Gaines v. Narachi, C.A. No. 6784-VCN (Del. Ch. Sept. 30, 2011), read decision here. But see here for a subsequent letter ruling granting a motion to reconsider this decision on the issue of whether a colorable claim was demonstrated. This is a rare example of a motion for reargument under Rule 59(f) being granted.
In this short letter opinion the Court of Chancery denied a plaintiff/shareholder’s motion to expedite a previously filed motion for preliminary injunction–then partially reconsidered in a subsequent ruling.
This summary was prepared by a former associate of Eckert Seamans Cherin & Mellott. LLC.
The plaintiff, a shareholder of AMAG Pharmaceuticals, Inc., initiated an action to stop AMAG from acquiring Allos Therapeutics, Inc. The plaintiff claimed that (1) AMAG’s directors breached their fiduciary duties by failing to maximize shareholder value; (2) the directors entrenched themselves by agreeing to extensive deal protections; and (3) the company’s disclosures concerning the transaction were inadequate.
After noting that the plaintiff bears the burden to show a colorable claim and a sufficient possibility of irreparable harm on a motion to expedite, the Court addressed each of the plaintiff’s assertion in turn.
First, since AMAG is the acquiring company in the proposed transaction, the company is not “selling itself” or entering into a transaction that will result in a “change of control;” therefore, Revlon v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), would not apply. The Court could not review the transaction with heightened scrutiny under these circumstance, especially given that the majority of AMAG’s board was independent and disinterested.
Second, the defensive measures challenged by the plaintiff were not initiated by the board in response to any external threat. Rather, AMAG put the protections in place so that the merger could be completed without unnecessary intervention (rather than in response to a perceived threat). These types of deal protection are routine in finalizing a merger, and do not implicate Unocal-like scrutiny.
The plaintiff also asserted that AMAG’s board did not act in good faith when it rejected a third-party’s offer to acquire AMAG. Although the record contained some information about the third-party offeror, including questions about available funding for that third-party offer, the Court determined that the record was insufficient to find that the board did not act in good faith in rejecting that offer.
Third, the plaintiff did not allege that AMAG omitted disclosures of any material information. Without establishing materiality, there were no colorable disclosure claims for the Court to consider.
SUPPLEMENT: Note link above for subsequent grant of a motion for reconsideration of a portion of the initial ruling.