In Oldham v. Dendrite International, Inc. (Ch. Div., May 2, 2007), a shareholder of Dendrite International, Inc. (Dendrite) sought to enjoin a shareholder vote to approve a merger between Dendrite and Cegedim, S.A. (Cegedim), a French corporation. The plaintiff claimed that Dendrite’s board of directors breached their fi duciary duties by issuing a proxy statement that omitted alleged material information, including (i) the board’s fear that Cegedim would make a tender offer directly to Dendrite shareholders, (ii) a financial analysis of the impact of the loss of Dendrite’s largest customer, (iii) JP Morgan’s assessment of the value of “synergies” to Cegedim, and (iv) the resignation of Dendrite’s former counsel because of alleged confl icts of interest. Denying plaintiff’s application, the chancery court reaffirmed New Jersey’s business judgment rule in the context of analyzing whether each of those items was “material” and, thus, required in the proxy statement. The court fi rst focused the lens through which it had to view the directors’ decisions regarding the proxy statement. While shareholders owned the corporation, the court recognized that the directors were ultimately responsible for managing the company for the benefi t of the owners. To avoid impinging on the directors’ exercise of those responsibilities, New Jersey’s “business judgment rule” creates a broad presumption that disinterested directors act on an informed basis and in the honest belief that their actions are in the corporation’s best interests.
Turning to the alleged defects in the proxy statement, the court ruled that, although it must disclose the “relevant underlying facts” of a transaction, the proxy statement need not contain “every detail of every communication between the parties” or the “actual subjective motives” behind the board’s recommendation of a transaction. It found that the disclosure of Cegedim’s interest in acquiring Dendrite suffi ced to permit the shareholders to make an informed decision. Accordingly, the court held that it was not material to fail to disclose the possibility that Cegedim might make a tender offer if the merger were not approved.
The court likewise found that the omission of JP Morgan’s estimated value of “synergies” – aspects of the merger that plaintiff believed should have increased the price paid to Dendrite shareholders – was not a material omission from the proxy statement. Because a company can “always ask for more” when negotiating a merger price, the court found that omission of the mere possibility of a higher price does not render a proxy statement deficient. Moreover, the court noted that JP Morgan’s “synergies” analysis was designed to induce a higher bid from Cegedim, rather than to provide an independent opinion of value for Dendrite shareholders.
Nor was it a material omission for the proxy statement to have failed to disclose JP Morgan’s analysis of the impact of the potential loss of Dendrite’s biggest customer. The proxy statement did disclose Dendrite’s agreement to continue servicing that customer for one year, after which the customer would begin to perform those services in-house. The court emphasized that a board of directors need not disclose the detailed projections, cash flow forecasts or valuation methodologies relied upon by its fi nancial advisors. Because the proxy statement disclosed the precarious relationship with Dendrite’s biggest customer, the court did not find JP Morgan’s analysis to be a material omission.
The court also rejected the claim that the proxy statement should have disclosed the resignation of Dendrite’s former counsel due to a perceived confl ict of interest. Dendrite’s former counsel had resigned when Dendrite’s chairman expressed an interest in purchasing the Company with the assistance of a JP Morgan affiliate, and plaintiff claimed JP Morgan’s analysis of the transaction and resulting recommendation would be tainted. The court stated that, had the management buyout materialized, it would have found the omission of these facts to be material. Since it did not, however, it was enough that the proxy statement disclosed the officer’s interest in the buyout and recommended that the Special Committee implement safeguards to ensure that the officer not receive special treatment.
Finally, the court rejected plaintiff’s additional contentions that certain board members’ pecuniary interests in the merger amounted to material omissions from the proxy statement. As the court noted, the Special Committee had conducted a pre-agreement auction and considered the advice of counsel and JP Morgan before recommending the transaction. Critical to the court’s analysis was the fact that nine out of Dendrite’s ten directors were independent. Also, the court noted that the “change in control” payments to certain directors were “a fortuitous consequence of the merger and would accrue no matter which company acquired Dendrite.”
The court’s decision denying the shareholder’s attempt to enjoin the vote on the merger was therefore a resounding affi rmation of the business judgment rule.