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In re OM Group, Inc. Stockholders Litigation, C.A. No. 11216-VCS (Del. Ch. Oct. 12, 2016) (Slights, V.C.)

October 12, 2016

In this memorandum opinion, the Delaware Court of Chancery dismissed the Plaintiffs’ complaint because a merger was approved by fully informed, uncoerced, and disinterested stockholders, and the Plaintiffs did not allege waste. At issue was the standard of review in a cash-out merger between OM Group, Inc. (“OM” or the “Company”) and Apollo Global Management, LLC (“Apollo”), in which the Plaintiffs conceded that entire fairness did not apply.  In ruling, the Court relied on Corwin v. KKR Financials Holdings, LLC for the cleansing effect of a fully informed stockholder vote.

Leading up to the merger, OM was experiencing increasing financial difficulty following a ten year $1.5 billion acquisition spree. The Plaintiffs alleged that the OM Board of Directors (“Defendants”) rushed to sell the Company because of an increasing threat of a proxy fight from an activist stockholder.  Further, the Plaintiffs alleged that OM indicated to its financial advisor that it wanted to sell the entire Company even though the Defendants knew they could create more value by selling OM’s individual business units to strategic buyers.  Eventually, OM entered into a merger agreement with Apollo for the entire business, and the stockholders overwhelmingly approved the merger.  

The Defendants moved to dismiss, arguing that under Corwin, the transaction was subject to the business judgment rule.  Citing Corwin, the Court recognized that so long as the transaction is not subject to entire fairness, the Court will apply the business judgment rule instead of enhanced scrutiny under Revlon if the stockholder vote was fully informed and uncoerced.  The Plaintiffs argued that the vote was not informed because of three material shortcomings in the proxy statement.  The Court found none compelling, and dismissed the complaint.

First, the Plaintiffs argued that the proxy statement contained material omissions regarding a competing bid. While the Plaintiffs conceded that the discussions with the competing bidder were too speculative to be material, the Plaintiffs argued that once the Defendants disclosed the existence of another bidder in the proxy statement, they were required to provide complete disclosure.  The Court rejected this argument because the partial disclosure did not render the disclosed information materially misleading.

Second, the Plaintiffs argued that the proxy statement was materially misleading because it did not disclose defendant Steven Demetriou’s alleged conflicts of interest from his association with an affiliate company of Apollo. The Court did not find this argument compelling because the Plaintiffs offered only “conclusory assertions of conflict,” and failed to allege that Apollo controlled Demetriou.

Finally, the Plaintiffs argued that the proxy statement was materially misleading because it contained material omissions regarding OM’s financial advisor, Deutsche Bank. The proxy statement disclosed (1) how much Deutsche Bank was paid for delivering its fairness opinion, with the rest contingent upon consummation of the merger, (2) Deutsche Bank’s longstanding relationship with Apollo, including the amount of fees it received from Apollo, and (3) the OM Board’s awareness of Deutsche Bank’s relationship with Apollo.  The Court found that these disclosures provided all information necessary for the stockholders to assess Deutsche Bank’s conflicts.

The full opinion is available here