On September 28, 2017, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed stockholder class claims for breach of fiduciary duty brought against the former directors of The Fresh Market (“TFM”) after its acquisition in a two-step merger by affiliates of Apollo Global Management, LLC (“Apollo”). Morrison v. Berry, et al., C.A. No. 12808-VCG (Del. Ch. Sept. 28, 2017). Among other allegations, plaintiff had alleged that the auction process in which the company had engaged was a “sham” designed by TFM’s founder to deliver the company into the hands of a favored suitor. The Court, however, dismissed the claims because plaintiff did not satisfy its burden, under Corwin v. KKR Financial Holdings LLC, 125 A.3d 304 (Del. 2015), and In re Volcano Corp. Stockholder Litigation, 143 A.3d 727 (Del. Ch. 2016), “to plead facts from which it is reasonably conceivable that the potentially ratifying tender was materially uninformed.”

Plaintiff, a TFM stockholder, alleged that TFM’s founder—a director who owned with his son approximately ten percent of TFM’s outstanding common stock—surreptitiously spoke with potential private equity investors and agreed to “roll over his equity,” which facilitated an unsolicited offer and put TFM in play. Plaintiff claimed that the auction process in which the company engaged, which led to a deal with Apollo, was a sham because TFM’s founder had favored Apollo. Ultimately, nearly eighty percent of TFM’s outstanding shares were tendered in the merger, but plaintiff claimed that the disclosure statement was inadequate. Specifically, plaintiff asserted that the founder’s “commitment to Apollo was far stronger than was disclosed,” the fairness opinion disclosures “provided the stockholders with insufficient information about the ‘conservative’ nature of management’s . . . projections,” and the company did not adequately disclose that the founder had threatened to sell his shares on the market if the merger failed.

Dismissing the complaint, Vice Chancellor Glasscock explained that “there is little utility in a judicial review of a corporate merger in which an uncoerced and fully informed vote of the common stockholders has ratified a decision of the directors that the merger is in the stockholders’ best interest.” Describing the TFM transaction as “an exemplary case” of the ratification doctrine, the Court concluded that the stockholders were “adequately informed” because the “the facts” regarding the founder’s relationship with Apollo (as opposed to plaintiff’s “gloss”) were disclosed and that “nothing indicates that the management projections or [the financial advisor’s] analysis are anything other than their best estimates, which were adequately described.” As to the alleged threat by the founder to sell his shares on the market, the Court found that “it is not clear . . . how this would have affected the total mix of information disclosed; certainly, it would not have made investors less likely to tender if they knew that a large blockholder . . . was considering a sale if the deal was not consummated.”

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