Opinion
No. 424, 1998.
January 22, 1999.
Court Below: Court of Chancery of the State of Delaware, in and for New Castle County, C.A. No. 15642.
AFFIRMED.
Unpublished Opinion is below.
HENRY S. FRANK, on behalf of himself and all others similarly situated, Plaintiff-Below, Appellant, v. H. JESSE ARNELLE, HOWARD H. BAKER, JR., PASTORA SAN JUAN CAFFERTY, JERRY E. DEMPSEY, JAMES B. EDWARDS, DONALD FLYNN, PETER H. HUIZENGA, ROBERT S. MILLER, PAUL M. MONTRONE, PEER PEDERSEN, JAMES R. PETERSON, STEVEN G. ROTHMEIER, ALEXANDER B. TROWBRIDGE, and DEAN L. BUNTROCK, and WMX TECHNOLOGIES, INC. Defendant-Below, Appellee. No. 424, 1998. In the Supreme Court of the State of Delaware. Submitted: December 1, 1998. Decided: January 22, 1999.
Court Below: Court of Chancery of the State of Delaware, in and for New Castle County, C.A. No. 15642.
Before VEASEY, Chief Justice, WALSH and HARTNETT, Justices.
ORDER
This 22nd day of January 1999, upon consideration of the briefs and oral arguments of the parties, it appears that:
1. In its September 16, 1998 Opinion the Court of Chancery granted summary judgment to defendants. Frank v. Arnelle, Del. Ch., C.A. No. 15642-NC (Sept. 16, 1998). We agree the grant of summary judgment was proper for the reasons set forth in that opinion, although we disagree with a statement made in it.
2. In the complaint, plaintiff-appellant Henry S. Frank challenged the disclosures made in connection with a Dutch auction tender offer con ducted by WMX Technologies, Inc. ("WMX"). In the tender offer, WMX purchased 30 million of its shares at $30 per share.
3. As stated by the Court of Chancery in an earlier case:
A Dutch auction is a form of tender offer in which the selling stockholders, rather than the buyer, determine the price to be paid for the shares purchased. The corporation establishes a price range within which individual stockholders may designate the price at which they are willing to sell their shares. The corporation then determines the lowest price at which it can purchase the number of shares it needs, and buys at that price. Any shares tendered above that price are excluded. Cottle v. Standard Brands Paint Co., Del. Ch., C.A. Nos. 9342 9405, at 3, Berger, V.C. (Mar. 22, 1990).
4. Merrill, Lynch, Pierce, Fenner Smith was retained by the Board of WMX to advise it in connection with the proposed Dutch auction tender offer. Merrill-Lynch suggested a price range be set between $26.75 and $29.75 per share under a comparative company analysis and between $29.90 and $34.00 per share under a discounted cash flow analysis. The Board's executive committee set the price range to be offered in the Dutch auction at $30 to $35 per share. The price ranges suggested by Merrill-Lynch were not disclosed in the Dutch tender offer materials.
5. Frank argues that the Court of Chancery erred in that it incorrectly stated in its opinion that a stockholder of WMX had only the option of selling in the market or selling in the tender offer. Frank claims the stockholder had the additional option of continuing to hold his shares. Frank, therefore, asserts that the offering materials should have disclosed the suggested price ranges recommended by Merrill-Lynch to the Board, including an alleged earlier opinion of Merrill-Lynch that the shares had a value of $37.68 per share. The challenged statement in the Court of Chancery opinion states:
In a Dutch auction, the stockholder's decision to tender shares is driven by the differential between the price range offered and the stock's market value. So where a stockholder is provided an opportunity to tender his shares in a Dutch auction, and after he has determined to sell rather than hold the stock, there is a single inquiry: Will I make a profit if I tender shares in the Dutch auction instead of selling them in the open market? Accordingly, only those facts that relate either to the terms of the Dutch auction self-tender offer, or the stock's market price (current and historical) would affect the total mix of information that a reasonable stockholder would consider in deciding whether to tender shares, and to what extent, in a Dutch auction. Frank, p. 9.
We agree that this statement may be misleading. A stockholder faced with a Dutch auction tender offer must first decide whether to dispose of his shares or to retain them. In making the initial decision to sell or retain shares, a stockholder needs to know the relevant material information available as to that decision. Brady v. Zavcho, Del. Supr., 697 A.2d 749, 753 (1997); Zirn v. VLI Corp., Del. Supr., 681 A.2d 1050 (1996); Lynch v. Vickers Energy Corp., Del. Supr., 383 A.2d 278 (1977); Cottle v. Standard Brands Paint Co., Del. Ch., C.A. Nos. 9342 9405, Berger, V.C. (Mar. 22, 1990). If the Court of Chancery intended to imply that there was no obligation by the directors to disclose information that would have been material to a stockholder's decision to hold or dispose of shares, that holding would be incorrect.
6. Even assuming, however, that the Court of Chancery's holding was a misstatement of the law, it is not fatal here. Under all the facts and circumstances present here, the opinions of value expressed by Merrill-Lynch were not material to the stockholders' decision whether to retain shares or to dispose of them.
7. Although Frank claims that Merrill-Lynch advised the Board several months prior to the tender offer that the WMX stock had a value of $37.68 per share, the record fails to disclose that Merrill-Lynch ever valued the stock at $37.68 per share. That information was therefore not a material fact that WMX was required to disclose.
8. Because the other Merrill-Lynch valuation estimates were only opinions, the estimates were "soft information" that, under the circumstances here, were not material to the stockholders' decision to tender and therefore were not required to be disclosed. Lewis v. Vogelstein, Del. Ch., 699 A.2d 327, 331 (1997); Weinberger v. Rio Grande Indus., Del. Ch., 19 A.2d 116 (1986). They also were consistent with the price range set for the Dutch auction.
9. WMX had an existing policy of purchasing its shares in the market and the Dutch auction was merely a continuation of that policy. The Dutch auction offered an alternate mechanism to sell shares without paying a commission. Although the stockholder was under no obligation to sell any shares, once the stockholder made a decision to dispose of shares, the decision whether to have tendered under the Dutch auction or to have sold in the market was driven (as the Court of Chancery held) "by the differential between the price range offered and the stock's market price.". In assessing the differential, it was necessary for the stockholders to know the market trading prices of the WMX stock, both historically and as of the date the Dutch auction commenced, and these prices were disclosed in the Tender Offer materials. The stockholder would also desire to know the price during the auction period. The stockholders were advised: "Stockholders are urged to obtain current quotations for the shares". Because the auction was not coercive, there was no obligation on WMX to pay a price that was intrinsically fair. Cottle, Mem. Op. at 15. The Tender Offer did not include a recommendation as to whether the stockholders should tender, and there was no implication that the Tender Offer price was fair. The directors therefore had no duty to disclose Merrill-Lynch's opinion of the stock's intrinsic value.
10. The valuation estimates were also not current and thus not material, having been prepared ten weeks before the Offer was issued. See Barkan v. Amsted Indus., Inc., Del. Supr., 567 A.2d 1279 (1989).
11. In its Opinion, the Court of Chancery carefully reviewed all the challenged disclosures and concluded that they complied with the disclosure duty of complete candor requiring the directors to disclose to the WMX stockholders all material information in their possession. We find no error in that holding.
NOW, THEREFORE, IT IS ORDERED that the judgment of the Court of Chancery be, and the same hereby is, AFFIRMED.
BY THE COURT:
/s/ Maurice A. Hartnett, III, Justice