In In re CheckFree Corp. Shareholders Litigation, Consol. C.A. No. 3193 – CC (Del. Ch. Nov. 1, 2007), Chancellor Chandler of the Delaware Court of Chancery held that CheckFree Corporation was not required to disclose all of the data underlying the fairness opinion included in its definitive proxy statement. The court reiterated its previous decision’s finding that “an adequate and fair summary” of the substantive work done to derive the fairness opinion was sufficient.
After considering a fairness opinion from its financial advisor, CheckFree’s board approved a $4.4 billion all-cash merger between CheckFree and Fiserv, Inc. CheckFree filed a definitive proxy statement with the U.S. Securities and Exchange Commission that included a summary of financial analyses underlying the fairness opinion. The proxy statement also detailed the sources upon which CheckFree’s financial advisor relied, explained some of the assumptions and calculations CheckFree’s management made to formulate its estimates, noted the precedent transactions and selected public companies the financial advisor used, and disclosed management’s estimated earnings and estimated EBITDA for 2007 and 2008, as well as a range of earnings derived from management estimates for 2009.
Plaintiffs moved for a preliminary injunction on disclosure grounds, claiming that the proxy failed to disclose management’s “raw” financial projections for the company. Plaintiffs argued that these financial projections were shared with Fiserv and that the financial advisor used these projections in performing a discounted cash flow analysis, one of the financial analyses it used in deriving its fairness opinion.
The court held that Delaware law does not require the disclosure of “all financial data needed to make an independent determination of fair value,” nor is there a “checklist” of things that must be disclosed relating to a fairness opinion. Instead, the court cited In re Pure Resources, Inc. Shareholders Litigation, 808 A.2d 421 (Del. Ch. 2002) for the proposition that “stockholders are entitled to a fair summary of the substantive work performed by the investment bankers upon whose advice the recommendations of their board as to how to vote on a merger or tender rely” and reiterated its holding that directors need only disclose material information, i.e., that which significantly alters the total mix of information available, and which stockholders would likely consider important in determining whether to vote in favor of the proposed transaction.
In reaching its opinion, the court distinguished its recent decision in In re Netsmart Technologies, Inc. Shareholders Litigation, 924 A.2d 171 (Del. Ch. 2007). In Netsmart , the court found that further disclosure was required because the proxy at issue “affirmatively disclosed an early version of some of management’s projections.” The court reasoned that management was required to give materially complete information “once a board broaches a topic in its disclosures.” CheckFree’s proxy, on the other hand, did not purport to disclose management’s projections. In fact, the proxy included an explicit warning indicating that the projections failed to account for risks that threatened the accuracy of the projections. This omission of risk, the court reasoned, rendered the projections incomplete and non-material, and therefore disclosure was not required.