Wayne County Employees' Retirement System v. Corti, C.A. No. 3534-CC (Del. Ch. July 1, 2008 (C. Chandler)

In this class action, Chancellor Chandler denied a motion for a preliminary injunction to enjoin a special meeting of Activision Inc.’s shareholders to vote on a proposed merger with Vivendi S.A., due to alleged disclosure violations. The Court considered three disclosure claims alleged by the plaintiff: (1) the proxy did not include current management projections for Vivendi; (2) the proxy did not explain the Activision board’s reasons for determining to continue its support of the proposed transaction; and (3) the proxy did not include material information about a November 2007 price renegotiation and why the board failed to renegotiate the fixed ratio between the values of Activision and Vivendi.

In this case, where no other bidder had emerged during the process and with the unstable market conditions, the Court noted that the plaintiff’s showing of a reasonable likelihood of success must be particularly strong. The Court went on to deny all of plaintiff’s disclosure claims.

First, plaintiff claimed that Activision must provide its shareholders with the most current internal projections from Vivendi. Plaintiff argued that current management projections of Vivendi were material because the original fairness opinion was over seven months old and the board relied on the current projections. In rejecting this claim, the Court held that the fact that the fairness opinion was seven months old did not render more current internal projections of the acquirer material, especially when the current projections were “generally” the same as those already disclosed. The Court held that not every document reviewed by the board is considered material and there was no evidence that the board relied on the projections. Plaintiff failed to explain how the information would significantly alter the “total mix of information available.”

Second, plaintiff alleged that the shareholders needed more detailed reasons for the Activision board’s continued support of the proposed transaction. The Court found that this claim was merely a restatement of the first claim. Absent some indication that the board had undisclosed reasons for its decisions, the Court held that the board had no duty to invent reasons during litigation.

Finally, plaintiff claimed that Activision should have disclosed a November, 2007 upward revision of Vivendi Games by over $1 billion and the basis for the revision. Because the transaction involved a simple fixed valuation ratio, however, the Court found it implicit that an increase in the valuation of one company would necessarily lead to an increase in value of the other company. The Court held that while it may have been helpful if the company did the math for shareholders, “omitted facts are not material simply because they might be helpful.”

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