class V S’holders Litig., 2020 WL 3096748, at *43 (Del. Ch. June 11, 2020); In re
Mindbody, Inc., 2020 WL 5870084, at *34 n.309.
42
a. The Complaint Does Not Contain Well-Pleaded
Allegations Supporting a Reasonable Inference that
the Board Was Supine.
Plaintiff argues that this case represents the paradigmatic “good Revlon claim
. . . when a supine board under the sway of an overweening CEO bent on a certain
direction, tilts the sales process for reasons inimical to the stockholders’ desire for
the best price.”156 For example, in Macmillan, the board of directors was “torpid, if
not supine” because it “plac[ed] the entire process in the hands of [the company’s
chairman and CEO], through [the CEO’s] own chosen financial advisors, with little
or no board oversight.” Macmillan, 559 A.2d at 1280; see also Xura, 2018 WL
6498677, at *4 (discussing allegations of an inert special committee formed to
evaluate and negotiate a transaction with a bidder, including an allegation that one
of its members “did not even realize that the Special Committee existed or that he
was a member of the committee until he learned about it at his deposition”); Stern,
2018 WL 1341719, at *1 n.4 (noting that a variant of Macmillan claim exists where
“impartial board members did not oversee conflicted members sufficiently”).
Defendants dispute the relevance of the Board’s conduct because no director
is alleged to have breached his or her fiduciary duty as a director. In Defendants’
terms, Plaintiff “must plead a breach of duty by Roche or Tauscher to state a
fiduciary-breach claim against Roche or Tauscher.” Defs.’ Reply Br. 20–23.
156
Pl.’s Ans. Br. 46 (quoting Toys “R” Us, 877 A.2d at 1002).
43
Defendants are correct, but it is nevertheless important to address the Board’s
involvement in the Buyout process to determine whether the Complaint pleads facts
that could support a reasonable inference that Roche and Tauscher took advantage
of an inattentive or ineffective Board.
The Complaint does not so plead. The Complaint does not allege that any of
the ten outside directors on the Board was dominated by Roche or Tauscher, suffered
from any conflict of interest, or acted in bad faith. In its Answering Brief, Plaintiff
argues that it has not “concede[d] that any Blackhawk directors were impartial or
acted in good faith in approving this process,” 157 but because the Complaint contains
no allegations to the contrary, the only reasonable inference is that these ten
members of the Board were independent and disinterested.158 The uncontested
independence and disinterestedness of the Board is not alone dispositive of
Plaintiff’s claim against Roche and Tauscher.159 Setting aside the omission of
157
Pl.’s Ans. Br. 52.
158
See Baker Hughes Inc., 2020 WL 6281427, at *6 (noting that “Plaintiffs tacitly concede
the independence and disinterestedness of twelve of the thirteen members of the Board and
that they cannot allege a non-exculpated claim against the members of the Board” by
amending their pleadings to omit claims against outside directors).
159
Stern, 2018 WL 1341719, at *1 (“To the extent, however, that the Court of Chancery's
decision suggests that it is an invariable requirement that a plaintiff plead facts suggesting
that a majority of the board committed a non-exculpated breach of its fiduciary duties in
cases where Revlon duties are applicable, but the transaction has closed and the plaintiff
seeks post-closing damages, we disagree with that statement.”).
44
allegations against the ten outside directors, however, the overall narrative presented
by the Complaint contradicts Plaintiff’s pejorative labeling of the Board as supine.
The Complaint alleges that, on the eve of the Buyout process, the Board
instructed Blackhawk’s management to revise its budget that allocated $1.1 billion
over three years for acquisitions and requested a three-year budget “that includes a
more aggressive M&A strategy as a means of accelerating the growth of the
Company and in shareholder value.”160 The Complaint alleges that, after receiving
the First Indication of Interest on October 20, 2017, the Board met six times to
consider Silver Lake and P2’s proposal before the execution of the Merger
Agreement. In 2017, the Board met on November 6, November 21, December 4,
and December 13. 161 In 2018, the Board met on January 11 and January 14, before
the Merger Agreement was executed on January 15, 2018.162 The Complaint further
alleges that, during these meetings, the Board considered management projections
and analyses from Sandler regarding the value of the Buyout as compared to the
value of the Company as a standalone entity. In short, the Complaint alleges that
the Board met, engaged with management and advisors, and deliberated during
regular intervals during the Buyout process.
160
Compl. ¶ 49.
161
Id. ¶¶ 64, 71, 74, 79.
162
Id. ¶¶ 84, 89, 91.
45
In its Answering Brief, Plaintiff essentially asserts that there were windows
of inattention by the Board during the Buyout process that permitted Roche and
Tauscher to act without Board supervision. 163 As an example, in its Answering
Brief, Plaintiff argues that Roche and Tauscher were “engaged in unchaperoned
discussions with Silver Lake and P2 for months before Silver Lake/P2 submitted a
bid” regarding the Company’s capital structure. 164 The Complaint alleges that the
discussions were “about a potential minority private investment in the Company’s
equity”—not the Buyout—and that the “Board discussed the potential [minority]
investment by Silver Lake/P2 at its meeting on July 17, 2017.”165 Plaintiff insinuates
that Roche and Tauscher intentionally depressed Blackhawk’s stock price by issuing
revised guidance, but the revised guidance proved accurate and there is no well-
pleaded allegation that Roche and Tauscher knew that they would personally benefit
by issuing more pessimistic earnings guidance.166 Plaintiff faults Roche and
163
Pl.’s Ans. Br. 46–51 (citing Compl. ¶¶ 43, 44, 60, 63–64, 67–76, 81, 82, 83, 85, 86, 90,
93–99, 100–05, 113–14 and 116).
164
Pl.’s Ans. Br. 46.
165
Compl. ¶¶ 43–45, 60. Cf. Macmillan, 559 A.2d at 1281 (observing that management
met with a potential acquirer to discuss a management-sponsored buyout without board
approval, and then the board allowed conflicted management to select the company’s
financial and legal advisers).
166
This case is unlike In re Mindbody, Inc. S’holders Litig., 2020 WL 5870084, at *20
(Del. Ch. Oct. 2, 2020), where the Court concluded that it was reasonably conceivable that
the CEO provided earnings guidance for reasons unrelated to business expectations when
it later turned out that the actual quarterly results beat not only the lowered guidance target,
46
Tauscher for permitting Silver Lake and P2 to conduct further due diligence after
they received the First Indication of Interest, but the Complaint alleges that the Board
had already allowed “Silver Lake/P2 to continue doing due diligence on the
Company” to facilitate a potential minority investment, and that management
reported the status of due diligence to the Board at its November 6, 2017 meeting.167
In fact, Plaintiff’s assertions of Board inattention are belied by allegations that
Roche reported to the Board and that the Board approved management’s decisions.
For example, Plaintiff contends that Roche and Tauscher ignored Thoma Bravo’s
email outreach.168 But within one week of Roche’s receiving the email, the
Complaint alleges that the Roche “reported on the outreach” by Thoma Bravo at the
following Board meeting.169 The Complaint alleges that the Board “determined not
to engage” because, in part, engaging with Thoma Bravo “could result in the loss of
the potential [Buyout]” and the go-shop would “permit the Company to solicit an
acquisition proposal from [Thoma Bravo]” after entry into the Merger Agreement.170
but also the prior estimates. In this case, Blackhawk’s actual earnings figure for 2017 was
consistent with the low point of the earnings guidance announced in October 2017.
Compare Jackson Aff. Ex. 20 (Blackhawk Form 8-K, dated February 27, 2018, announcing
Blackhawk’s 2017 adjusted EBITDA to be $224.9 million), with Jackson Aff. Ex. 7
(Blackhawk Form 8-K, dated October 11, 2017, reporting guidance for Blackhawk’s 2017
adjusted EBITDA to be $225–250 million).
167
Compl. ¶¶ 45, 64.
168
Pl.’s Ans. Br. 48.
169
Compl. ¶ 86.
170
Id.47
The Complaint thus alleges that the Board, not Roche or Tauscher, decided not to
engage with Thoma Bravo prior to entry into the Merger Agreement. Plaintiff
similarly alleges that the go-shop provision prohibited the Board from changing its
recommendation or terminating the deal, but that, too, was a Board decision made
after the Board’s legal advisor discussed the terms of the go-shop provision and the
draft Merger Agreement.171 And Plaintiff alleges that Roche and Tauscher acted
improperly by agreeing to “defer[] . . . discussions regarding transaction price” until
after Silver Lake and P2 completed due diligence, but Roche and Tauscher reported
that decision to the Board in short order. 172 These allegations do not support a
reasonable inference of a board “exhibiting indolent or apathetic inertia or
passivity,”173 or otherwise having been manipulated by Roche and Tauscher during
the Buyout process.
171
See Proxy 32; Jackson Aff. Ex. 19. Plaintiff alleges that the go-shop provision in the
Merger Agreement achieved the opposite effect of a typical go-shop provision by
precluding the Board from accepting proposals solicited during the go-shop period. As
discussed in further detail below, this allegation supports a claim that Roche breached her
fiduciary duty of care by issuing a misleading Proxy that characterized the go-shop as
permitting the Company to “terminate the merger agreement to enter into an agreement
with respect to a superior proposal during the go-shop period.” Proxy 35. The allegedly
malfunctioning go-shop provision, however, does not support a claim that Roche and
Tauscher breached their fiduciary duty as officers because there is no well-pleaded
allegation that Roche and Tauscher approved the go-shop in order to advance their own
self-interest or that they deceived the Board as to the contents of the Merger Agreement.
172
Compl. ¶ 64.
173
Merriam-Webster’s Collegiate Dictionary 1184 (10th ed. 1997) (defining “supine”).
48
b. The Complaint Does Not Contain Well-Pleaded
Allegations Supporting a Reasonable Inference that
Roche and Tauscher Deceived the Board.
An officer may breach his or her duty by deceiving an independent board of
directors into favoring a bidder. Macmillan, 559 A.2d at 1279; Stern, 2018 WL
1341719, at *1 n.4; Comstock, 2016 WL 4464156, at *19. Plaintiff claims that the
outside directors were materially uninformed as to five issues: (1) the substance of
Defendants’ discussions with Silver Lake and P2 before the First Indication of
Interest; (2) the real reason that management was reducing the Company’s financial
projections; (3) “the fact that the Merger Agreement would preclude any solicited
topping bids, including from [Thoma Bravo]”; (4) the alleged conflicts of interests
faced by Roche, Tauscher, and the Board’s legal and financial advisors; and (5) “the
contents of the materially misleading Proxy.” 174 The Opinion discusses each in turn.
i. Silver Lake/P2 Discussions
It is not reasonably conceivable from the Complaint that Defendants deceived
the Board regarding the contents of their discussions with Silver Lake and P2 before
the First Indication of Interest. The Complaint alleges that the discussions between
Roche and Tauscher and Silver Lake and P2 before the First Indication of Interest
concerned “a potential minority private investment,” not the Buyout.175 The
174
Pl.’s Ans. Br. 51 (citing Compl. ¶¶ 43–44, 60, 63, 67-76, 85, 86, 90, 92-115, 116 &
Jackson Aff. Ex. 19).
175
Compl. ¶ 43.
49
Complaint also alleges that the Board discussed that potential investment at the July
17, 2017 Board meeting, and permitted Silver Lake and P2 to continue conducting
due diligence on the Company.176 Plaintiff insinuates that a reference to a previously
discussed “capital structure” in the First Indication of Interest suggests that Roche
and Tauscher were acting improperly, but Plaintiff does not explain the significance
of this reference, or how its nondisclosure was material to the Buyout process.177
Plaintiff does not allege, for example, that Roche and Tauscher had discussed selling
the Company to Silver Lake and P2 when they were purportedly discussing a
potential minority investment. In the absence of such allegations, the reference to a
previously discussed capital structure is not sufficient to support a reasonable
inference that Roche or Tauscher deceived the Board.
ii. Lowered Projections
It is not a reasonably conceivable inference that Roche and Tauscher deceived
the Board through downwardly-adjusted management projections. Plaintiff argues
that comparing the segment analyses in the November 6 Presentation and the
December 4 Presentation reveals that Roche’s statement to the Board on November
21 that management expected lower-than-expected performance in 2018 because
“challenges in [the Company’s] U.S. retail sector would limit organic growth” was
176
Id. ¶¶ 44–45.
177
Id. ¶ 60.
50
false. 178 Roche’s statement was not false. On December 4, 2017, management
projected 2018 EBITDA from the Company’s U.S. retail sector to be lower than
previously projected on November 6. Even though the decrease was not significant
and did not account for a majority of the change in the Company’s performance, the
projections are consistent with Roche’s disclosed statement that challenges in that
sector “would limit organic growth” and caused a decrease in management
projections. As important, Plaintiff does not dispute that the Board received each of
the projections and was capable of independently assessing whether Roche’s
narrative regarding the Company’s performance was accurate or requesting further
information regarding management projections.
iii. The Go-Shop
Plaintiff contends that, at the January 11, 2018 Board meeting, Roche and
Tauscher falsely persuaded the Board not to proceed with Thoma Bravo prior to
entry of the Merger Agreement because Thoma Bravo could be re-engaged during
the go-shop period. But the Complaint does not allege that Roche or Tauscher
discussed that provision at the January 11 Board meeting. The Proxy and the Board
minutes reflect that the Board’s legal and financial advisors—not Roche and
178
Proxy 30.
51
Tauscher—discussed the terms of the draft Merger Agreement with the Board. 179 In
addition, Plaintiff does not dispute that Thoma Bravo reiterated its interest in
acquiring the Company after the announcement of the Merger Agreement, as
disclosed in the Proxy. 180 The Complaint does not otherwise allege that Roche and
Tauscher deceived the Board regarding the operation of the go-shop provision or
sabotaged the process. 181
179
Compl. ¶ 86; Proxy 32 (“On January 11, 2018, a special in-person meeting of the
Blackhawk board of directors was held, which representatives of Wachtell Lipton and
Sandler O’Neill attended. Representatives of Wachtell Lipton discussed the key terms of
the draft merger agreement, including closing conditions, termination provisions,
regulatory considerations and the structure of the go-shop period.”); Jackson Aff. Ex. 16
(“The Board, Wachtell Lipton and Sandler O’Neill then discussed the potential benefits
and risks of engaging with Party A at this time, including that Party A would likely need
to do significant diligence in order to finalize a potential transaction, that a transaction with
the Buyer Group could likely be finalized in the next several days, that engaging with Party
A could result in the loss of the potential transaction with the Buyer Group, and that the
“go-shop” provisions of the draft merger agreement would permit the Company to solicit
an acquisition proposal from Party A after signing a definitive merger agreement with the
Buyer Group. Following this discussion, the Board determined not to engage with Party A
at this time.”).
180
Even assuming that the go-shop provision had been finalized in the draft Merger
Agreement by the January 11, 2018 Board meeting, the Board may not have been later
precluded from terminating the Merger Agreement in response to Thoma Bravo’s
overtures. As discussed further below, the structure of the go-shop may have precluded
the Board from terminating the Merger Agreement in response to a solicited proposal, but
Thoma Bravo solicited the Company both before and after the signing of the Merger
Agreement, not vice versa. See Compl. ¶ 82 (describing Thoma Bravo’s outreach pre-
Buyout); Proxy 33 (“Shortly following the public announcement of the merger agreement,
Party A contacted the Company to indicate that they were interested in engaging with the
Company during the go-shop period.”).
181
Cf. Gantler, 965 A.2d at 709 (holding officer’s failure to respond to a bidder’s due
diligence requests, which later led to withdrawal of the bid, supported an inference that the
officer sabotaged the bid and, thus, stated a claim for breach of fiduciary duty).
52
iv. Conflicts
Plaintiff claims that Roche and Tauscher did not disclose their purported
conflicts of interests to the Board, as well as the alleged conflicts of interests suffered
by the Company’s financial and legal advisors. As discussed above, there are no
well-pleaded allegations that Roche and Tauscher were conflicted. With respect to
the Company’s financial and legal advisors, even assuming their connections to
Silver Lake (golf-based and otherwise) were material, the Complaint does not allege
that Roche and Tauscher were aware that these conflicts of interest existed.
v. The Proxy Disclosures
Plaintiff contends that Roche and Tauscher caused the Company to issue a
misleading Proxy and misled the Board regarding the “contents of the materially
misleading Proxy.”182 But there is no well-pleaded allegation that Defendants misled
the Board regarding the Proxy. 183 In its Answering Brief, Plaintiff suggests that the
Board did not review the Proxy because, on January 14, 2018, the Board authorized
182
Pl.’s Ans. Br. 48, 51.
183
The only paragraph of the Complaint cited in Plaintiff’s Answering Brief to support this
assertion does not allege that Roche or Tauscher misled the Board regarding the Proxy.
Pl.’s Ans. Br. 51–52 (citing Compl. ¶ 116). See Compl. ¶ 116 (“Defendants caused
Blackhawk to file the Proxy with the SEC on March 2, 2018. As Roche stated in her cover
letter, the primary message of the Proxy was that “the [Board] unanimously recommends
that our stockholders vote ‘FOR’ the proposal to adopt the merger agreement.” In
advocating the Buyout, however, the Proxy was materially false and misleading in
significant respects.”).
53
the executive officers of the Company to issue the Proxy.184 That does not mean that
Roche and Tauscher prevented the Board from reviewing the Proxy or misled the
Board regarding its contents.
In summary, the Complaint lacks well-pleaded allegations that Roche and
Tauscher harbored any conflict of interest during the Buyout process. Even under
the assumption that Defendants had a conflict of interest, the Complaint does not
contain well-pleaded allegations that they manipulated or deceived the Board in
order to favor Silver Lake and P2. Thus, for the foregoing reasons, the Complaint
does not state a claim that Roche and Tauscher breached their fiduciary duties as
officers by favoring Silver Lake and P2 or misleading the Board into approving the
Buyout.
B. The Complaint States a Claim for Breach of the Duty of Care as to
the Proxy Disclosures.
The Complaint alleges that Defendants breached their fiduciary duty in their
capacity as officers by approving a materially misleading Proxy. “‘Under Delaware
law, when directors solicit stockholder action, they must disclose fully and fairly all
material information within the board’s control.’” Baker Hughes, 2020 WL
6281427, at *12 (quoting In re Solera Hldgs., Inc. S’holder Litig., 2017 WL 57839,
at *9 (Del. Ch. Jan. 5, 2017)). Officers may breach their fiduciary duties to the extent
184
Pl.’s Ans. Br. 48–49 (arguing that “[t]here is no evidence the Board even reviewed the
Proxy”) (citing Jackson Aff. Ex. 19 at HAWK0000152).
54
they are involved in preparing a proxy statement that contains materially misleading
disclosures or omissions. In re Hansen Med., Inc. S’holders Litig., 2018 WL
3025525, at *11 (Del. Ch. June 18, 2018) (holding that a complaint stated a claim
against an officer for violation of the fiduciary duty of disclosure and noting that
directors and officers of a corporation generally owe the same fiduciary duties); see
also Baker Hughes, at *15–16; Morrison, 2019 WL 7369431, at *25, *27.
The disclosure claims involve a two-step analysis. The first step considers
whether the Complaint alleges that Defendants were involved in the preparation of
the Proxy disclosures. The second addresses whether the Proxy is materially
misleading and whether Defendants are protected by a fully-informed, uncoerced
stockholder vote in favor of the Buyout under the Corwin doctrine. 185
1. The Complaint Pleads Facts Supporting a Reasonable
Inference That Roche (But Not Tauscher) Was Involved in
Preparing the Proxy Disclosures.
Defendants argue that they cannot be held liable for materially misleading
disclosures or omissions from the Proxy because “the complaint fails to allege any
breach of duty by Roche or Tauscher that caused the alleged disclosure
deficiencies.”186 Roche was the CEO of Blackhawk throughout the Buyout process
185
Corwin v. KKR Fin. Holdings LLC, 125 A.3d 304, 312–14 (Del. 2015).
186
Defs.’ Opening Br. 33–35.
55
and an integral figure during Buyout negotiations.187 The Board resolutions
approving the issuance of the Proxy authorized the Company’s “executive officers”
to prepare and issue the Proxy and, most significantly, Roche signed the Proxy.188
See Baker Hughes, 2020 WL 6281427, at *15–16 (holding that a CEO could be
liable for breach of the duty of care for a deficient proxy where the CEO was
involved in the negotiation of the merger and signed the proxy); In re Hansen Med.,
Inc. S’holders Litig., 2018 WL 3025525, at *11 (“Vance affixed his signature to the
Proxy in his capacity as President and CEO and presented the information to the
stockholders for their consideration. This means he may be liable for material
misstatements in the Proxy in his capacity as an officer [and] as a director.”).
Therefore, the Complaint alleges facts from which it can reasonably be inferred that
Roche was involved in preparing the disclosures in the Proxy in her capacity as an
officer of Blackhawk.
The same cannot be inferred, however, as to Tauscher. The Complaint does
not allege that Tauscher was involved in the preparation of the Proxy, and it is not
reasonably inferable from the Complaint or the Proxy that he was. Tauscher did not
187
See, e.g., Compl. ¶ 86 (“Roche reported on diligence and negotiations with Silver
Lake/P2”).
188
Jackson Aff. Ex. 19 at HAWK0000152 (authorizing the “Authorized Officers” to
prepare and issue the Proxy); id. at HAWK0000150 (defining the “Authorized Officers”
as “the executive officers of the Company”); Proxy, at Cover Letter from Talbott Roche
dated March 2, 2018; Compl. ¶ 116 (alleging that Roche addressed the Company’s
stockholders in the cover letter).
56
sign the Proxy. Because “the Complaint is devoid of any allegations that [the officer]
had any role in drafting or disseminating the Proxy,” Plaintiff has not pleaded a claim
that Tauscher could have breached any fiduciary duty by issuing a materially
deficient proxy. Baker Hughes, 2020 WL 6281427, at *16.
2. The Proxy Disclosures
In a request for stockholder action, directors are under a duty to disclose fully
and fairly all material facts within their control bearing on the request. Stroud v.
Milliken Enters., Inc., 552 A.2d 476, 480 (Del. 1989). A stockholder states a claim
for breach of this duty if it can allege facts to support “a rational inference that
material facts were not disclosed or that the disclosed information was otherwise
materially misleading.” Morrison v. Berry, 191 A.3d 268, 282 (Del. 2018). “An
omitted fact is material if there is a substantial likelihood that a reasonable
shareholder would consider it important in deciding how to vote.” Rosenblatt v.
Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976)) (internal quotations omitted). “[T]here 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.” Rosenblatt, 493 A.2d at 944 (quoting TSC Indus., 426
U.S. at 449).
57
For the reasons addressed above, the only potential claim against Roche for
issuing a materially misleading Proxy sounds in the fiduciary duty of care because
there is no well-pleaded allegation in the Complaint supporting a reasonable
inference that she acted in bad faith or to further her own self-interest. Roche cannot
be exculpated for breaches of duty of care with respect to challenged conduct taken
in her role as an officer. 189
To state a claim for breach of the duty of care, Plaintiff must plead that Roche
acted with gross negligence. 190 “Gross negligence involves more than simple
carelessness. To plead gross negligence, a plaintiff must allege ‘conduct that
constitutes reckless indifference or actions that are without the bounds of reason.’”
Baker Hughes, 2020 WL 6281427, at *15 (quoting Morrison, 2019 WL 7369431, at
*22). “‘Because fiduciaries . . . must take risks and make difficult decisions about
what is material to disclose, they are exposed to liability for breach of fiduciary duty
only if their breach of the duty of care is extreme.’” Morrison, 2019 WL 7369431,
at *25 (quoting Metro Commc'n Corp. BVI v. Advanced Mobilecomm Techs. Inc.,
854 A.2d 121, 157 (Del. Ch. 2004)). 191
189
8 Del. C. § 102(b)(7); Baker Hughes, 2020 WL 6281427, at *15.
190
Id.191
The challenges to the Proxy alleged in the Complaint that are not described below do
not support a claim that Defendants breached their duty of care for reasons described
elsewhere in the Opinion. See Compl. ¶¶ 129–30. Specifically, the Proxy’s failure to
58
a. The Omission of Acquisition Projections
Plaintiff alleges the Proxy omitted material information in the form of
projections relating to earnings from the Company’s potential acquisitions. The
Proxy contains four sets of projections: (1) the Initial Projections (disclosing
projected adjusted EBITDA of $275 million for 2018, among other projections); (2)
the November Estimate Range (projecting EBITDA of $240–$280 million for 2018);
(3) the Preliminary 2018 Plan (projecting $260 million in adjusted EBITDA for
2018); and (4) the Revised Projections (projecting $240–$250 million in adjusted
EBITDA).192 In each case, the Proxy disclosed the Company’s projected earnings
without acquisitions. Plaintiff contends that the Proxy is materially misleading
because it omits projected earnings from acquisitions that were considered by the
Board at the same time that the Initial Projections and the November Estimate Range
were presented (on November 6, 2017 and November 21, 2017, respectively).
Plaintiff also alleges that the Proxy provides the misleading impression that the
Initial Projections were prepared in the summer of 2017, prior to the Company’s
disclose the management-friendly language in the indication of interest was not materially
misleading in the Proxy because Roche or Tauscher were not conflicted. The allegations
that the Proxy should have disclosed different reasons for lower-than-expected
performance in 2018 than the reasons Roche disclosed at the November 21, 2017 Board
meeting also fail because the Complaint does not contain well-pleaded facts that the stated
rationale was false or materially misleading.
192
Proxy 38, 39.
59
announcement of lowered guidance in October 2017.193 Defendants argue that the
Proxy did not need to contain acquisition projections because the “complaint alleges
nothing to show that the November acquisition-based projections were reliable,”
they were stale and “likely . . . immaterial,” and that the projections were not the
“best projections” available to the Company.194 Defendants further argue that the
disclosure regarding the timing of the Initial Projections accurately reflects their
preparation “sometime between the summer of 2017 and late October 2017.”195
The Complaint alleges that the Company historically engaged in a consistent
practice of growth through acquisitions and that shortly before the Buyout process
began, the Company was considering expanding that strategy. The Board
considered whether to pursue its acquisition strategy as a standalone entity during
the Buyout process. Shortly before the First Indication of Interest, Sandler made a
presentation to the Board stating that Blackhawk had “a full range of options to
finance an aggressive M&A strategy,” including through borrowing under the
Company’s credit agreement, issuing additional stock, obtaining a convertible debt
investment, or financing acquisitions with common stock. 196 After Silver Lake and
P2 submitted the First Indication of Interest on October 20, 2017, the Company
193
Pl.’s Ans. Br. 64–67.
194
Defs.’ Reply Br. 29.
195
Id. at 26.
196
Compl. ¶¶ 50, 124.
60
continued to evaluate its prospects as a standalone company, including by preparing
projections that included the potential impact of acquisitions.
The Proxy selectively discloses portions of these projections. In particular, as
discussed above, the November Forecast presented to the Board on November 6,
2017 contained three-year projections estimating the Company’s EBITDA with and
without acquisitions. 197 To estimate potential earnings from acquisitions, the
November Forecast assumed that the Company would spend $700 million in
acquisitions over the following three years. 198 As Plaintiff alleges, “[t]he $700
million acquisition plan was projected to add $98 million in yearly EBITDA by
2020, representing approximately 25% of Blackhawk’s 2020 adjusted EBITDA.”199
The Initial Projections disclosed in the Proxy were derived from the November
Forecast, but excluded projected earnings from acquisitions as presented to the
Board. 200 The Proxy similarly omitted acquisition projections from the November
Estimate Range assuming that the Company would earn $20 million in EBITDA for
acquisitions in 2018.201
197
Compl. Ex. A.
198
Id. at 10.
199
Compl. ¶ 120.
200
Proxy 38.
201
Id. at 39.
61
Cast against this background, the Complaint adequately pleads that omission
of the acquisition projections presented to the Board during the Buyout process was
material. A reasonable stockholder would have wanted to know information
regarding management’s projections of the Company’s potential earnings from
acquisitions, especially because the acquisition projections were provided to the
Board. Those projections would have altered the “total mix” of information
available because they would have formed a basis against which a reasonable
stockholder could compare the price she would receive through the Buyout and to
assess the basis for the Board’s recommendation of the Buyout. The Company’s
ability to pursue a standalone acquisition strategy was considered by the Board
several times, including on October 9, 2017 (before the Buyout process began), at
the November 9 Board meeting, and again at the December 13 Board meeting.
Defendants argue that the acquisition projections were immaterial because
they were speculative and that subsequent market events rendered them unreliable.
To support this argument, Defendants cite In re Micromet, Inc. S’holders Litig., 2012
WL 681785, at *13 (Del. Ch. Feb. 29, 2012), for the proposition that “Delaware law
does not require disclosure of inherently unreliable or speculative information.” The
Court in Micromet was deciding a motion for preliminary injunction and based its
decision on discovery relating to the challenged disclosures. Id. (holding that
undisclosed projections were unreliable in part because the CEO testified that they
62
were “not realistic” and a director testified that they were “highly subjective”). By
contrast, the Court does not have the benefit of a discovery record in adjudicating
Defendants’ motion to dismiss. As a consequence, accepting Defendants’ argument
regarding the weight of the acquisition projections would require drawing an
impermissible inference in favor of Defendants at this stage. See Savor, 812 A.2d
at 897 (“[T]he Court must draw all reasonable inferences in favor of the non-moving
party”).
The omission of the acquisition projections from the Initial Projections and
the November Estimate Range is compounded by the Proxy’s description of the
Initial Projections. The Proxy states that the Initial Projections were “based on the
information contained in Blackhawk’s financial model, which was prepared by
Blackhawk’s management during the Summer of 2017 from financial models used
in connection with its annual internal planning processes, and were provided to
Sandler O’Neill, [Silver Lake and P2], and the Blackhawk board of directors in late
October and early November 2017.”202 The “Initial Projections” refer to the
November Forecast, with acquisition projections excised. The Proxy is misleading
because the Initial Projections were not generated in “the Summer of 2017”—they
were prepared in November 2017 and compared to projections made in July 2017.
202
Proxy 38.
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Defendants argue that the Proxy “tell[s] the reader that they were an update of a
projection model prepared several months earlier,” but there is no reference to any
“update” in the Proxy language.203 Instead, the Proxy states that the Initial
Projections were based on management’s financial model prepared in the summer
of 2017 and “provided to Sandler O’Neill, the Sponsors and the Blackhawk board
of directors in late October and early November 2017.” Defendants also imply that
whether the Initial Projections were prepared in the summer of 2017 or November
2017 is immaterial,204 but that argument ignores the fact that Roche announced
downward revisions to the Company’s earning guidance in October 2017.205
Viewed in totality and drawing all reasonable inferences in favor of Plaintiff,
the Complaint supports a reasonable inference that the Proxy selectively disclosed
projections regarding its potential earnings in a manner that rendered the Proxy
disclosures misleading because, under these circumstances, a reasonable stockholder
would have wanted to know management’s projections of earnings from acquisitions
in deciding how to vote. Maric Capital Master Fund, Ltd. v. Plato Learning, Inc.,
11 A.3d 1175, 1178 (Del. Ch. 2010) (enjoining a transaction because the proxy
203
Defs.’ Opening Br. 38.
204
Id. at 38–39.
205
Compl. ¶ 58 (“On October 11, 2017, the Company announced negative guidance and
management made public comments that created uncertainty about the Company’s growth
prospects.”).
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statement “selectively disclosed projections relating to [the company’s] future
performance” that related to the “value that might obtain if the corporation remains
independent and delivers on management’s expected cash flows”); NECA-IBEW
Pension Trust Fund v. Precision Castparts Corp., 2017 WL 4453561 (D. Or. Oct. 3,
2017) (holding that a proxy statement was materially misleading because the
company’s “acquisition strategy was a continuing part of its business plan” and the
proxy disclosed projections that excluded the effect of future acquisitions), report
and recommendation adopted, 2018 WL 533912 (D. Or. Jan. 24, 2018).
b. The Go-Shop Provision
The Complaint alleges the Proxy disclosures describing the Board’s right to
terminate the Merger Agreement in response to a superior acquisition proposal
during the go-shop is false. According to the Proxy, during the go-shop period, the
Board may “solicit higher offers during the go-shop period and to consider and
negotiate certain higher offers thereafter, including the Company’s right to solicit
offers with respect to acquisition proposals during a 25-day go-shop period and to
terminate the Merger Agreement to enter into an agreement with respect to a superior
proposal during the go-shop period,” subject to payment of a termination fee. 206
206
Proxy 35.
65
Section 7.1(a)(i) of the Merger Agreement permits the Company to “initiate,
solicit, facilitate and encourage Acquisition Proposals” for a period of 25 days.207
Except in the case of a material positive event, Section 7.2(c) prohibits the Board
from changing its recommendation regarding the Buyout or terminating the Merger
Agreement to enter into an alternative merger agreement unless the Board
determined that a competing acquisition proposal was a “Superior Proposal.”208 In
pertinent part, Section 7.2(c) states:
(c) No Change in Recommendation or Alternative Acquisition
Agreement. Except as set forth in this Section 7.2(c), the Company
Board . . . shall not:
(i) (A) withhold, withdraw, qualify or modify (or publicly propose or
resolve to withhold, withdraw, qualify or modify), in a manner adverse
to Parent, the Company Recommendation with respect to the Merger,
(B) authorize, approve, recommend or otherwise declare advisable, or
publicly propose to authorize, approve, recommend or otherwise
declare advisable, any Acquisition Proposal or proposal reasonably
likely to lead to an Acquisition Proposal, (C) fail to include the
Company Recommendation in the Proxy Statement, (D) take any action
or make any recommendation or public statement in connection with a
tender offer or exchange offer other than an unequivocal
recommendation against such offer or a temporary “stop, look and
listen” communication by the Company Board of the type contemplated
by Rule 14d-9(f) under the Exchange Act in which the Company Board
or the Company indicates that the Company Board has not changed the
Company Recommendation or (E) fail to reaffirm the Company
Recommendation within the earlier of three Business Days prior to the
Stockholders Meeting and five Business Days after receiving a written
207
Merger Agreement § 7.1(a)(i). The Merger Agreement is attached to the Proxy as
Annex A.
208
Id. § 7.2(c).
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request to do so from Parent (any of the foregoing, a “Change of
Recommendation”); or
(ii) except as expressly permitted by, and after compliance with, the last
paragraph of this Section 7.2(c), cause or permit the Company or any
of its Subsidiaries to enter into any letter of intent, memorandum of
understanding, agreement in principle, acquisition agreement, merger
agreement or other similar agreement (other than a confidentiality
agreement referred to in Section 7.2 (a) or 7.2(b) entered into in
compliance with Section 7.2(a) or 7.2(b)) (an “Alternative Acquisition
Agreement”) relating to any Acquisition Proposal or otherwise resolve
or agree to do so.
Notwithstanding anything to the contrary set forth in this Section 7.2(c),
the Company Board may, prior to but not after the time the Requisite
Company Vote is obtained, . . . (B) make a Change of Recommendation
or, prior to the expiration of the Go-Shop Period only, authorize the
Company to terminate this Agreement pursuant to Section 9.3(a) if the
Company receives an Acquisition Proposal and (I) prior to taking such
action, the Company Board determines in good faith, after consultation
with its outside legal counsel and financial advisor, that failure to take
such action, in light of the Acquisition Proposal and the terms of this
Agreement, would reasonably be expected to be inconsistent with the
directors’ fiduciary duties under applicable Law and (II) the Company
Board has determined in good faith, based on the information then
available and after consultation with its outside legal counsel and
financial advisor, that such Acquisition Proposal constitutes a Superior
Proposal[.] 209
Section 10.13 of the Merger Agreement defines Superior Proposal as an “unsolicited
bona fide written Acquisition Proposal.”210
209
Id.
210
Id. § 10.13.
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The Proxy’s disclosure about the go-shop period is contrary to the Merger
Agreement. The Proxy indicates that the Board may terminate the Merger
Agreement to enter into a solicited “superior proposal during the go-shop period.”211
In fact, under the structure of the Merger Agreement, the Board was only allowed to
change its recommendation or to terminate the Merger Agreement in response to an
unsolicited acquisition proposal. 212
Defendants do not contest that the plain language of the Merger Agreement
prohibited the Company from entering into any alternative acquisition proposal
solicited during the go-shop period. Rather, Defendants argue that Plaintiff’s
construction of the go-shop would negate the purpose of the go-shop and is contrary
to the way “anyone” interpreted the go-shop.213 To survive a motion to dismiss,
however, Plaintiff must only proffer a reasonable reading of the contract, and
Plaintiff has done so here.214 Defendants further argue that any person could read
211
Proxy 35.
212
The Merger Agreement does not define the term “solicit.”
213
The concept of contractual language that prevents a Board from changing its
recommendation except in response to an unsolicited offer is not unprecedented. Cf. In re
NYSE Euronext S’holders Litig., C.A. No. 8136-CS (Del. Ch. May 10, 2013)
(TRANSCRIPT) (declining to issue an injunction challenging a merger agreement that
prevented a board from changing its recommendation unless it received a “Superior
Proposal,” defined as an unsolicited offer for 100% of the company’s assets or stock).
214
“At the motion to dismiss stage, ambiguous contract provisions must be interpreted most
favorably to the non-moving party. Thus, ‘[d]ismissal, pursuant to Rule 12(b)(6), is proper
only if the defendants’ interpretation[s] [are] the only reasonable construction[s] as a matter
68
the provision because the Merger Agreement was attached to the Proxy as Annex A.
Attaching the Merger Agreement does not cure the Proxy’s inaccurate and
misleading disclosure regarding the go-shop. In re Topps Co. S’holders Litig., 926
A.2d 58, 64 (Del. Ch. 2007) (holding that to satisfy the duty of disclosure, “directors
must also avoid making materially misleading disclosures, which tell a distorted
rendition of events or obscure material facts.”). A reasonable stockholder is not
required to validate each disclosure by reference to the underlying contract. See
Appel v. Berkman, 180 A.3d 1055, 1064 (Del. 2018) (“Under Delaware law, when a
board chooses to disclose a course of events or to discuss a specific subject, it has
long been understood that it cannot do so in a materially misleading way, by
disclosing only part of the story, and leaving the reader with a distorted
impression.”).
3. The Complaint Pleads Facts Supporting the Availability of
Damages.
Defendants contend that, even if the Proxy is materially misleading, the
Complaint does not plead causation or damages arising from the Proxy. To state a
claim for damages from a breach of the duty of disclosure, “the damages must be
logically and reasonably related to the harm or injury for which compensation is
of law.” Veloric v. J.G. Wentworth, Inc., 2014 WL 4639217, at *8 (Del. Ch. Sept. 18, 2014)
(emphasis in original) (quoting VLIW Tech., LLC v. Hewlett-Packard Co., 840 A.2d 606,
615 (Del. 2003)).
69
being awarded.” In re J.P. Morgan Chase & Co. S’holder Litig., 906 A.2d 766, 773
(Del. 2006). Thus, a complaint must typically allege “(i) a culpable state of mind or
non-exculpated gross negligence, (ii) reliance by the stockholders on the information
that was not disclosed, and (iii) damages proximately caused by that failure.”
Chatham Asset Mgmt., LLC v. Papanier, 2017 WL 6550428, at *5 (Del. Ch. Dec.
22, 2017) (internal quotations omitted).
For the reasons discussed above, the Complaint has alleged that Roche may
be subject to liability for non-exculpated gross negligence to the extent that she was
involved in preparing a materially misleading proxy. The Complaint has also
adequately pleaded reliance because, at the pleading stage, the Complaint need not
prove “actual reliance on the disclosure, but simply that there was a material
misdisclosure.” Metro Commc’n Corp. BVI v. Adv. Mobilecomm Techs., Inc., 854
A.2d 121, 156 (Del. Ch. 2004). The Complaint need not plead that omissions or
misleading disclosures were so material that they would cause a reasonable investor
to change his vote. Morrison, 191 A.3d at 283 (“[The] materiality test does not
require proof of a substantial likelihood that disclosure of the omitted fact would
have caused the reasonable investor to change his vote.”) (internal quotations
omitted).
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At this stage, the Complaint adequately alleges damages to survive
dismissal. 215 As Plaintiff argues, if it proves that Roche “committed a non-
exculpated breach of the fiduciary duty of disclosure, then damages can be awarded
using a quasi-appraisal measure.” Chen, 87 A.3d at 691 (citing In re Orchard
Enters., Inc. S’holder Litig., 2014 WL 1007589, at *32–*43 (Del. Ch. Feb. 28,
2014)). In their Reply Brief, Defendants identified no reason why quasi-appraisal
damages would be unavailable beyond arguing that Plaintiff has failed to plead a
breach of fiduciary duty.216 Because the Complaint does plead a breach of fiduciary
duty, however, further “consideration of damages awaits a developed record.”
Morrison, 2019 WL 7369431, at *22 n.273; see also Baker Hughes, 2020 WL
6281427, at *15–16 (denying motion to dismiss breach of fiduciary duty claim
seeking compensatory damages against an officer for his involving in preparation of
a proxy statement).
4. Corwin Cleansing Does Not Apply.
Defendants argue that the Complaint is subject to dismissal under Corwin v.
KKR Fin. Holdings LLC, 125 A.3d 304, 312–14 (Del. 2015), because Defendants
obtained a cleansing stockholder vote. As discussed above, Plaintiff has stated a
claim that the Proxy contained material omissions and misleading disclosures.
215
Compl. ¶¶ 141, 146.
216
Defs.’ Reply Br. 25.
71
Therefore, Defendants have not established that the stockholder vote approving the
Buyout was fully informed. Accordingly, the Complaint is not subject to dismissal
under the business judgment rule. Corwin, 125 A.3d at 312 (“[T]he doctrine applies
only to fully informed, uncoerced stockholder votes”); Baker Hughes, 2020 WL
6281427, at *14.
IV. CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss is granted with
respect to the claims against Tauscher. Defendants’ Motion to Dismiss is granted in
part and denied in part with respect to the claims against Roche.
IT IS SO ORDERED.
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