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Summary
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 Legal
challenge to buyout of software company
- Sale of company followed standard script
- Use of a special committee of independent
directors
- 3% break-up fee
- Post-signing window shop period
- Shareholder litigation challenged process and
disclosures
Delaware Chancery finds that directors breached
their Revlon duties by excluding strategic buyers from auction
- Vice Chancellor Strine
- Revlon duties applied
- Opinion at §III.A.1
- Although the directors have a choice of
means, they do not comply with their Revlon duties unless they undertake
reasonable steps to get the best deal.
- Plaintiffs likely to be successful that Revlon
duties were not satisfied
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Opinion at §III.A.2
- ... the Special Committee and Netsmart
board did not have a reliable basis to conclude that the Insight deal was the
best one because they failed to take any reasonable steps to explore whether
strategic buyers might be interested in Netsmart
- ... the boards consideration of whether to
seek out strategic buyers was cursory and poorly documented at best. The
decade-spanning, sporadic chats by Conway and William Blair are hardly the stuff
of a reliable market check.
- Rejects argument that "window shop" provision and
modest break up fee "enabled a post-signing, implicit market check"
- Because Netsmart was a micro-cap company
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Delaware Chancery Opinion March 2007 Hyperlinked
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Opinion
- Del Ch 2005
Hyperlinked outline
Top
++ Introduction
I
Facts
II
- Netsmarts business
II.A
- Prior explorations of strategic combinations
II.B
- Pursues private equity deals
II.C
- Pursuit of a private equity deal accelerates
II.D
- Doesn't seek a strategic buyer
II.E
- Insight (a PE firm) wins the bidding
II.F
- Deal announced; Shareholder vote scheduled
II.G
Preliminary
injunction standard (Legal analysis)
III Claims
(Merits)
III.A
- Did the board likely breach its Revlon duties?
III.A.1.a
- Was focus on only PE buyers reasonable?
III.A.1.b
- Proxy statement disclosures
III.A.2
- Management projections
III.A.2.a
- Banker DCF projections
III.A.2.b
- Special committee independence
III.A.2.c
Irreparable
harm
III.B Conclusion
V
(Sic ... no Section IV in opinion)
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Cases Cited
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Re: Auction
process
- Emerging Communications
2004 WL 1305745 (Del. Ch. 2004) Distinguished
- Freeport-McMoran Sulphur, Inc. Sholders Litig.,
2005 WL 1653923 (Del. Ch. 2005) Distinguished
Re:
Disclosures
Re:
Director independence
- Beam v Stewart, 845 A.2d 1040, 1051-52 (Del.
2004)
- Langner v. Brown, 913 F. Supp. 260, 266 (S.D.N.Y.
1996)
Re:
Irreparable harm
- ODS Technologies, Inc. v. Marshall, 832 A.2d
1254, 1262 (Del. Ch. 2003)
- In re Staples, Inc. S'holders Litig., 792 A.2d
934, 960
(Del. Ch.
2001)
- QVC Network, Inc. v. Paramount Communications,
Inc.,
635 A.2d 1245,1273 n.50 (Del. Ch. 1993)
- Toys R Us, 877 A.2d at 1023
- T. Rowe Price Recovery Fund, L.P. v. Rubin, 770
A.2d 536, 557-59 (Del. Ch.
2000)
Re:
Appraisal
- Union Illinois 1995 Inv. Ltd. Partnership v.
Union Financial Group, Ltd., 847 A.2d 340 (Del. Ch. 2004)
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Deal Documents
SEC_CODE_REF_0090001192884
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Deal
announced 11.20.06
Developments
Agreements
Disclosures
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Commentary
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Law
firms
- Subsequent opinion by Delaware Chancery Court in
CheckFree Corporation Shareholders Litigation (November 1, 2007) rejected
allegations of inadequate disclosure of internal projections
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