Huff Fund Inv. P’ship v. CKx Inc., C. A. No. 6844-VCG (Del. Ch.) (August 15, 2012).
In this appraisal action, is the relevance of the financial information of Fox Broadcasting, a non¬party to the litigation and the merger, regarding American Idol outweighed by the potential harm the disclosure of that information would cause for future contract negotiations?
Short Answer: Yes. The Court found that the marginal relevance of the internal Fox information is outweighed by the potential harm the disclosure of that information would cause Fox and the presence of non-confidential, more probative information already in the record.
In an appraisal action arising out of the merger between CKx and an affiliate of Apollo Global Management, LLC, Petitioners moved to enforce a subpoena issued to a non-party, Fox Broadcasting Company. Fox has an existing agreement with a subsidiary of CKx, 19TV Limited, for the right to broadcast the American Idol television program, which provided substantial revenues to CKx before the Merger. The Petitioners wanted information related to American Idol, Fox’s contracts and contract negotiations with 19TV and FremantleMedia North American, and the merger. In particular, one request would require Fox to produce documents relating to Fox’s internal valuation and financial information regarding its negotiations with CKx in connection with an agreement to broadcast American Idol.
In opposing the subpoena, Fox argued that: (i) this information is of minimal relevance to an objective valuation of CKx’s stock given that the parties already know the actual, negotiated contract price (because it was executed in January 2012); (ii) the internal information is highly confidential and its disclosure would be harmful to Fox in future business dealings; and (iii) the requested information is overly broad and that its production would impose a significant expense on Fox, a burden particularly unjustifiable given Fox’s non-party status.
In support of the subpoena, the Petitioners argued that: (i) the amount Fox was subjectively willing to pay for American Idol broadcast rights is relevant to a valuation of CKx, as American Idol provided CKx with its largest source of revenue; (ii) confidentiality concerns can be addressed with a modification to the existing confidentiality order; and (iii) the potential burden on Fox is justifiable given that the requested information cannot be obtained from any other source.
The only litigable issue in an appraisal action is the value of the petitioner’s shares on the date of the merger. Weighing in favor of disclosure, the Court noted that there was some marginal relevance in the value Fox assigned to the contract. The Court noted that the value of the Petitioners’ shares on the date of the merger is dependent in part on the value of CKx’s rights in American Idol. The Court went on to note that CKx’s and Fox’s subjective valuations—i.e., how much Fox was willing to pay and how much CKx was willing to take—would seem to establish a range within which an objective valuation might be located. Weighing against the disclosure, the Court stated that in addition to the substantial expense Fox would incur in production, there is the potential harm the disclosure of that information would cause to Fox in future negotiations with CKx over American Idol broadcast rights if CKx were to learn precisely how Fox valued those rights in the past. Moreover, the ability of a confidentiality order to prevent such harm is doubtful. CKx would have difficulty responding to the Petitioners’ arguments and characterizations regarding Fox’s valuations and internal information without access to the information itself. Finally, the Court stated that superior information already exists regarding the objective value of CKx’s rights in American Idol—the actual agreement CKx reached with Fox in January 2012.
Motion to enforce subpoena denied.