Frank Reynolds, who has been covering Delaware corporate decisions for various national publications for over 35 years, prepared this article.  

The Delaware Court of Chancery, citing the milestone Corwin decision, recently dismissed a suit by Anaplan Inc. shareholders who claimed post-merger pact equity grants for some officers and directors cheated them out of $400 million of the original $10.7 billion price pursuant to a merger agreement requiring Thoma Bravo (not a typo) to pay for the business planning software company in In re Anaplan Inc. Stockholders Litigation, C.A. No. 2022-1073-NAC (June 21, 2024).

Vice Chancellor Nathan Cook ruled that whether defendants breached fiduciary duties, giving rise to a derivative suit, or whether they violated direct contract duties by mismanaging the deal–justifying a direct action–the suit fails the Corwin test because there was no proof that the Anaplan deal was inadequately disclosed or that the shareholders were coerced. See Corwin v. KKR Fin. Holdings LLC (Del. 2015).

Under Corwin, the Delaware Supreme Court held that the business judgment rule is invoked as the appropriate standard of review for a post-closing damages action when a merger that is not subject to the entire fairness standard of review has been approved by a fully-informed, uncoerced majority of the disinterested stockholders. 

The opinion’s comprehensive examination of Corwin’s requirements to prove structural or situational coercion and what disclosures fully inform investors, is worthwhile reading for corporate law specialists. 

The court ruled that although the final price the Anaplan investors got took a big cut when their officer and director grants gave the original offer a $400 million “haircut,” the investors were not forced to accept a deal that gave them “nothing” because even the reduced offer provided a substantial premium over market value for their shares.

Background

The dispute began shortly after Anaplan accepted private equity firm Thoma Bravo’s March 2022 acquisition offer, when a handful of Anaplan officers and directors gave themselves $400 million in equity grants—an amount that, Bravo charged, violated the merger agreement.  Anaplan and Bravo later negotiated an amended merger agreement that provided $63.78 rather than the original $68.00 a share.  That pact still provided Anaplan investors with a premium but Pentwater Capital Management LP and other Anaplan shareholders filed suit to recover the $400 million, charging that three ex-officers and three former directors breached the merger pact’s $105 million limit on grants to employees and reduced the worth of plaintiffs’ shares.

Defendants’ motion to dismiss the claims argued that the charges are derivative, not direct, as plaintiff contended, because the alleged conduct only affected Anaplan’s stock price, but plaintiffs responded that it was only their stock value that was directly affected.

Plaintiffs also argued that the officer defendants violated their continuing Revlon duty to get the best price for the company, but defendants countered that a majority of the directors were not implicated as Revlon requires. 

No need to resolve

The court noted that, “To put it mildly, the parties have raised very interesting questions. They are not, however, questions I need to answer to resolve the Motion.”  But under Corwin, the Vice Chancellor said, “Plaintiff’s claims must be dismissed because they do not survive the informed and uncoerced vote of Anaplan’s stockholders approving the Merger.”

 He said Corwin enables parties to “avoid the uncertainties and costs of judicial second-guessing when the disinterested stockholders have had the free and informed chance to decide on the economic merits of a transaction for themselves. And I do not read our Court’s Corwin decisions, or the policy rationale underlying Corwin, as intended to apply Corwin narrowly.”

A fully informed vote?

Under Delaware law, when directors solicit stockholder action, they must “disclose fully and fairly all material information within the board’s control,’ the vice chancellor said, but he noted that “An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” However, that doesn’t mean the standard requires “proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote,” he added.

In this case, the shareholders got a proxy that acknowledged a dispute between Anaplan and Thoma Bravo over the grants, but the disclosure stated that the company believed no wrongs were committed, so investors could make up their own minds whether to take the offer or take the risk of losing it, the court said in ruling that disclosure was adequate.

Was there coercion?

Plaintiffs asserted that the approval vote was coerced because “stockholders had a metaphorical gun to their head” when asked to approve a merger that was ”either situationally or structurally coercive.”  

However, the court defined an uncoerced vote as one that simply gives stockholders a “free choice between maintaining their current status and taking advantage of the new status offered by” the proposed transaction,” adding that, “The status quo may be undesirable or unpleasant, but that fact does not render the transaction coercive.”

Situational coercion—”arises when the status quo is so unattractive that it prevents a stockholder vote from operating as a clear endorsement of a transaction. ”It is “[t]he situational backdrop of an unacceptable status quo [that] calls into question the meaning of a stockholder vote such that it should not be given cleansing effect.”

The vice chancellor ruled that there was no situational coercion because, ‘”Although at a discount to the Original Merger Agreement, the Revised Merger Agreement still reflected a substantial premium both to Anaplan’s unaffected share price and to its expected share price if stockholders voted not to approve the Merger.”

Structural coercion— is simply “a vote structured so that considerations extraneous to the transaction likely influenced the stockholder-voters, so that [the Court] cannot determine that the vote represents a stockholder decision that the challenged transaction is in the corporate interest.”

Vice Chancellor Cook ruled that ”Plaintiff does not allege self-dealing or other extraneous factors that might warrant calling upon the principle of structural coercion.”

Was there waste?

Corwin includes no cleansing provision for waste, the court said, but it noted that, in addition to numerous other benefits and concessions, the final merger offer provides 10.4 billion in cash.

No new D&O route

Perhaps with a different set of facts, plaintiffs’ claims might have survived a motion to dismiss, but “acquiree fiduciaries are already disincentivized from acting in ways that jeopardize a merger’s closing,” the Vice Chancellor concluded. “Although this case presents what some might view as hard facts, it is not at all clear to me that the correct response is to open a new route for director and officer liability. “