Vice Chancellor Laster of the Delaware Court of Chancery recently enjoined two separate acquisitions, each pending additional disclosures regarding financial advisors.
In In re Art Technology Group, Inc. Shareholders Litigation, the court enjoined Oracle Corporation’s acquisition of Art Technology Group, Inc. (“ATG”). ATG’s financial advisor in the merger, Morgan Stanley, had also worked for Oracle for a number of years. The court required the parties to disclose a description of the type of services Morgan Stanley had performed for Oracle, and the aggregate compensation paid by Oracle to the advisor for the four years prior to the merger. Noting that the disclosures were not related to the merger price, the court permitted the additional disclosures to be made in a public filing with the SEC (rather than a supplemental proxy mailing), per mitted the merger to proceed in only ten days after the disclosures were made, and did not require a bond before issuing the injunction.
However, the enhanced disclosures required by the court exceed the disclosure requirements of the SEC (see Item 1015(b)(4) of Regulation MA under the Securities and Exchange Act of 1934) and FINRA (see FINRA Rule 5150). To the extent these rules require disclosure of material relationships between financial advisors and the parties, such disclosures are required only for the two previous years, and neither requirement has generally been interpreted to require quantification of the fees paid.
In Steinhardt v. Howard-Anderson, the court enjoined the acquisition of Occam Networks, Inc. by Calix, Inc., pending additional disclosures, including information regarding Occam’s financial advisor, Jefferies & Co., Inc. The court required Occam to disclose additional information with respect to (i) the role of Jefferies in shopping the company (specifically relating to certain contacts the court thought were “misleadingly described”) and in negotiating the mix of cash and stock consideration (specifically, the effect of the road show on reducing the cash portion), and (ii) the accretion/dilution analysis conducted by Jefferies, which the court concluded was “summarized incompletely and partially in the proxy.”
The court also questioned discrepancies between preliminary books prepared by the advisor for the Occam board of directors and the final board book. Vice Chancellor questioned what he referred to as “longitudinal changes from previous Jefferies’ books that resulted in the final book making the deal look better than it would have had the same metrics been used that were used in prior books.” In that connection, the court ordered that Jefferies make available for a deposition a managing director involved in the transaction, rather than a junior banker who had only been involved in the deal at the end of the process. The court ordered that the transaction could not close until ten days after the required disclosures and deposition.