Determines that management projections, while "merely helpful", are not material and need not be disclosed
Recently, in Dent v. Ramtron International Corporation, et al,1 the Delaware Court of Chancery determined that projections of a target company’s management that were relied upon by target’s financial advisor in delivering its fairness opinion were not material, and as a result, did not require disclosure in the target company’s proxy statement. The Court denied a request by stockholders to preliminarily enjoin the merger vote, finding that it was "unlikely that a reasonable stockholder would find the projections to be important as opposed to merely helpful in deciding how to vote on the merger or whether to seek appraisal".
Ramtron International Corporation "designs, develops, and markets specialized semiconductor memory, microcontrollers, and integrated semiconductor solutions." On March 8, 2011, Cypress Semiconductor Corporation, a manufacturer of USB controllers that enhance "conductivity and performance in multimedia handsets, PCs, and tablets", made an unsolicited offer to the Ramtron board to acquire Ramtron at a price of $3.01 per share. After more than a year of unsuccessful negotiations, Cypress publicly announced on June 22, 2012 its proposal to acquire Ramtron at a price of $2.48 per share. Ramtron publicly responded by recommending that its stockholders not tender into Cyprus’ offer, and privately began conducting an auction process to explore all other available strategic alternatives. Over the course of the next 3 months, and Ramtron responding each time by rejecting the revised offer. By late September 2012, however, the parties finally agreed to a price of $3.10 per share and a merger agreement was executed. As part of the first step of the merger, Cyprus completed its tender offer and acquired approximately 78% of Ramtron’s outstanding stock. However, Cyprus was not able to acquire a sufficient number of shares to conduct a short form merger, and therefore, decided to pursue a long form merger and solicited proxies via a proxy statement.the parties publicly negotiated pricing, with Cyprus amending its tender offer to increase its offer price,
The Allegations and the Court’s Analysis
Plaintiff filed suit, alleging various breaches of fiduciary duties by Ramtron’s board. "Plaintiff’s main claim…[was] that defendants breached the fiduciary duty of candor by failing to disclose Ramtron’s management’s financial projections that covered the second half of 2012 and the years 2013 through 2016" in its merger proxy statement. Ramtron had shared these projections with its financial advisor, who in turn used these projections for the discounted cash flow analysis underlying its fairness opinion.
Plaintiff sought to enjoin the stockholder vote on the merger until all material information concerning the merger, including the undisclosed financial projections, was made available to stockholders. Defendants contended that Ramtron’s management’s projections were neither accurate nor reliable, and that disclosure of those projections would only "create a greater risk of confusing" its stockholders than "informing them on whether to accept the $3.10 offer price or to seek appraisal." Defendants supported their contentions by noting, among other things, that "Cypress did not have access to Ramtron’s financial projections when it decided to enter into the merger agreement….[rather], as disclosed in the proxy, Cypress noted at least once in an August 3 letter that it found management’s projections to be ‘inherently unreliable’".
The Court began its analysis with an overview of the "duty of disclosure", noting that it "is a specific application of a corporate directors’ fiduciary duties of care and loyalty" and required "directors to disclose fully and fairly all material information within the board’s control when it seeks shareholder action". In such cases, "the issue is whether shareholders have been provided with appropriate information upon which an informed choice on a matter of fundamental corporate importance may be made." The Court further 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."
Turning more specifically to the question of whether management projections are required to be disclosed, the Court stated that "Delaware law does not require the disclosure of inherently unreliable or speculative information which would tend to confuse stockholders or inundate them with an overload of information. The omitted disclosure at issue in this case is Ramtron management’s financial projections. ‘There is no
per se duty to disclose financial projections furnished to and relied upon by an investment banker. To be a subject of mandated disclosure, the projections must be material in the context of the specific case.’" Turning specifically to the evidence presented before it, the Court concluded in this context that "there are no facts suggesting that the undisclosed information is inconsistent with, or otherwise significantly differs from, the disclosed information."
Moreover, the Court noted that "the materiality of management’s projections does not turn on whether those projections were reliable or unreliable." Rather, the Court reiterated that the key question is whether "there is a…substantial likelihood that the undisclosed information would significantly alter the total mix of information already provided.’" Based on the evidence before it, the Court held that "it is unlikely that a reasonable stockholder would find the projections to be important as opposed to merely helpful in deciding how to vote on the merger or whether to seek appraisal." Accordingly, the Court rejected plaintiff’s claims.
The Ramtron decision again demonstrates that Delaware courts will closely examine the record before them in addressing attacks on a board of directors’ process for selling a company and the accompanying public disclosures. As this case demonstrates, courts will not lightly challenge disclosures made by boards, placing the burden on plaintiffs to demonstrate that the alleged flaws are indeed material, rather than "quibbles" that do not add to the total mix of information.