In re Micromet, Inc. S’holders Litig., C.A. No. 7197-VCP (Del. Ch. Feb. 29, 2012) (Parsons, V.C.)
In this memorandum opinion, the Court of Chancery declined to enjoin an all-cash tender offer for all of the shares of Micromet, Inc. (“Micromet” or the “Company”), determining that the pre and post-signing market process in which the Company’s board of directors (the “Board”) engaged was reasonable under Revlon and that plaintiffs failed to show a likelihood of success on the merits of their disclosure claims.
In June 2010, Micromet and Amgen, Inc. (“Amgen”) entered into a confidentiality agreement permitting the parties to collaborate on certain drug antibodies owned by Micromet, one of several similar collaboration agreements entered into by Micromet with other large pharmaceutical companies. In January 2011, Amgen first suggested the possibility of a strategic transaction between Micromet and Amgen, and in July 2011, Amgen submitted a proposal to acquire Micromet for $9.00 per share, which the Board rejected as inadequate. Although Amgen made subsequent offers and engaged in limited due diligence throughout the summer and early fall of 2011, the Board elected to pursue a partnering arrangement with another well-capitalized pharmaceutical company in order to commercialize MT103 (“MT103”), Micromet’s leading drug candidate. Micromet subsequently contacted twenty-one pharmaceutical companies and granted due diligence access related to MT103 to ten potential partners.
On December 23, 2011, following an announcement by the Company that MT103 would enter into Phase II clinical trials and the receipt of an offer from Amgen to acquire the Company for $10.75 per share, the Board directed Goldman Sachs & Co. (“Goldman”), Micromet’s financial advisor, to update its financial analyses of the Company. After reviewing Micromet’s updated financial projections, the Board resolved in January 2012 to enter into serious negotiations with Amgen and simultaneously directed Goldman to conduct a pre-signing market check, which involved Goldman contacting seven large pharmaceutical companies who had expressed interest in the partnering process, six of whom had previously engaged in due diligence activities related to MT103. Three companies contacted by Goldman conducted further due diligence, and confirmed that they were not interested in pursuing a strategic transaction with the Company. Micromet subsequently negotiated the terms of and entered into a definitive agreement and plan of merger (the “Merger Agreement”) with Amgen, dated January 25, 2012, reflecting a purchase price of $11.00 per share, or a 37% premium versus the Company’s one-month volume weighted average stock price. The Merger Agreement included several deal protection measures, including (i) a no-shop provision, (ii) information and matching rights for Amgen, (iii) a $40 million termination fee, and (iv) an amendment to Micromet’s stockholder rights agreement (the “Rights Agreement”) exempting Amgen from the Rights Agreement, but leaving the Rights Agreement in place with respect to other potential bidders. Following the announcement of the tender offer and second-step cash out merger, plaintiffs filed suit seeking to enjoin the transaction, alleging inadequate price, a flawed sales process, and material omissions and misstatements in connection with the Company’s tender offer solicitation materials.
In denying plaintiffs’ motion to enjoin the transaction, the Court first sided with defendants in determining that the Board’s “Revlon duty” to secure the highest price reasonably attainable for stockholders did not attach until December 2011, when the Board resolved to engage in serious discussions with Amgen and directed Goldman to update its financial analyses. Although plaintiffs argued that Board’s Revlon duties were triggered during the summer of 2011, when Amgen first expressed interest in acquiring the Company, the Court noted that Micromet continued to pursue its stand-alone strategy into fall 2011, including a potential partnering arrangement with another pharmaceutical company.
The Court then addressed the limited pre-signing market check in which the Board engaged, analyzing plaintiffs’ argument that the Board inappropriately limited the scope of the market check to potential strategic buyers who could promptly present a competing bid. Siding with defendants, the Court found the Board’s focus on large pharmaceutical companies with knowledge of and interest in MT103 to be reasonable, and noted that six of seven companies contacted by Goldman during the pre-signing market check had engaged in previous due diligence activities related to MT103. The Court found plaintiffs’ argument that the Board should have contacted potential private equity buyers unavailing, noting that Micromet’s business strategy relied upon collaborating with larger pharmaceutical companies, and that, after consummation of any transaction, the Company would require “not only capital, but technical expertise” to commercialize its drug pipeline. Finally, the Court dismissed plaintiffs’ argument that the one-week timeframe allotted for interested bidders to engage in due diligence was unreasonably short, noting the familiarity of the parties involved with the Company’s products and a lack of evidence suggesting that bidders failed to pursue a transaction with the Company due to an inability to conduct sufficient due diligence.
The Court next addressed the post-signing market check undertaken by Micromet. Plaintiffs argued that the four-business day match right period reflected in the Merger Agreement imposed an unacceptable delay of ten business days on the Board’s ability to change its recommendation, citing the Court of Chancery’s recent decision in In re Compellent Technologies, Inc. S’holders Litig., 2011 WL 6382523 (Del. Ch. Dec. 9, 2011). Finding that the four-business day match right was intended to run concurrently with the “blackout” period imposed for the Board to change its recommendation, the Court determined that the language contained in the Merger Agreement did not restrict the Board’s ability to comply with its fiduciary duties, and was therefore distinguishable from Compellent. Plaintiffs also argued that the remaining deal protection measures, including the Rights Agreement exemption, were preclusive of topping bids. Citing analogous deal terms recently analyzed by the Court of Chancery in In re Orchid Cellmark, Inc. S’holder Litig., 2011 WL 1938253 (Del. Ch. May 12, 2011), the Court disagreed, finding that the Merger Agreement reflected deal protection measures that were “relatively standard” and were not preclusive to a bidder’s ability to put forth a topping bid.
Turning to plaintiffs’ disclosure claims, the Court first determined that the Board’s failure to disclose the basis for applying probability of success rates for its drug pipeline did not affect the “total mix” of information disclosed to stockholders, since the success rates were of limited reliability and Micromet’s tender offer materials provided a fair summary of the Company’s commercialization prospects. The Court found “[e]qually unavailing” plaintiffs’ arguments that Micromet should have disclosed fees paid by the Company to Goldman over the past two years, as well as Goldman’s holdings of Amgen stock. Noting that Goldman’s holdings were disclosed in other public filings and that the Company’s tender offer materials adequately disclosed Goldman’s contingent interest and the fact that Goldman has performed certain services for Micromet, the Court determined that the additional disclosures demanded by plaintiffs would not be material to stockholders. The Court similarly determined that plaintiffs’ argument that the Company should disclose Micromet’s anticipated use of net operating loss balances of $102 and $209 million in the United States over future earnings periods called for “a level of granular disclosure not required under our law.” Finding that neither a “sum of the parts” DCF analysis prepared by Goldman nor “upside case” projections deemed unreliable by Company management would be material to stockholders since Goldman did not rely upon either financial measure in rendering its fairness opinion, the Court concluded that plaintiffs were unlikely to succeed on the merits of their disclosure claims.
Accordingly, the Court held that plaintiffs had not demonstrated a probability of success on the merits of the directors’ breach of their Revlon duties and plaintiffs’ disclosure claims. Citing the significant premium afforded by the proposed transaction, the reasonableness under Revlon of the Board’s sales process, and the absence of a competing bid, the Court also concluded that a balancing of the equities weighed against enjoining the proposed transaction.