Morrison v. Berry

Supreme Court of the State of Delaware · 2018 · Corporations

CorporationsCorwin cleansingfiduciary disclosuretender offersstockholder ratificationCorwinfully informed votetender offer

Facts

The Fresh Market agreed to be acquired by Apollo through a tender offer at $28.50 per share, with founder Ray Berry and his son Brett Berry rolling over equity into the post-closing company. The Company's 14D-9 and incorporated Schedule TO described the sale process, but the plaintiff later obtained internal documents, including a November 28 email from Ray Berry's counsel, through Section 220 litigation. The plaintiff alleged the disclosures omitted or distorted facts showing Ray Berry had an October agreement with Apollo, strongly preferred Apollo over other bidders, stated he would consider selling his shares if the Company stayed public, and that the Board formed a transaction committee amid existing activist pressure. The tender offer closed with 68.2% of outstanding shares tendered, and defendants argued that stockholder acceptance cleansed any fiduciary claims under Corwin.

Issue

Whether the tender offer acceptance by disinterested stockholders was fully informed so as to trigger Corwin cleansing and business judgment review. More specifically, did alleged omissions and misleading partial disclosures in the 14D-9 prevent defendants from obtaining ratification effect at the pleading stage?

Rule

Corwin applies only when a merger or tender offer not subject to entire fairness has been approved by a fully informed, uncoerced majority of disinterested stockholders. A fact is material if there is a substantial likelihood that a reasonable stockholder would consider it important in deciding how to vote or tender, meaning it would significantly alter the total mix of information. Once directors choose to speak about events, they must provide an accurate, full, and fair characterization; even partial disclosure can trigger a duty to disclose additional facts necessary to avoid a materially misleading impression. The burden to show the stockholder decision was fully informed falls on the board.

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Maple Grove Foods, a Delaware corporation based in Columbus, agreed to be acquired through a first-step tender offer by Granite Peak Capital. The Schedule 14D-9 stated that founder Nolan Price had not committed to participate with any bidder, but internal emails later obtained by a stockholder in a books-and-records action showed that two months earlier Price had agreed to roll over his shares only if Granite Peak bought the company and had denied any such agreement when the board asked him directly.

If disinterested stockholders tendered a majority of shares and the defendants move to dismiss under Corwin, what is the strongest argument against cleansing?

Explanation. Corwin cleansing requires a fully informed, uncoerced tender by disinterested stockholders. Under the majority opinion, an omitted fact is material if a reasonable stockholder would consider it important and if it would significantly alter the total mix of information. An undisclosed prior agreement with the bidder, especially one inconsistent with what the founder told the board, bears on troubling director behavior and the integrity of the process. The plaintiff need not show the omission would have changed the outcome.