In re TPC Group Inc. S'holders Litig., C.A. No. 7865-VCN (Del. Ch. Oct. 29, 2014) (Noble, V.C.)
In this letter opinion, the Court of Chancery denied plaintiffs’ application for an award of attorneys’ fees and held that plaintiffs’ class action litigation was not the cause of the increase in the merger price achieved between the commencement of the litigation and the closing of the merger.
Shortly after TPC Group Inc (“TPC”) announced its proposed acquisition by First Reserve Corporation, SK Capital Partners, and their affiliates (collectively, the “PE Group”), numerous complaints were filed by stockholders of TPC alleging various problems with the announced proposed transaction, including an unfair price, inadequate disclosures in the preliminary proxy, and breaches of fiduciary duty through an unfair process.
Several days later, TPC received an unsolicited proposal from a competing bidder expressing an interest in acquiring TPC for $44 to $46 per share. The PE Group saw this competing offer as a meaningful development that warranted a merger price increase to $44 per share. After further negotiations, the PE Group raised its bid to $45 per share and contemplated consummation of the deal before the end of the year. The competing bidder subsequently withdrew its bid and the merger closed at the end of 2012. The subsequent bidding and a supplemental proxy mooted plaintiffs’ claims. In a separate ruling, the Court awarded attorneys’ fees for the supplemental disclosures resulting from plaintiffs’ disclosure claims.
In a subsequent application for attorneys’ fees, plaintiffs argued that their legal challenge caused the PE Group to raise its bid from $40 to $45 per share. In order to succeed on their application for attorneys’ fees, the plaintiffs had to show that (1) their suit was meritorious when filed; (2) the action producing benefit to the corporation was taken by the defendants before a judicial resolution was achieved; and (3) the resulting corporate benefit was causally related to the lawsuit.
The Court held that plaintiffs were unable to prove that their litigation caused the bid increase. While Delaware law provides for a rebuttable presumption that a plaintiff’s litigation was the cause of a bid increase, the Court held here that defendants overcame this presumption. Through affidavits, the PE Group demonstrated that they raised their bid because of the competing proposal, the public opposition by a significant stockholder, and the potential for an unfavorable evaluation by Institutional Shareholder Services.
The Court also noted that almost every merger of a public company is challenged and that, when a buyer knows that litigation is inevitable, ensuing litigation does not necessary affect the conduct between the buyer and the seller. If a court were to find that litigation necessarily motivates a buyer to raise its bid, then the presumption of causation would not be rebuttable and the question would simply be how much the litigation caused the price increase.