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Simonetti v. Margolis, C.A. No. 3694-VCN (Del. Ch. June 27, 2008) (V.C. Noble)

June 27, 2008

In this purported class action, the Delaware Chancery Court considered a motion for a preliminary injunction to enjoin a stockholder vote on a merger by which the TriZetto Group, Inc. (“TriZetto”) would be acquired by Apax Partners, L.P. (“Apax”). In granting the motion in part, the Court rejected plaintiffs’ process claims and all but one of plaintiffs’ disclosure claims. Finding that TriZetto’s failure to disclose the nature and extent of its financial advisor’s financial interest in the transaction was a material omission, the Court preliminarily enjoined the stockholder vote pending appropriate curative disclosures.

In its Complaint, the plaintiff asserted both Revlon and disclosure claims. In its ruling on plaintiffs’ motion, the Court first rejected the Revlon claims, finding preliminarily that TriZetto had conducted an auction process that spanned several months and multiple rounds, utilized a process that involved nineteen potential acquirers, and had an active board that met regularly with its management, financial advisors and legal counsel throughout.

Turning to the disclosure allegations, the Court found that the Proxy Statement issued in connection with the merger adequately disclosed that the financial advisors to TriZetto and Apax in the present transaction, UBS and Deutsche Bank respectively, had each recently worked for the other in connection with an earlier transaction that never came to fruition. Likewise, the Court found that TriZetto’s disclosure of only the most conservative of three available sets of management projections was adequate because those projections were the ones both TriZetto’s management and UBS believed to be the most accurate. However, the Court agreed with the plaintiff that the Proxy Statement did not adequately disclose UBS’s financial interest in the merger. In addition to its compensation in connection with its assignment, which was fully disclosed, UBS held warrants to acquire TriZetto common stock and convertible notes of TriZetto, and would be entitled to receive, on consummation of the merger, cancellation payments relating to those warrants. The Court concluded that, although the existence of those interests had previously been disclosed, the magnitude of UBS’s holdings, as well as how those obligations would be treated on the consummation of the Merger, was material information that had to be disclosed. Finally, the Court rejected plaintiff’s remaining disclosure claims relating to the sales process, finding that TriZetto was not obligated to disclose its breaking point – the price cut off that the Board used in deciding which bidders to invite to the second round of bidding – or the fact that it did not attempt late in the sales process to reengage bidders it had previously rejected.

Having found that the Proxy Statement omitted material information, the Court concluded that the stockholders would suffer irreparable harm if forced to vote on the merger without such information. Because this irreparable harm outweighed the risk to the stockholders likely to be caused by a delay in the vote on the merger, the Court granted the preliminary injunction in part, pending the dissemination of appropriate curative disclosures.

The full opinion is available here