In re: Family Dollar Stores, Inc. Stockholder Litigation, C.A. No. 9985-CB (Del. Ch. Dec. 19, 2014).
This opinion is useful for its discussion of the enhanced scrutiny standard of review for breach of fiduciary duty claims under the Revlon standard.
This opinion by the Delaware Court of Chancery found that the Revlon standard was triggered by sale of control in connection with a merger between Family Dollar Stores, Inc. and Dollar Tree, Inc. The stockholders of Family Tree sought a preliminary injunction to enjoin a vote on the merger because an offer had been made by a third company, Dollar General, Inc., which the stockholders argued was not taken seriously by the board of Family Dollar Stores.
The Chancellor found that the Revlon standard applied to the sale of control based on the fact that 75% of the consideration was to be paid in cash and 25% to be paid in the common stock of the acquiring company, Dollar Tree.
The motion for preliminary injunction was denied because the Chancellor found that the stockholders failed to demonstrate a reasonable probability of success on the claims, and neither demonstrated the existence of irreparable harm nor that the balance of the equities favored the relief they sought.
In connection with the Revlon analysis, the court addressed the role that the motivation of the board plays. For example the court must look at the possibility that personal interests short of pure self-dealing had influenced the board to lock a bid or to steer a deal to one bidder rather than another. The court must consider whether the board was motivated to act for a proper end before determining whether the means used were a reasonable way to advance the end.
The court quickly dispensed with the argument that the board abdicated its responsibility by allowing the CEO to conduct much of the negotiations during the sale process with minimal supervision. Instead, the court noted that the board created an advisory committee that oversaw and was actively engaged in the sale process and received regular updates from the CEO. The board was engaged in making important decisions with the full understanding of the options and the rationale for the decisions. Moreover, the plaintiffs did not identify any material information that was kept from the board.
Interestingly, the court cited a decision of the Delaware Supreme Court issued a few hours before the instant opinion was issued, on the same day, which also addressed Revlon standards. The court quoted the Supreme Court opinion in C&J Energy Services, Inc. v. City of Miami General Employees and Sanitation Employees Retirement Trust, highlighted on these pages here, for the following statement of the Revlon principle: “Under Revlon, a board of directors may, as the Board did here, ‘pursue the transaction it reasonably views as most valuable to stockholders, so long as the transaction is subject to an effective market check under circumstances in which any bidder interested in paying more has a reasonable opportunity to do so.’”
The Chancellor also rejected the claims that the members of the board breached their fiduciary duty by failing to disclose in the Proxy several items of information that the plaintiffs claim were material. The court concluded that those disclosure claims were without merit because they were either “speculation, self-flagellation, or immaterial minutiae.” The court’s conclusion was based on settled Delaware law that: “When directors solicit stockholder action, they must disclose fully and fairly all material information within the board’s control. Information is material “if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” (See footnote 126 and 127).
Subsequently the court, in a separate letter opinion, denied a motion for interlocutory appeal.