In re BioClinica, Inc. S’holder Litig., Consol. C.A. No. 8272 (Del. Ch. Feb. 25, 2013) (Glasscock, V.C.)
In this memorandum opinion, Vice Chancellor Glasscock addressed claims, in a motion to expedite, that directors breached their fiduciary duties by conducting an improper process and making inadequate disclosures in connection with a merger. After the BioClinica, Inc. (“BioClinica” or the “Company”) board of directors (the “Board”) recommended that stockholders approve a merger agreement and accept a tender offer by JLL Partners, Inc. (“JLL”), BioClinica stockholders sought to enjoin the deal alleging that (1) the combination of deal protections precluded other bidders, (2) the Board wrongfully omitted management projections of BioClinica’s free cash flows, and (3) the Board wrongfully omitted an explanation of BioClinica’s decision to revise its 2012 capital expenditure budget. The Vice Chancellor concluded that none of these claims were colorable and denied the motion to expedite.
In May 2012, the Board formed a committee (the “Committee”) of independent directors to explore a sale of the Company. Over the following eight months, the Committee considered 15 strategic and private equity buyers, including JLL which withdrew from the process for five months. JLL reentered the process in October 2012, and later executed an agreement for exclusive negotiating rights with BioClinica. The Committee and JLL negotiated a tender offer for $7.25 per share of BioClinica stock, the Committee obtained a fairness opinion and approved the deal, the Board and JLL executed the merger agreement, and on January 30, 2013 the Company filed a Schedule 14D-9 (the “14D-9”) announcing and recommending the tender offer to its stockholders. The offer price of $7.25 represented a 21% to 24% premium over the implied BioClinica share price.
Following announcement of the deal and the expected closing date of March 11, 2013, several BioClinica stockholders filed complaints seeking to enjoin the merger. The Vice Chancellor consolidated those actions and appointed lead counsel for plaintiffs. Plaintiffs filed an amended complaint and a motion to expedite. Through oral argument, the claims in the complaint were narrowed to the three claims regarding process and disclosures outlined above. In his opinion, the Vice Chancellor focused on whether plaintiffs had stated a colorable claim.
Plaintiffs first alleged that the combination of deal protections involved in the proposed merger – including a no-shop, a top-up, matching rights, a termination fee, a stockholder rights plan, and a standstill – impermissibly precluded other bidders under Omnicare and its progeny. In their brief and oral argument, plaintiffs focused on the preclusive effect of the combination of the Company’s rights plan and a standstill provision in a non-disclosure agreement executed by BioClinica and an undisclosed bidder. Plaintiffs alleged that the standstill prevented another bidder from acquiring BioClinica except by making a tender offer, and that mere announcement of a tender offer triggered the BioClinica rights plan. The Vice Chancellor found, however, that rights to purchase stock below market value under the rights plan were not triggered until a party actually acquired 20% of BioClinica stock. The Vice Chancellor also found that the Board had the right to redeem the rights plan at any time before such rights under the rights plan were triggered. Thus, the Vice Chancellor held that the deal protections were indistinguishable from those upheld by Vice Chancellor Noble in In re Orchid Cellmark Inc. S’holder Litig., 2011 WL 1938253 (Del. Ch. May 12, 2011), were navigable by a sophisticated buyer, and were not impermissibly preclusive.
The Vice Chancellor next addressed plaintiffs’ claims that the Board had not fully and fairly disclosed all material information in connection with the merger. In their first disclosure claim, Plaintiffs alleged that the Company wrongfully failed to disclose in the 14D-9 BioClinica management’s projections of free cash flows and 2016 financial performance. The Vice Chancellor noted that omission from proxy materials of management’s financial projections, on which a financial advisor relied in rendering a fairness opinion, generally warrants injunctive relief. However, the Vice Chancellor found that the Company had not created such projections, and therefore, held that it had not failed to disclose such projections. In their second disclosure claim, plaintiffs asserted that stockholders were entitled to an explanation for upward revisions of the Company’s capital expenditures for 2013, which adversely effected the Company’s projected financial performance. The Vice Chancellor held, however, that Delaware law does not require more detail than management’s best estimates of future performance in proxy disclosures when those estimates are the only forecasts used by a financial advisor in producing a fairness opinion. Because plaintiffs failed to plead any colorable claims, the Vice Chancellor denied their motion to expedite.