Source: https://h2o.law.harvard.edu/collages/3875
Timestamp: 2019-04-24 14:00:52+00:00

Document:
Stuart M. Grant, Esq., Megan D. McIntyre, Esq., Diane Zilka, Esq., GRANT & EISENHOFER P.A., Wilmington, Delaware; James C. Strum, Esq., FARUQI & FARUQI, LLP, Wilmington, Delaware; Shane Rowley, Esq., Jamie Mogil, Esq., Nadeem Faruqi, Esq., FARUQI & FARUQI, LLP, New York, New York; Randall J. Baron, Esq., David T. Wissbroecker, Esq., ROBBINS GELLER RUDMAN & DOWD, LLP, San Diego, California; Mark Lebovitch, Esq., Amy Miller, Esq., BERNSTEIN LITOWITZ BERGER & GROSSMANN, LLP, New York, New York; Norman M. Monhait, Esq., ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware; Attorneys for Co-Lead Plaintiffs.
Martin S. Lessner, Esq., Kathaleen St. J. McCormick, Esq., Paul J. Loughman, Esq., YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; William Savitt, Esq., Olivia A. Maginley, Esq., Michael Gerber, Esq., David P. Jang, Esq., James Cole, Jr., Esq., WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Attorneys for Smurfit-Stone Container Corp. and the Individual Defendants.
William M. Lafferty, Esq., Thomas W. Briggs, Jr., Esq., Bradley D. Sorrels, Esq., MORRIS, NICHOLS, ARSHT & TUNNELL, LLP, Wilmington, Delaware; M. Robert Thornton, Esq., B. Warren Pope, Esq., David E. Meadows, Esq., Jonathan R. Chally, Esq., KING & SPALDING, LLP, Atlanta, Georgia; Attorneys for Defendants Rock-Tenn Company and Sam Acquisition, LLC.
 This matter involves a stockholder challenge to a merger in which a third-party strategic acquiror has agreed to merge with the target corporation for consideration valued at $35 per share. The agreed-upon deal provides that each of the target's stockholders will receive approximately half of the merger consideration in cash and the other half in stock of the acquiror. Plaintiffs allege that the $35 merger price is unreasonable and that the target's board failed adequately to inform itself as to the true value of the company and maximize stockholder value under Delaware's Revlon line of cases. Furthermore, Plaintiffs allege that the target's board breached its fiduciary duties by agreeing unreasonably to a number of deal protection measures that had a preclusive, deterrent effect on any bidders who otherwise might have made a higher offer.
Importantly, this case provides cause for the Court to address a question that has not yet been squarely addressed in Delaware law; namely, whether and in what circumstances Revlon applies when merger consideration is split roughly evenly between cash and stock. Plaintiffs have moved for a preliminary injunction and request that the Court delay the target's stockholder vote and enjoin the deal protections for a period of 45 to 60 days so as to allow the target to seek higher bids. For the reasons stated in this Opinion, however, I deny Plaintiffs' motion for a preliminary injunction.
The target in this consolidated action1 is Defendant Smurfit-Stone Container Corp. ("Smurfit-Stone" or the "Company"), a Delaware corporation with its headquarters in Chicago, Illinois. It is a manufacturer of paperboard and paper-based packaging, including containerboard and corrugated containers. Smurfit-Stone also is a paper recycler and has 12 paper mills, 110 container plants, 29 reclamation plants, and 1 lamination plant worldwide. Plaintiffs, John M. Marks, Matthew Gould, and Melvin D. Spencer, are common stockholders of Smurfit-Stone.
On January 23, 2011, the board of directors of Smurfit-Stone unanimously approved an agreement and plan of merger (the "Merger Agreement" or "Agreement") to be acquired by Defendants Rock-Tenn Company ("Rock-Tenn") and Sam Acquisition, LLC ("SA") in a cash and stock transaction worth approximately $3.5 billion (the "Proposed Transaction" or "Transaction"). Rock-Tenn is incorporated in Georgia where it has its principal executive office. It is a leading manufacturer of paperboard, containerboard, and consumer corrugated packaging. SA is a Delaware limited liability company and a wholly-owned subsidiary of Rock-Tenn created for the sole purpose of effecting the Proposed Transaction.
 In addition, the Amended Complaint ("Complaint") names ten individual defendants who make up Smurfit-Stone's board of directors (the "Board"). Defendant Ralph F. Hake currently is the nonexecutive chairman of the Board. Defendant Patrick J. Moore has been a director since January 2002 and currently serves as Smurfit-Stone's CEO. He also was the former chairman of the Smurfit-Stone Board. Defendants Timothy J. Bernlohr, Terrell K. Crews, Eugene I. Davis, Michael E. Ducey, Jonathan F. Foster, Ernst A. Haberli, Arthur W. Huge, and James J. O'Connor are outside directors.
Upon its exit from bankruptcy, Smurfit-Stone's creditors' committee chose a new board of directors based on an interview process conducted by an executive recruiting firm. The applicants chosen had substantial experience serving on boards of other major  corporations and in various business fields, including forest and paper products, investment banking, and others. The creditors' committee decided, however, to retain a few key directors from the previous Smurfit-Stone board. In particular, it negotiated with Moore, who allegedly had planned to retire at the end of 2009, to extend his contract with the Company for an interim period ending March 31, 2011 to permit the Board time to settle on a more permanent leadership structure.4 The committee also retained Steven Klinger,5 the former president and COO of Smurfit-Stone, as well as O'Connor, an outside director.
Hence, the Board authorized Moore and Klinger, with Hunt's assistance, to make a presentation to Company A on October 7. Moore and Klinger continued to meet with Company A representatives through the rest of that month, often without any other directors present.26 These efforts resulted in Company A making an offer on October 10 to enter into a recapitalization in which Smurfit-Stone would raise $500-$700 million in new debt and Company A would become a major Smurfit-Stone stockholder.27 The Board rejected this offer at a regular Board meeting on October 27 and directed Moore to so advise Company A. Undeterred, Company A expressed continued interest in a possible transaction with Smurfit-Stone.
On December 21, Wells Fargo contacted Foster to tell him that Rock-Tenn was interested in discussing a potential stock-for-stock merger of equals. After Foster relayed this message to Hake, the Special Committee directed Lazard to contact Wells Fargo to  obtain additional details about Rock-Tenn's proposal.50 Wells Fargo suggested that Rubright meet with Smurfit-Stone's senior management, but Lazard eschewed such a meeting as premature. Instead, Lazard proposed a meeting between the two financial advisors so it could obtain additional information before proceeding further.
On January 4, 2011, Rubright called Hake to request a meeting to discuss Rock-Tenn's formal proposal to acquire the Company at a significant premium with 50% of the consideration in cash. Three days later, on January 7, Rubright and certain other Rock-Tenn senior management met with the Subcommittee and a Lazard representative. Rubright presented an "indicative" offer, which involved a premium price of $30.80 per share, 50% in cash and 50% in stock, and three seats on Rock-Tenn's board after the  merger, but no offers of future employment or board membership for any other Smurfit-Stone executives or directors. After Hake informed Rubright that $30.80 was inadequate, the parties agreed to have their financial advisors continue to discuss a potential transaction at a higher share price.
On January 9, Rock-Tenn made a nonbinding offer to acquire all of the Company's shares at a price of $32 per share,52 including consideration of 50% cash and 50% stock at a fixed exchange ratio, subject to the negotiation of a definitive merger agreement, limited confirmatory due diligence, and stockholder approval.
The next day, the Special Committee, along with Moore and Hunt, convened to consider Rock-Tenn's offer and request for additional due diligence.53 The Committee determined that $32 per share was inadequate, but authorized Lazard to permit Rock-Tenn to conduct reasonable additional due diligence to improve its offer.
After the meeting, Hake authorized Moore and Hunt, along with Lazard, to prepare and present additional due diligence materials to Rock-Tenn and attend due diligence meetings on the Company's behalf. The parties met on consecutive days beginning on January 17 so management for each company could present to its counterpart reciprocal due diligence.
negotiations, Rock-Tenn informed the Company that any deal between the parties had to be finalized by January 23. Smurfit-Stone then asked for Rock-Tenn's best and final offer. On Thursday, January 20, Rubright indicated to Hake that Rock-Tenn would offer $35 per share, split equally between stock and cash as in its previous offer. This price represented a 27% premium to the Company's then-current trading price. The effect of the deal would be that Smurfit-Stone stockholders would own approximately 45% of outstanding Rock-Tenn common shares following consummation.
 Later that day, Hake convened a meeting of the Special Committee, in which Moore and Hunt also participated. Moore and William M. Lewis of Lazard led the meeting and updated the Committee on "recent developments" concerning meetings between the two companies, due diligence efforts, Rock-Tenn's business, draft merger agreements, the terms of Rock-Tenn's best and final proposal, and other matters concerning negotiations with Rock-Tenn.63 Hake and Lewis also reported that Rock-Tenn threatened to suspend the merger discussions if the proposed transaction could not be finalized before the end of the weekend and the release of both companies' earnings announcements the following week.64 The Committee decided to authorize its advisors to enter into further negotiations with Rock-Tenn and to proceed toward finalizing a merger agreement.
Lazard presented its analysis regarding the fairness of Rock-Tenn's offer, including valuations of Smurfit-Stone, Rock-Tenn, and the combination of the two companies. Lazard's analyses of the Company generated a valuation range of $27-$39 per share.67 In addition, Lazard answered numerous questions from Board members in a relatively robust discussion of their projections and industry conditions. This discussion covered Lazard's finding that the Company's net operating loss carryforwards ("NOLs") were worth between $1 and $3 per share, but that these values were highly contingent and uncertain. The Board members also inquired whether Rock-Tenn, if pushed, might agree to a higher share price. Hake and Lewis indicated that, based on their discussions with Rock-Tenn executives, they believed Rock-Tenn's offer was its best and final one. The Board also reviewed with Wachtell its ability to consider a better offer, should one arise after the Board approved the deal.
After Lazard reported that it found the offer to be fair from a financial point of view and Wachtell reviewed the terms of the proposed Merger Agreement, Moore excused himself so the Special Committee could put the offer to a vote. The Committee  unanimously agreed to recommend to the Board that it accept Rock-Tenn's offer. Upon Moore's return, the Board unanimously voted to accept Rock-Tenn's offer.
Under the Agreement, Smurfit-Stone will become a wholly-owned subsidiary of Rock-Tenn and its stockholders are entitled to receive $17.50 in cash and .30605 shares of Rock-Tenn common stock for each share of Smurfit-Stone common stock (the "Merger Consideration").68 Based on the closing price of Rock-Tenn stock immediately prior to the announcement of the merger, this Consideration was worth $35 per share. Upon closing, the Company's stockholders will own approximately 45% of Rock-Tenn's outstanding common stock.
On March 11, Marks filed a Verified Amended Class Action Complaint (the "Complaint"), which is the operative complaint in this action.75 Soon thereafter, on March 24, I consolidated the actions pending in this Court and appointed co-lead counsel in Delaware. That same day, Plaintiffs moved for class certification, which I granted on May 2.
On April 25, I entered an amended scheduling order, scheduling a preliminary injunction hearing for May 18. After extensive briefing by the parties, I heard argument  on Plaintiffs' application for a preliminary injunction on that date (the "Argument"). This Opinion constitutes my ruling on Plaintiffs' application.
Count I of the Complaint accuses the Board of breaching its fiduciary duties of care and loyalty by failing to take steps to maximize the value of Smurfit-Stone to its public stockholders. Specifically, Plaintiffs argue that the Proposed Transaction constitutes a "change of control" transaction as to which the Board failed to comply with its obligations under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.76 by conducting an inadequate sales process and obtaining an inadequate price from Rock-Tenn. They also contended that the Board impermissibly failed to disclose all material facts pertaining to the Proposed Transaction in the companies' joint Preliminary Proxy Statement. Defendants have since mooted Plaintiffs' disclosure claims by making various supplementary disclosures. Count II accuses Rock-Tenn of aiding and abetting the Board in violating its fiduciary duties by way of the challenged conduct. Plaintiffs seek, among other types of relief, a preliminary injunction to delay the stockholder vote on the Proposed Transaction and lift temporarily the deal protection devices.
Defendants begin by challenging Plaintiffs' contention that the Proposed Transaction warrants heightened scrutiny under Revlon and argue that the Court, instead, should review the Board's actions under the more deferential business judgment rule. But, even if Revlon does apply, Defendants assert that the Board fully complied with its  fiduciary duties to secure the best value reasonably available for Smurfit-Stone stockholders.
Plaintiffs contend that the Proposed Transaction constitutes a "change of control" transaction and, as such, the Court should apply the heightened Revlon standard.78 They bolster this argument by characterizing the Transaction as the Smurfit-Stone stockholders' relinquishing majority ownership of the Company in favor of minority ownership of Rock-Tenn and arguing that, because approximately half of the Merger Consideration is in cash, the stockholders are losing the last opportunity to maximize the value of a significant amount of their investment in Smurfit-Stone.
Based on my review of the law and facts of this case, I conclude that Plaintiffs have not shown a reasonable probability of success on their claim that the Board breached its fiduciary duties by approving the Rock-Tenn merger. As to the governing standard, I believe Plaintiffs are likely to prevail on their argument that Revlon applies here, even though the Delaware Supreme Court has not yet addressed this issue directly. As such, this position is not free from doubt.  Nevertheless, in the circumstances of this case, even if I assume without deciding that the Revlon standard applies, the result would be the same. That is, Plaintiffs have not demonstrated that they are likely to succeed on the merits of their claim that the actions of the admittedly independent and disinterested Special Committee (as well as the vast majority of the Company's Board) in negotiating and approving the Merger Agreement failed to satisfy their obligations under Revlon.
Thus, I begin by addressing the applicable standard. I then examine this Transaction under the lens of Revlon.
In limited circumstances, however, the Delaware Supreme Court has imposed special obligations of reasonableness on boards of corporations who oversee the sale of control of their corporation.85When a board leads its corporation into so-called Revlon territory, its subsequent actions will be reviewed by this Court not under the deferential BJR standard, but rather under the heightened standard of reasonableness. In addition, and as discussed in greater detail below, the Board's fiduciary obligations shift to obtaining the best value reasonably available to the target's stockholders.86 While the differences between directors' obligations under business judgment and Revlon review are not insignificant,87 the standard of review is not necessarily outcome determinative. Nonetheless, "absent a limited set of circumstances as defined under Revlon, a board of directors, while always required to act in an informed manner, is not under any per se duty to maximize shareholder value in the short term . . . ."88 Therefore, a question of much ongoing debate, and one to which the parties devoted much ink in this case, is when does a corporation enter Revlon mode such that its directors must act reasonably to maximize short-term value of the corporation for its stockholders.
Here, Plaintiffs do not allege that the Board initiated an active bidding process to sell itself or effected a reorganization involving the break-up of Smurfit-Stone. Nor do they argue that the Board abandoned its long-term strategy in response to a bidder's offer and sought an alternative transaction involving the break-up of the Company. Rather, they allege that Revlon should apply to this case because the Merger Consideration was comprised of 50% cash and 50% stock at the time the parties entered into the Agreement, which qualifies the Proposed Transaction as a "change of control" transaction.90 A question remains, however, as to when a mixed stock and cash merger constitutes a change of control transaction for Revlon purposes.
The Supreme Court has not yet clarified the precise bounds of when Revlon applies in the situation where merger consideration consists of an equal or almost equal split of cash and stock. Thus, to make such a determination, I evaluate the circumstances of the Proposed Transaction based on its economic implications and relevant judicial precedent.
Thus far, this Court has not been instructed otherwise, and, while the stock portion of the Merger Consideration is larger than the portion in Lukens, I am persuaded that Vice Chancellor Lamb's reasoning applies here, as well. Defendants attempt to distinguish Lukens on its facts, arguing that "they offer no support to plaintiffs'  position."103 I disagree. While the factual scenarios are not identical, there are some material similarities. Most important of these is that the Court in Lukens was wary of the fact that a majority of holders of Lukens common stock potentially could have elected to cash out their positions entirely, subject to the 62% total cash consideration limit. In this case, Defendants emphasize that no Smurfit-Stone stockholder involuntarily or voluntarily can be cashed out completely and, after consummation of the Proposed Transaction, the stockholders will own slightly less than half of Rock-Tenn. While the facts of this case and Lukens differ slightly in that regard, Defendants lose sight of the fact that while no Smurfit-Stone stockholder will be cashed out 100%, 100% of its stockholders who elect to participate in the merger will see approximately 50% of their Smurfit-Stone investment cashed out. As such, like Vice Chancellor Lamb's concern that potentially there was no "tomorrow" for a substantial majority of Lukens stockholders, the concern here is that there is no "tomorrow" for approximately 50% of each stockholder's investment in Smurfit-Stone. That each stockholder may retain a portion of her investment after the merger is insufficient to distinguish the reasoning of Lukens, which concerns the need for the Court to scrutinize under Revlon a transaction that constitutes an end-game for all or a substantial part of a stockholder's investment in a Delaware corporation.
 Defendants' other arguments, while cogent, similarly are unavailing. Citing to Arnold,104 they contend that because control of Rock-Tenn after closing will remain in a large, fluid, changing, and changeable market, Smurfit-Stone stockholders will retain the right to obtain a control premium in the future and, as such, the Proposed Transaction is not a change of control transaction under Revlon. As with their attempt to distinguish Lukens, Defendants assert that even though a significant part of the Merger Consideration is in cash, there is a "tomorrow" for the Company's stockholders because they will own approximately 45% of Rock-Tenn after the merger. They aver that "[h]olding that Revlon applies in this type of case would require directors to behave as if there is no long run for their shareholders when in fact there is, and to pretend that shareholders will not participate in the future of the combined entity when in fact they will."105 This statement, however, is only half correct. While the Company's stockholders will see approximately half of their equity transformed into Rock-Tenn equity such that they potentially can benefit from Rock-Tenn's future value, the other half of their investment in Smurfit-Stone will be cashed out. Even if Rock-Tenn has no controlling stockholder and Smurfit-Stone's stockholders will not be relegated to a minority status in the postmerger entity, half of their investment will be liquidated.
Citing to Santa Fe, Defendants note that the Supreme Court did not suggest that cashing out 33% of shares out would transform Santa Fe's transaction with Burlington  into a change of control transaction. As the Court noted, the plaintiffs in that case did not allege that control of Burlington would not remain in a large, fluid, changing, and changeable market postmerger. The approximately 50% being cashed out of each stockholder's investment in Smurfit-Stone obviously falls between the 33% cash out that the Supreme Court held did not trigger Revlon in Santa Fe and the 62% proportion of cash consideration that Vice Chancellor Lamb determined would trigger Revlon in Lukens. Mathematically, this situation is closer to Lukens, but only marginally.106 Thus, assuming the Court's analysis in Lukens was correct, as I do, this case is necessarily approaching a limit in relation to the Supreme Court's holdings in Santa Fe and Arnold, which, again, involved a stock-for-stock transaction. As previously noted, however, my conclusion that Revlon applies here is not free from doubt.
Finally, I note that factors identified by Plaintiffs and Defendants as having been considered by Delaware courts in determining whether to apply Revlon review in cases  like QVC and others are important to a robust analysis of the issue.107 In QVC, for example, the Supreme Court noted the importance of considering whether a target's stockholder's voting rights would be relegated to minority status in the surviving entity of a merger and whether such stockholders still could obtain a control premium in future transactions as part of the postmerger entity in determining whether a "change of control" had occurred.108 But, the fact that control of Rock-Tenn after consummation will remain in a large pool of unaffiliated stockholders, while important, neither addresses nor affords protection to the portion of the stockholders' investment that will be converted to cash and thereby be deprived of its long-run potential.
 Based on the foregoing, therefore, I conclude that Plaintiffs are likely to succeed on their argument that the approximately 50% cash and 50% stock consideration here triggers Revlon.
Plaintiffs first attack the process the Special Committee undertook in the run up to its recommendation to the Smurfit-Stone Board that it approve the Proposed Transaction. Specifically, they assert that the Committee impermissibly: (a) engaged in exclusive negotiations with Rock-Tenn and approved a deal with it based on inadequate information and without previously canvassing the market; (b) agreed to restrictive deal protections that preclude a meaningful post-signing market check and discourage the submission of competing bids; (c) permitted certain members of senior Smurfit-Stone management with conflicting interests to play significant roles in negotiating the deal terms; (d) relied on a financial advisor with no experience in the containerboard industry and with a financial incentive to close a transaction; and (e) accepted an inadequate price. I address each of these contentions in turn.
At the outset, I note that the process followed by the Board and Special Committee was not perfect. But, reasonableness, and not perfection, is what Revlon requires.116After carefully reviewing the record, I find that the process undertaken by the Board included sufficient indicia of reasonableness under the circumstances to satisfy Revlon.
Preliminarily, I reject Plaintiffs' contention that the Board and Special Committee were not adequately informed when they authorized the signing of the Merger Agreement. First, the record reflects that nine out of the current ten Smurfit-Stone directors are outside, independent directors. These individuals are sophisticated business executives with experience in a diverse range of industries117. Although a substantial majority of these directors took their seats after Smurfit-Stone exited bankruptcy, they educated themselves about the Company and took their positions as directors seriously.118 Moreover, upon receiving notice of the first offer from Company A, the Board created a Special Committee, which retained competent advisors. Specifically, it obtained  financial counsel from Lazard, an advisory company with significant experience working with Smurfit-Stone in its bankruptcy, and legal counsel from Wachtell Lipton, an established leader in the M&A space. Finally, Plaintiffs have not demonstrated any reason to doubt the independence or disinterestedness of any of the outside Board members.
Similarly, in this case, the Board met multiple times in January to consider Rock-Tenn's offers, permitted Lazard and Hake to try to persuade Rubright to improve Rock-Tenn's $35 offer, evaluated that offer using Lazard's valuations, Wachtell's legal expertise, and its own knowledge of the Company's market, and discussed the likelihood that a better offer would materialize.125 Moreover, the Board benefited not just from its and Lazard's work in January, but also from their work in previous months when the Special Committee was evaluating Company A's offer.
I also note that, notwithstanding Plaintiffs' pejorative characterizations, the Special Committee's conduct in January 2011 was assertive and apparently devoid of undue influence by management. Indeed, the Committee not only pushed back against management at times, it also pushed both of the companies that expressed interest in acquiring it to increase the attractiveness of their offers on multiple occasions. For  example, the Committee entertained two different offers from Company A and rejected its more recent one, for $29 per share, as inadequate. The Committee also negotiated two separate price increases from Rock-Tenn before the latter offered its best and final price of $35 per share, up from its original offer of $30.80 per share.126 Moreover, the Committee extracted other concessions from Rock-Tenn as well, including reciprocity with respect to certain deal protection devices and an undertaking by Rock-Tenn to assume certain of Smurfit-Stone's liabilities. These negotiations demonstrate that the Special Committee did not bow to management pressure and, instead, engaged in real, arm's-length dealings with potential acquirors, a characteristic often considered by this Court in evaluating the reasonableness of special committees' actions127. From these facts, I conclude that Plaintiffs are not likely to succeed on their claim that the Board was not adequately informed and failed to take sufficient actions toward the goal of maximizing stockholder value in its sales process.
Merely being notified about interested potential bidders during a bankruptcy that occurred several months before a number of new directors are thrust into Revlon mode, on its own, is not an adequate substitute for a board's duty reasonably to consider alternative transactions to maximize stockholder value. It may be relevant, however, to the Court's analysis from an informational standpoint. That is, the Smurfit-Stone bankruptcy provides an important backdrop to the other information the Board considered when it decided not to conduct a presigning market check in regard to accepting Rock-Tenn's final offer. In particular, the Board also considered that no bidder  approached it during the time it sought to divest certain of its assets in response to the Levin Report and that by mid-2010 the containerboard industry was aware that the Company likely was a takeover target.130 Furthermore, the Board considered that Company A had made a significantly lower offer of $29 per share and elected not to return to the negotiating table with a higher bid when Smurfit-Stone invited it to do so.131The Board also received Lazard's independent advice that Rock-Tenn's offer was fair and that a topping bid was not likely to materialize by January 10, 2011.132 Finally, the Committee considered it important that under the terms of the Merger Agreement, it still could consider Superior Proposals even after it entered into such Agreement.
In the face of this information, the Board also considered the dangers of delaying a signing with Rock-Tenn. Conducting a prolonged presigning market check would have increased the risk of information leaks pertaining to a possible imminent sale of Smurfit-Stone, which may have disrupted the Company's personnel and business,133and  potentially could have further frustrated an already difficult search for a permanent CEO, in the event a sale never took place. In addition, the Board understood that there were only a few potential strategic buyers who might be interested in acquiring Smurfit-Stone and, by virtue of being in the same industry, those potential buyers likely would have been aware of Smurfit-Stone's receptiveness to a transaction.134 Plaintiffs also make much of the fact that Smurfit-Stone, and not Rock-Tenn, requested exclusive dealings, but this duty was reciprocal. With the knowledge that other bidders were not likely to step forward and a reasonable belief that Rock-Tenn's offer was superior to remaining as a stand-alone company, the Board reasonably could have sought to sign an exclusive deal with Rock-Tenn to prevent the latter from considering other acquisitions, subject to its fiduciary duties.
Therefore, I find that the Board possessed a sufficient amount of reliable evidence from which it reasonably could conclude that a market check was not worth the risks of jeopardizing the Rock-Tenn Transaction and that dealing exclusively with Rock-Tenn would maximize stockholder value.135 As such, Plaintiffs are not likely to prevail on  their claim that the Board unreasonably failed to perform a formal market check before or after signing the Merger Agreement.
Plaintiffs next argue that, having decided to forego conducting a presigning market check, the Board impermissibly agreed to several preclusive deal protection devices in the Merger Agreement.
First, Plaintiffs attempt to paint the members of the Special Committee as aloof and lacking the interest or ability to understand the import of the deal provisions Wachtell negotiated on their behalf. Based on a careful review of the deposition transcripts from which Plaintiffs selectively quote to support this contention, I do not agree. Rather, the record reflects that the Board actively and keenly focused on instructing Wachtell to negotiate terms that would be reciprocal in force and preserve Smurfit-Stone's ability to consider potential topping bids even after the Merger Agreement was signed.136 In fact, Wachtell secured more favorable terms for Smurfit-Stone than initially were offered to it by Rock-Tenn. The matching rights period, for example, was reduced from five days to three days, the no-shop provision included by Rock-Tenn in its first merger draft proposal was made reciprocal, and the termination fee of approximately 4% of equity value first proposed by Rock-Tenn was reduced to approximately 3.4%.137  Plaintiffs argue that, even if the Board understood these provisions, the Board should not have agreed to them without first conducting a presigning market check.138 I agree with Defendants that this does not accurately state Delaware law. Indeed, in Dollar Thrifty, Vice Chancellor Strine found the Dollar Thrifty board's use of no-shop, matching rights, and termination fee provisions to be reasonable and not preclusive or coercive, even though, as the plaintiffs argued, the company had agreed to deal exclusively with Hertz without conducting a presigning market check. 139Thus, I evaluate each of these provisions individually and cumulatively under the circumstances of this case to determine whether the Board acted reasonably in agreeing to them and whether, in fact, they are preclusive or coercive.
Specifically, the three items challenged by Plaintiffs are the no shop provision, the matching rights provision, and the termination fee, which are included in §§ 6.4, 6.5, and 8.2 of the Merger Agreement, respectively. According to Plaintiffs, the no shop  provision, which, as mentioned supra, contains a fiduciary out that allows the Board to consider Superior Proposals, substantially reduces the likelihood of a topping bid because it prohibits the Board from actively soliciting potential interested parties. Similarly, they object to the matching rights provision, under which Rock-Tenn has three days to match a Superior Proposal, on the ground that it significantly reduces the likelihood of such a proposal. Moreover, Plaintiffs allege that the $120 million termination fee, which constitutes approximately 3.4% of equity value, is excessively large and significantly diminishes the probability of a competing buyer making a bid. Lastly, Plaintiffs contend that these three protective devices have an unreasonably preclusive effect in combination, even if none is preclusive in isolation.
Under the relevant case law, Plaintiffs are not likely to succeed in showing that the no shop and matching rights provisions are unreasonable either separately or in combination.140 Potential suitors often have a legitimate concern that they are being used as a stalking horse merely to draw others into a bidding war. This presumably was a concern for Rock-Tenn based on the facts that while the Company had been the subject of persistent takeover rumors for several months, potential buyers had shown little interest, with the exception of Company A, and that Rock-Tenn's initial draft of the Merger Agreement contained both a no shop and matching rights provisions. Therefore,  in an effort to entice an acquirer to make a strong offer, it is reasonable for a seller to provide a buyer some level of assurance that he will be given an adequate opportunity to buy the seller, even if a higher bid later emerges.141 Plaintiffs have not shown that any alternative bidder was precluded by the challenged provisions from successfully making a higher offer. Accordingly, they have not demonstrated a likelihood of success on the merits of their objections to either the no shop or matching rights provisions.
Plaintiffs also take issue with the $120 million termination fee, which represents approximately 3.4% of equity value. While the termination fee is toward the upper boundary of permissibility under Delaware law, this Court has approved several termination fees of similar size.142 The relative size of the Termination Fee is further mitigated by the fact that it is reciprocal, applying to Rock-Tenn as well as Smurfit-Stone. Accordingly, because the Termination Fee is generally within the range previously found to be reasonable and appears to have resulted from good faith, arm's-  length negotiations, I conclude that Plaintiffs are not likely to succeed on their claim that the Board acted unreasonably in assenting to that fee.
In addition, I am not persuaded that, collectively, the Merger Agreement's three primary deal protections unreasonably inhibit another bidder from making a Superior Proposal. The challenged provisions are relatively standard in form and have not been shown to be preclusive or coercive, whether they are considered separately or collectively. Accordingly, on the record presented, I am not convinced that Plaintiffs are likely to be able to prove that the Board acted unreasonably in agreeing to give Rock-Tenn these deal protections.
and Hunt, whom they characterize as having significant conflicts, to take active roles in negotiating the Proposed Transaction with Rock-Tenn. Plaintiffs cite as the source of these conflicts the employment agreements of Moore and Hunt, which provide for change of control bonuses that, according to Plaintiffs, incentivized them to negotiate a change of control without regard to whether it was in the Company's stockholders' best interests.
Plaintiffs merely have established that certain of Smurfit-Stone's management had potential pecuniary conflicts of interest based on the existence of change of control  bonuses in their employment contracts. The evidence shows that the Defendant outside directors had nothing to do with negotiating or approving those contracts. Moreover, Plaintiffs have not shown that the executives involved acted on their conflicts at Smurfit-Stone's expense or that the Committee impermissibly permitted them to do so. Therefore, Plaintiffs are not likely to succeed in proving that Moore and Hunt, and Klinger to the extent Plaintiffs include him in their conflict argument, materially tainted the sales process here through their involvement in it.
Plaintiffs further contend that the Special Committee's hiring and reliance on Lazard, whom they characterize as conflicted and inexperienced, contributes to the unreasonableness of their conduct under Revlon. They argue first that the Lazard team had no experience in the paper and fiberboard industry or with mergers involving corporations that recently had exited bankruptcy. In addition, Plaintiffs fault the Committee for hiring Lazard without conducting a formal interview process or receiving a presentation by Lazard.
This segues into Plaintiffs' next criticism; namely, that the Special Committee agreed to retain Lazard under terms that include a "significant success fee, whereby Lazard will receive substantially greater compensation if a deal closes - even a bad deal -than if there is no transaction."152 Plaintiffs argue this type of fee structure is appropriate in an auction setting where a corporation is choosing among competing bids, but not where the corporation is choosing between selling itself or remaining as a going concern. In the latter situation, Plaintiffs assert that a success fee creates a "strong incentive" for Lazard to push through any deal, even a bad deal, to collect its fee. This, they contend, is what happened here because Lazard made no good faith attempt to push Rock-Tenn to increase its offer above $35 per share.
Therefore, I find that the Special Committee's decision to retain and rely upon the work of Lazard was not unreasonable and, as such, is not likely to provide a predicate for a violation of its members' fiduciary duties.
Rock-Tenn contends that the Court should deny Plaintiffs' claim for injunctive relief as to it for two independent reasons: (1) Plaintiffs waived their aiding and abetting  arguments against Rock-Tenn by failing to include them in their opening brief; and (2) Plaintiffs failed to establish a likelihood of success on the merits of their claim against Smurfit-Stone.
Plaintiffs initially alleged two sources of potential irreparable harm here: (1) harm from forcing Smurfit-Stone stockholders to vote on the Proposed Transaction without the benefit of adequate disclosures; and (2) harm resulting from the Board's breaches of its Revlon duties, which will have the effect of forever preventing the Company's stockholders from obtaining the maximum value for their shares.166 Because the disclosures arguments are now moot, I focus on Plaintiffs' claims of irreparable harm based on the Board's alleged Revlon violations.
In addition, Smurfit-Stone stockholders who agree with Plaintiffs that $35 per share undervalues their investment in the Company are not without recourse in the absence of injunctive relief. Plaintiffs still may seek money damages as compensation  for the Board's alleged breaches of their fiduciary duties. 172 They also may vote against the merger and seek appraisal for their shares under 8 Del. C. § 262. 173Thus, I hold that Plaintiffs have failed to carry their burden to show they face a threat of irreparable harm in the absence of preliminary injunctive relief.
 Here, Plaintiffs have not made a strong showing of a likelihood of success on the merits or the existence of irreparable harm if injunctive relief is denied. Moreover, the Proposed Transaction offers a significant premium to Smurfit-Stone's stockholders and, as of the date of this Opinion, no topping bid has been made or even suggested.176Enjoining the Transaction now would create a risk that Smurfit-Stone's stockholders could lose out on this Transaction altogether.
Furthermore, Plaintiffs have offered no proof to support their aiding and abetting claim against Rock-Tenn. Hence, there is nothing in the record to show that Rock-Tenn acted improperly. To the contrary, the record suggests that it engaged in arm's-length bargaining permissibly to advance its self-interests. Thus, to the extent the equities favor either side, I find that they favor Defendants.
prove they are likely to succeed on the merits of their claims, will suffer imminent irreparable harm if injunctive relief is not granted, and are favored by the equities. Therefore, I deny Plaintiffs' motion for a preliminary injunction.
1. This action is the result of a consolidation of three separate actions: Marks v. Smurfit-Stone Container Corp., C.A. No. 6164-VCP (Del. Ch. filed Feb. 2, 2011); Gould v. Smurfit-Stone Container Corp., C.A. No. 6291-VCP (Del. Ch. filed Mar. 17, 2011); and Spencer v. Moore, C.A. No. 6299-VCP (Del. Ch. filed Mar. 21, 2011). See Docket Item ("D.I.") 41 (Order Granting Consolidation). As discussed infra and for purposes of this Opinion, the operative case is C.A. No. 6164-VCP and the lead Plaintiff is John M. Marks.
2. Many of the facts relevant to this controversy are not in dispute and are supported by documentation and other evidence submitted with and cited in the parties' briefs. Where a fact might be in dispute, I have provided appropriate citations to the record; otherwise, such citations are omitted for the sake of brevity.
3. Dep. of Patrick J. Moore ("Moore Dep.") 55-57.
5. There is no evidence that any of the eight new outside directors have any common affiliations or prior relationships with Moore, Smurfit-Stone, or Rock-Tenn. See Dep. of Jonathon F. Foster ("Foster Dep.") 11-12. According to Defendants, these directors, including O'Connor, are "completely independent." Smurfit-Stone Defs.' Ans. Br. ("DAB") 4. Similarly, I refer to Plaintiffs' opening brief as "POB," their reply brief as "PRB," and Rock-Tenn's answering brief as "RTAB."
6. At an October 2010 Board meeting, Klinger announced that he would resign his management and board positions with Smurfit-Stone effective December 31, 2010. Moore Dep. 17-18. After his resignation at the end of 2010, the Company retained Klinger in a consulting role, which meant that he would "continue to help [Moore] with the oversight and operation side of the business," similar to his role as president and COO. Id. at 18.
7. See DAB 4 (citing Foster Dep. 12-13).
8. Moore Dep. 19-21; Dep. of Ralph F. Hake ("Hake Dep.") 17-20; Foster Dep. 18687.
9. See Moore Dep. 20-22; Hake Dep. 17.
10. See Moore Dep. 21.
11. See Hake Dep. 167; Foster Dep. 186 ("[Moore's] contract . . . was entered into by the creditor investors with Mr. Moore and approved by the bankruptcy court; we as a board inherited that, we had nothing to do with it.").
12. Hake Dep. 19; App. of Exs. to Pls.' Op. Br. ("Pls.' Ex.") 9, Form S-4/A, at 88.
13. Form A-4/A, at 88; Moore Dep. 42-43. Klinger also would receive a gross-up. Form S-4/A, at 88.
15. The parties disagree about Smurfit-Stone's outlook as a stand-alone company after it emerged from Chapter 11 bankruptcy. Plaintiffs describe the Company as "restored [to] profitability" and having embarked on an "aggressive turnaround plan that has produced significant and continuing stock price increases." See id. at 4-5. They contend that the Company's earnings for the fourth quarter ended December 31, 2010 reflect improvements in earnings, margins, and cash flow as compared to the previous year. See id. at 6; Moore Dep. 56. Defendants, on the other hand, paint a bleaker picture. They allege that the Company faced substantial challenges postbankruptcy and remained the least profitable player in the corrugated industry. DAB 5 (citing a research report by the Buckingham Research Group). Defendants also assert that from the time Smurfit-Stone exited bankruptcy, it was the subject of market-wide takeover speculation. Id. (citing Foster Dep. 167-68).
16. Hake Dep. 19. Evidently, Moore had recommended Klinger for the job. Moore Dep. 13-14. Although Defendants assert that the Board's search for a new CEO proved to be difficult, it allegedly was close to securing a candidate in early 2011 when it entered into the Proposed Transaction. DAB 6 (citing Foster Dep. 15152).
17. Moore Dep. 58-59. Smurfit-Stone previously had retained Levin and the firm worked principally with Klinger. According to Foster, the Board did not commission Levin to prepare the report; Levin did so on the initiative of Klinger. Foster Dep. 91.
18. Aff. of Kathaleen S. McCormick ("McCormick Aff.") Ex. 74.
20. Foster Dep. 105-06; Hake Dep. 136.
21. Dep. of William Levin ("Levin Dep.") 45; Foster Dep. 88.
22. McCormick Aff. Ex. 24.
23. Hake Dep. 81; Foster Dep. 27.
27. Pls.' Ex. 9 at 41.
28. At this point, the Board began preparing to receive a written offer and, in doing so, instructed Moore that the independent directors needed to be involved in all interactions between management and Company A. The Board also began discussing the need to form a special committee to consider any offer from Company A.
29. McCormick Aff. Ex. 5.
31. Dep. of Maxence De Gennaro ("De Gennaro Dep.") 8-10.
32. POB 9. In particular, the Lazard retention letter provides that Lazard will receive $1 million for entering into the agreement; an additional $2 million payable upon the earlier of an announcement of a transaction, definitive transaction agreement, or the rendering of any Opinion (as defined therein); and, if a transaction is consummated, .5% of the aggregate transaction consideration. Pls.' Ex. 19.
33. DAB 9 (citing Foster Dep. 71).
34. Id. (citing McCormick Aff. Exs. 33-37 and Hake Dep. 113).
35. Management provided Lazard with its 2011 budget and management-prepared five-year projections. Defendants also note that Lazard inquired as to why management's sales and EBITDA forecasts were, in certain respects, more conservative than some analysts' estimates. DAB 10. Among other things, management explained that they believed the analysts' expectations did not properly account for the intensely cyclical nature of the containerboard industry. De Gennaro Dep. 129-30.
36. McCormick Aff. Ex. 40.
37. Before Lazard presented its findings, Moore and Klinger were excused.
38. McCormick Aff. Ex 12 at SSCC0000149.
40. DAB 11 (citing McCormick Aff. Ex. 13 at SSCC000058).
42. See DAB 11; De Gennaro Dep. 66.
43. McCormick Aff. Ex. 8.
44. See Foster Dep. 178-79; De Gennaro Dep. 43.
45. McCormick Aff. Ex. 6.
47. Dep. of James Rubright ("Rubright Dep.") 22.
50. See McCormick Aff. Ex. 43.
51. Dep. of Ryan Nelson ("Nelson Dep.") 38. Wells Fargo responded that Rock-Tenn would be receptive to a premium and a cash component. Aff. of Bradley D. Sorrels ("Sorrels Aff.") Ex. D.
52. This price represented a premium of 26% to the Company's 30-day average share price of $25.43 and a 47% premium to the Company's share price when it began trading in July 2010 after the Company exited bankruptcy. Sorrels Aff. Ex. G.
53. Pls.' Ex. 26. The Committee believed it was reasonable for Rock-Tenn to receive limited additional diligence, but it was reluctant to accept a prolonged delay at the risk of information leaks and other burdens. See Foster Dep. 183.
54. McCormick Aff. Ex. 8. The Committee believed that if word got out that Smurfit-Stone was contacting multiple acquirors, it might prove quite difficult to retain a permanent CEO and maintain employee morale. Foster Dep. 166.
55. McCormick Aff. Ex. 8.
57. Id.; Foster Dep. 166. Similarly, the Committee never asked Lazard to perform analyses regarding other potential transactions for the Company. De Gennaro Dep. 31-33.
59. See McCormick Aff. Ex. 66. Rock-Tenn originally proposed a breakup fee equivalent to 4% of fully diluted equity value based on the merger consideration. The Special Committee countered with a proposal for 2.5% of equity value. Rock-Tenn rejected this and proposed a fixed $130 million termination fee and, after further negotiations, agreed to reduce this fee to $120 million, or 3.4% of the equity value of the Proposed Transaction.
Plaintiffs contend, however, that members of the Committee accepted the deal protection devices recommended by Wachtell "without any real understanding of how they worked or any knowledge as to whether Wachtell negotiated anything in return for them." POB 15-16. The evidence does indicate that the Committee did not devote much attention to the deal protection measures. I am convinced, however, that the Committee understood that provisions Wachtell obtained in its negotiations were relatively standard market terms. The evidence also shows that the directors on the Special Committee were sophisticated business persons with broad experience, including with mergers and acquisitions. Plaintiffs, therefore, are not likely to succeed in showing that the Committee did not understand the general operation and import of the deal protection measures in the Agreement.
62. DAB 18. Defendants explain that Rock-Tenn initially proposed a six-month date and, after back and forth negotiations in which Smurfit-Stone requested a longer period of time, the parties settled on an eight-month period. See Rubright Dep. 115-16; McCormick Aff. Ex. 68.
63. McCormick Aff. Ex. 9.
64. See id. As to this apparent time crunch, Hake reflected that while he didn't "think there was a rush at all," his philosophy on the matter was to "bring [the deal] to conclusion as rapidly as possible consistent with getting done what you need to do." Hake Dep. 162-63.
65. McCormick Aff. Ex. 11.
67. McCormick Aff. Ex. 14. Lazard told the Board that certain of management's projections were lower on average than those of some Wall Street analysts. According to Foster, however, the Board did not think that management "intentionally . . . shar[ed] with [the Board] projections that were excessively conservative." See Foster Dep. 218-19.
68. Pls.' Ex. 9 at Annex A, the Merger Agreement, §§ 1.1, 1.6; McCormick Aff. Ex. 69 at Ex. 99.1, Smurfit-Stone Jan. 24, 2011 Form 8-K. The exchange ratio has no collar or mechanism that acts as a floor or cap on the stock component of the Transaction's consideration to protect against market fluctuations of Rock-Tenn's stock. See In re NYMEX S'holder Litig., 2009 WL 3206051, at *2 (Del. Ch. Sept. 30, 2009). I also note that Rock-Tenn will assume Smurfit-Stone's net debt and pre-tax pension liabilities. McCormick Aff. Ex. 69 at Ex. 99.1.
69. Merger Agreement § 6.4(b). This obligation is reciprocal and likewise prevents Rock-Tenn from pursuing certain transactions with other companies. Id. § 6.5(a)-(b).
70. Id. § 6.4(e). A Company Superior Proposal is defined as "any bona fide written Company Acquisition Proposal . . . made by a third party that the Company Board determines in good faith, after receiving advice from its outside legal counsel and financial advisors, would be more favorable to the Company Stockholders than the Merger, taking into account (i) any proposal by Parent to amend or modify the terms of this Agreement, (ii) the identity of the Person making such Company Acquisition Proposal and (iii) the terms, conditions, timing, likelihood of consummation and legal, financial, and regulatory aspects of such Company Acquisition Proposal." Id. § 6.4(i).
71. Id. § 6.4(e). Like the no shop clause, this obligation is reciprocal. Id. § 6.5(e).
72. Id. §§ 8.1(g), (i), 8.2 (ii). This obligation also is reciprocal. See id. §§ 8.1(h), (j), 8.2(iv).
73. See D.I. 5. According to Defendants' motion, four cases, Gold v. Smurfit-Stone Container Corp., Case No. 11-CH-3371, Roseman v. Smurfit-Stone Container Corp., Case No. 11-CH-3519, Findley v. Smurfit-Stone Container Corp., Case No. 11-CH-3726, and Czeck v. Smurfit-Stone Container Corp., Case No. 11-CH-4282, were pending in the Illinois Court and were consolidated under docket number 11-CH-3371 before the Honorable Rita Novak. Id.
74. See D.I. 33, Tr. of Arg. held on Mar. 4, 2011, 17, 25-27.
75. Defendants moved to dismiss this Complaint on April 13.
76. 5 06 A.2d 173, 179 (Del. 1986).
77. E.g., Revlon v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 179 (Del. 1986); In re Dollar Thrifty S'holder Litig., 14 A.3d 573, 595 (Del. Ch. 2010).
78. POB 21-24. Plaintiffs also argue, in the alternative, that even if the Court applies the business judgment standard of review, the Transaction still should be enjoined. Id. at 21.
79. Defendants also argue that even if Revlon does apply, Plaintiffs have not shown a likelihood of success on the merits.
80. Defendants also note that, because the parties did not structure the Transaction with a collar, "the value of the merger consideration is no longer split evenly between cash and stock,  rather [it] has shifted to approximately 44% cash and 56% stock," which they argue further supports their position that Revlon is inapplicable here. DAB 24.
81. See 8 Del. C. § 141(a); see also Revlon, Inc., 506 A.2d at 179.
82. See MM Cos. v. Liquid Audio, Inc., 813 A.2d 1118, 1127-28 (Del. 2003).
83. See id. (internal quotation marks omitted); see also, e.g., Emerald P'rs v. Berlin, 787 A.2d 85, 90-91 (Del. 2001); Revlon, Inc., 506 A.2d at 180; Moran v. Household Int'l, Inc., 500 A.2d 1346, 1356 (Del. 1985). Generally, the party challenging director action has the initial burden of adducing evidence to rebut this presumption. See Liquid Audio, Inc., 813 A.2d at 1127-28; Emerald P'rs, 787 A.2d at 90-91. Plaintiffs can rebut the presumption by showing, among other things, that the board violated its fiduciary duties of care or loyalty in connection with a challenged transaction or committed fraud or self-dealing. See, e.g. , In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 746-47 (Del. Ch. 2005), aff'd, 906 A.2d 27 (Del. 2006). If the presumption properly is rebutted, the burden then shifts to the director defendants to establish that the challenged transaction was "entirely fair" to the corporation and its stockholders. See, e.g., id. If the plaintiffs fail to rebut the presumption, the board's decision will be upheld unless it cannot be attributed to any "rational business purpose." See, e.g., id.; Emerald P'rs, 787 A.2d at 90-91.
84. Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 45 n.17 (Del. 1994) (internal quotation marks omitted); see also, e.g., Liquid Audio, Inc., 813 A.2d at 1127-28; Emerald P'rs, 787 A.2d at 90-91.
85. See, e.g., QVC Network Inc., 637 A.2d at 42; Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 182 (Del. 1986).
86. Revlon, Inc., 506 A.2d at 182-84; QVC Network Inc., 637 A.2d at 44.
87. See In re Netsmart Techs., Inc. S'holders Litig., 924 A.2d 171, 192 (Del. Ch. 2007) ("Unlike the bare rationality standard applicable to garden-variety decisions subject to the business judgment rule, the Revlon standard contemplates a judicial examination of the reasonableness of the board's decision-making process.").
88. Paramount Commc'ns, Inc. v. Time Inc., 571 A.2d 1140, 1150 (Del. 1989); Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 101-02 (Del. Ch. 2011) ("It is not until the board is under Revlon that its duty 'narrow[s]' to getting the best price reasonably available for stockholders in a sale of the company."). In Lyondell, for example, the Supreme Court held that '"Revlon duties do not arise simply because a company is 'in play.'" Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 244 (Del. 2009) ("The duty to seek the best available price applies only when a company embarks on a transaction—on its own initiative or in response to an unsolicited offer—that will result in a change of control."). Moreover, in Paramount Communications v. Time, the Supreme Court held that Time's board of directors did not enter Revlon mode solely by virtue of either entering into the initial merger agreement with Warner or adopting structural safety devices. See Time Inc., 571 A.2d at 1142, 1151.
89. See, e.g., In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 71 (Del. 1995) (citing Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 42-43, 4748 (Del. 1994) (internal quotation marks and citations omitted); Arnold v. Soc'y for Sav. Bancorp, Inc., 650 A.2d 1270, 1289-90 (Del. 1994).
90. POB 21-22. Alternatively, Plaintiffs seem to contend that even if the Proposed Transaction is held not to involve a "change of control" as defined in the relevant precedents, this 50/50 cash/stock scenario in the circumstances of this case still qualifies for Revlon review under an as yet unarticulated fourth Revlon category. See PRB 10 n.6.
91. See Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 42-23 (Del. 1994) ("When a majority of a corporation's voting shares are acquired by a single person or entity, or by a cohesive group acting together, there is a significant diminution in the voting power of those who thereby become minority stockholders.").
92. See, e.g., In re Santa Fe Pac. Corp., 669 A.2d at 71 (noting that a corporation does not undergo a change in control where control of the postmerger entity remains in a "large, fluid, changeable and changing market") (internal quotation marks omitted); Arnold, 650 A.2d at 1289-90 (same); Time Inc., 571 A.2d at 1150; Krim v. ProNet, Inc., 744 A.2d 523, 527 (Del. Ch. 1999) (noting that Revlon "does not apply to stock-for-stock strategic mergers of publicly traded companies, a majority of the stock of which is dispersed in the market.").
93. See Arnold, 650 A.2d at 1290 ("[P]laintiff argues that there was a 'sale or change in control' of Bancorp because its former stockholders are now relegated to minority status in BoB, losing their opportunity to enjoy a control premium. As a continuing BoB stockholder, plaintiff's opportunity to receive a control premium is not foreclosed. Thus, plaintiff's claim that enhanced scrutiny is required under the circumstances of this case lacks merit . . . .").
94. See, e.g., In re NYMEX S'holder Litig., 2009 WL 3206051, at *5 (Del. Ch. Sept. 30, 2009); In re Topps Co. S'holders Litig., 926 A.2d 58, 64 (Del. Ch. 2007); TW Servs., Inc. v. SWT Acq. Corp., 1989 WL 20290, at *1184 (Del. Ch. Mar. 2, 1989).
95. See, e.g., Air Prods. & Chems., Inc. v. Airgas, Inc., 16 A.3d 48, 101-02 (Del. Ch. 2011); TW Servs., Inc., 1989 WL 20290, at *1184 (noting that "for the present shareholders [of a company that will be sold for cash], there is no long run. For them it does not matter that a buyer who will pay more cash plans to subject the corporation to a risky level of debt, or that a buyer who offers less cash will be a more generous employer for whom labor peace is more likely. The rationale for recognizing . . . the appropriateness of sacrificing achievable share value today in the hope of greater long term value, is not present when all of the current shareholders will be removed from the field by the contemplated transaction.").
96. See In re Lukens Inc. S'holders Litig., 757 A.2d 720, 732 n.6 (Del. Ch. 1999), aff'd sub nom., Walker v. Lukens, Inc., 757 A.2d 1278 (Del. 2000).
97. In re Santa Fe Pac. Corp. S 'holder Litig., 669 A.2d 59, 64-65 (Del. 1995).
100. In re Lukens Inc., 757 A.2d at 725.
101. Id. at 732 n.25; see also In re NYMEX S'holder Litig., 2009 WL 3206051, at *5 (Del. Ch. Sept. 30, 2009) (similarly noting that the Supreme Court has not established a bright line rule). In In re NYMEX, this Court considered a mixed consideration transaction consisting of 56% stock and 44% cash, but determined that it did not need to address whether Revlon applied. See In re NYMEX, 2009 WL 3206051, at *5-6.
102. In re Lukens, 757 A.2d at 732 n.25.
104. 6 5 0 A.2d 1270.
106. Indeed, Defendants also argue that, because there is no collar on the stock portion of the Merger Consideration, Smurfit-Stone stockholders can benefit from the market's anticipation of future synergies. Moreover, because Rock-Tenn's share price has risen since the announcement of the Transaction, the Merger Consideration now stands at 56% stock and 44% cash. In my view, a more logical and workable analysis here focuses on the relative proportion of cash and stock as of the time the parties entered into the Merger Agreement, which was 50/50 cash and stock. Accepting Defendants' position would require the Court to base its determination as to whether to apply Revlon on its best guess as to the price of Rock-Tenn's stock as of the date the Transaction closes. Leaving this determination up to the vagaries of the stock market is not a workable method and potentially may lead to inequitable results. Therefore, I consider Plaintiffs' claims in light of the 50% cash and 50% stock Merger Consideration that was in effect as of the date the parties entered into the Merger Agreement.
107. See DAB 27 ("Taken together, these cases suggest the questions that should inform the applicability of Revlon in a mixed cash/stock deal: Does control of the post-merger company remain in a large, fluid, and changeable market? Do the target's shareholders retain a significant economic interest in the combined company? Must the directors, in considering the transaction, exercise their business judgment, or is price the only question they must consider to protect shareholders' interest? Do the shareholders retain the future opportunity to receive a control premium? Is there a "long run" for every target shareholder in the combined company?"); POB 23-24 & PRB 10 n.6 (urging the Court to consider the fact that Moore and Hunt will collect "change of control" bonuses in the range of $19 million if the Proposed Transaction closes as supporting the proposition that the Transaction represents a change of control). While the Board's treatment of certain of its management's change of control bonuses arguably may be relevant to the Court's analysis, the subjective beliefs of the Board members are not sufficient alone to invoke Revlon. See Paramount Commc'ns, Inc. v. Time Inc., 571 A.2d 1140, 1151 (Del. 1989).
108. See Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 42-43 (Del. 1994).
109. Revlon v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 184 (Del. 1986); QVC Network Inc., 637 A.2d at 44.
110. Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1286 (Del. 1989).
111. QVC Network Inc., 637 A.2d at 45.
112. In re J.P. Stevens & Co. S'holders Litig., 542 A.2d 770, 781-82 n.6 (Del. Ch. 1988).
113. QVC Network, Inc., 637 A.2d at 45.
114. In re Dollar Thrifty S'holder Litig., 14 A.3d 573, 596 (Del. Ch. 2010) (citing QVC Network, Inc., 637 A.2d at 45).
115. In addition, Plaintiffs argue that the Board should have conducted a presigning market check, but deliberately chose not to do so. They also criticize the Board's decisions not to reach out to other potential bidders after being contacted by Rock-Tenn and not to conduct a postsigning market check.
116. Dollar Thrifty, 14 A.3d at 595.
117. See Compl. ¶¶ 10-19.
118. See Foster Dep. 12-13; Hake Dep. 11-20. This involved considering, among other things, Smurfit-Stone's operations and growth opportunities, as well as the industry in which it operated.
119. Foster Dep. 70; McCormick Aff. Ex. 5.
120. See, e.g., Sorrels Aff. Ex. C at SSCC0000013.
121. Foster Dep. 218-19; McCormick Aff. Ex. 40.
122. See Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243-44 (Del. 2009).
123.The Supreme Court found that the "time for action under Revlon did not begin until July 10, 2007, when the directors began negotiating the sale of Lyondell [to Basell]." Id. at 242.
124. See id. at 242-44. Unlike the Lyondell case, where the surviving claims sought only money damages, this case seeks preliminary injunctive relief and, therefore, I consider both Defendants' duty of care as well as their duty of loyalty.
125. See McCormick Aff. Exs. 8-11. The Committee also directed Lazard to take a hard look at the Levin projections and determine whether they were reliable. Id. Ex. 40.
126. Rubright made clear to Lazard and Hake that Rock-Tenn was not prepared to go any higher than $35. Id. Ex. 9.
127. See generally In re Inergy L.P., 2010 WL 4273197, at *14-15 (Del. Ch. Oct. 29, 2010).
128. See, e.g., Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 n.28 (Del. 2009) (citing Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1287 (Del. 1989), for the proposition that "[d]irectors need not conduct a market check if they have reliable basis for belief that price offered is best possible."); Herd v. Major Realty Corp., 1990 WL 212307, at *9 (Del. Ch. Dec. 21, 1990) ("Revlon certainly does not . . . require that every change of control of a Delaware corporation be preceded by a heated bidding contest, some type of market check or any other prescribed format.").
129. See Foster Dep. 178-79, 114-15; McCormick Aff. Ex. 6.
130. See Foster Dep. 116-17.
131. McCormick Aff. Ex. 6.
133. Id. Plaintiffs dismiss as inherently inconsistent Defendants' position that the market knew Smurfit-Stone was a takeover target but, at the same time, the Board was wary of information leaks about Rock-Tenn's possible interest in taking over the Company through the Proposed Transaction. I disagree. First, there is an appreciable difference between market participants' knowledge that a company might be in play and a company's public announcement that it definitely is for sale. In the latter case, the company risks jeopardizing employee morale, long-term business relationships with customers, and the like. More importantly, Defendants credibly assert that at the time the Board was considering the Rock-Tenn offer, it had not definitively decided to sell itself; rather, the Committee considered remaining a stand-alone company a real alternative. As such, it was not inconsistent for the Board to think the market knew the Company might be a takeover target, but still seek to avoid leaking information about its talks with Rock-Tenn.
134. See Hake Dep. 25. Defendants contend that the fact that none of these potential buyers stepped forward further supports the reasonableness of the Board's actions. DAB 36.
135. Cf. Barkan v. Amsted Indus, Inc., 567 A.2d 1279, 1287 (Del. 1989) ("When . . . directors possess a body of reliable evidence with which to evaluate the fairness of a transaction, they may approve that transaction without conducting an active survey of the market.").
136. Foster Dep. 174-75, 198; Hake Dep. 43-45, 56 (noting that the Board had multiple discussions with Wachtell about "key provisions" of the Merger Agreement).
137. Compare McCormick Aff. Ex. 67 with Merger Agreement § 8.2.
138. POB 28. They assert that the Board could have foregone a presigning market check, but only if it conducted a postsigning market check in the absence of these deal protection devices. Id. In addition, they argue that the Board should have negotiated for a go-shop provision rather than agree to a no shop provision. But, as discussed in the text, I find no fault with the Board's decision to agree to a no shop and, moreover, Revlon does not compel a board to use a specific type of deal protection device; it may use such devices as long as it does not deter from the directors' ultimate duty to maximize stockholder value. See In re NYMEX S'holder Litig., 2009 WL 3206051, at *8 (Del. Ch. Sept. 30, 2009) ("The mere failure to secure deal protections that, in hindsight, would have been beneficial to shareholders does not amount to a breach of the duty of care.").
139. See In re Dollar Thrifty S'holder Litig., 14 A.3d 573, 612-13, 615 (Del. Ch. Sept. 8, 2010) ("Of course, in signing up a deal without a pre-signing market check, it was incumbent upon the Board to consider whether it had extracted all the value it could and whether it was ensuring the viability of a post-signing market check.").
140. See, e.g., id. at 618 (refusing to enjoin a strategic deal with matching rights and no shop provisions because these deal provisions were neither preclusive nor unreasonable); In re Toys 'R' Us, Inc., S'holder Litig., 877 A.2d 975 (Del. Ch. 2005) (declining to enjoin merger with no shop provision and temporally limited match rights).
141. Indeed, no shop and matching rights clauses of the kind included in the Merger Agreement are customary in public company mergers today. See, e.g. , In re Toys 'R' Us, Inc. S'holder Litig., 877 A.2d 975, 1017 (Del. Ch. 2005) ("neither a termination fee nor a matching right is per se invalid. Each is a common contractual feature . . . ."); McMillan v. Intercargo Corp., 768 A.2d 492, 505 (Del. Ch. 2000) (noting that deal protections, including no shop provisions, are "rather ordinary"); see also NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 14 (Del. Ch. 2009) (referring to no shop provision as using "customary language"); McCormick Aff. Ex. 94, ABA 2010 Strategic Buyer/Public Target Mergers & Acquisitions Deal Points Study (Dec. 29, 2010), 63.
142. See, e.g., In re Answers Corp. S'holders Litig., 2011 WL 1366780, at *4 (Del. Ch. Apr. 11, 2011) (upholding termination fee of 4.4%); Dollar Thrifty, 14 A. 3d at 614 (upholding 3.5% termination fee); McMillan v. Intercargo Corp., 768 A.2d 492, 505-06 (Del. Ch. 2000) (upholding 3.5% termination fee).
143. See Hake Dep. 78-79.
144. McCormick Aff. Ex. 29 (in response to news of a potential Company A offer, Foster stated "[i]f the offer is forthcoming, I suggest the independent directors quickly take control and drive this without [Moore] or [Klinger]."), 86 (Hake emailing Lewis, stating "I had dinner with [Moore, Klinger, and Hunt] and they were upset about the perceived lack of trust and being excluded from our board discussions but understand we need to run a clean process."); Moore Dep. 38 ("Hake instructed us to go through a special committee and that he wanted to be involved in all discussions with [Company A].").
145. See, e.g., McCormick Aff. Exs. 54, 50; Rubright Dep. 112-14 (noting that he contacted Moore only to discuss due diligence issues and that Rock-Tenn "tried to follow the protocols that Smurfit established for us exactly, and those protocols were . . . [']don't call me, call Lazard.[']. Lazard said you can call Mr. Hake . . . they were in control of the process and we followed it."); Sorrels Aff. Ex. C (the Board controlled who Rock-Tenn and its advisors could talk to at Company and when).
146. See Rubright Dep. 112-14; Foster Dep. 173 (noting the Committee's firm position as to a termination fee), 175 ("Q. Were . . . negotiations [about deal protection devices] handled primarily by outside counsel? A. The direct conversations were, but [the Special Committee] had a number of briefings and [outside counsel] certainly [was] guided by not only their market knowledge but by the direction of the special committee.").
149. See, e.g., Foster Dep. 71; Hake Dep. 112.
150. Foster Dep. 71; Hake Dep. 111.
152. POB 33 (noting that under the terms of its retention, Lazard will receive up to $3 million if no transaction is consummated, but will receive 50 basis points relative to the total consideration paid in a consummated transaction, which would be approximately $23 million for the Proposed Transaction).
153. See In re Atheros Commc 'ns, Inc., 2011 WL 864928, at *8 (Del. Ch. Mar. 4, 2011) ("Contingent fees are undoubtedly routine; they reduce the target's expense if a deal is not completed; perhaps, they properly incentivize the financial advisor to focus on the appropriate outcome."); Toys "R" Us, 877 A.2d at 1005.
154. Plaintiffs' chief support for its contention that Lazard failed meaningfully to push Rock-Tenn to exceed its $35 dollar offer is an incomplete email chain between Lewis and certain of Rock-Tenn's financial advisors at Wells Fargo. Pls.' Ex. 50. The chain has the subject line "We will take you at your word that this is best and final . . ." and includes an email from Lewis telling his counterpart at Wells Fargo that he will inform the Board that $35 is Rock-Tenn's best and final price. Because Plaintiffs did not file the entire email chain, I am unable to determine what was said before Lewis's email, the contents of the original email, or the full context of these communications. Therefore, I afford only limited weight to this exhibit.
155. See, e.g., McCormick Aff. Ex. 9; Hake Dep. 193-94, 197-200 (describing multiple discussions with Rubright and how Rubright made clear that Rock-Tenn's best and final offer was $35 per share and that it was a "take it or leave it" offer).
156. The Board concluded that certain of the recommended divestitures could not be made, a suggested plant closure would be costly, and there was significant execution risk associated with certain other aspects of the Levin analyses. See Levin Dep. 45; Foster Dep. 39, 55, 86.
157. In re Lear Corp. S'holder Litig., 926 A.2d 94, 118-19 (Del. Ch. 2007) (positing that a motion for a preliminary injunction regarding an upcoming merger, as opposed to an appraisal proceeding, was an inappropriate juncture to issue an opinion as to the value of the seller's shares).
158. In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 72 (Del. 1995).
159. As such, I need not reach Rock-Tenn's waiver argument.
160. D.I. 117 Ex. A.
161. See Tr. of Prelim. Inj. Arg. held May 18, 2011 at 31-32.
162. See In re Cogent, Inc. S'holder Litig., 7 A.3d 487, 513 (Del. Ch. Oct. 5, 2010) ("This Court has long afforded significant respect to the stockholder's ability to make business decisions through an informed, disinterested vote, whether through the corporate franchise or a tender of her shares.").
163. See, e.g., CNL-AB LLC v. E. Prop. Fund I SPE (MS Ref) LLC, 2011 WL 353529, at *11 (Del. Ch. Jan. 28, 2011); Aquila, Inc. v. Quanta Servs., Inc., 805 A.2d 196, 208 (Del. Ch. 2002).
164. In re Inergy L.P., 2010 WL 4273197, at *17 (Del. Ch. Oct. 29, 2010).
165. N.K.S. Distribs., Inc. v. Tigani, 2010 WL 2367669, at *5 (Del. Ch. June 7, 2010).
167. See Netsmart, 924 A.2d at 207; Cogent, 7 A.3d at 515.
168. See Netsmart, 924 A.2d at 207.
169. See Norberg v. Young's Mkt. Co., 1989 WL 155462, at *3 (Del. Ch. Dec. 19, 1989) ("Norberg's fundamental contention is that the $3,500 purchase price does not represent fair and full value for Young's commonstock. Assuming that he is correct in that assertion, and assuming that he can prove he is entitled to recover on his Revlon claim, there is no reason why Norberg cannot be made whole through an award of damages following trial.").
170. McCormick Aff. Ex. 9.
171. See Norberg, 1989 WL 155462, at *4-5 (Del. Ch. Dec. 19, 1989).
172.Admittedly, however, this remedy may be of limited value based on the presence of an 8 Del. C. § 102(b)(7) exculpation clause in Smurfit-Stone's certificate of incorporation.
173. 8 Del. C. § 262; see also In re Lear Corp. S'holder Litig., 926 A.2d 94, 123 (Del. Ch. 2007); La. Mun. Police Empls. Ret. Sys. v. Crawford, 918 A.2d 1172, 1192 (Del. Ch. 2007) ("So long as appraisal rights remain available, shareholders fully apprised of all relevant facts may protect themselves. They need no further intervention from this Court.").
174. See, e.g., N.K.S. Distribs., Inc. v. Tigani, 2010 WL 2367669, at *5 (Del. Ch. June 7, 2010); Braunschweiger v. Am. Home Shield Corp., 1989 WL 128571, at *5 (Del. Ch. Oct. 26, 1989).
175. CNL-AB LLC v. E. Prop. Fund I SPE (MS Ref) LLC, 2011 WL 353529, at *13 (Del. Ch. Jan. 28, 2011); In re Holly Farms Corp. S'holders Litig., 564 A.2d 342, 348 (Del. Ch. 1989).
176. See Netsmart, 924 A.2d at 208 ("[W]hen this court is asked to enjoin a transaction and another higher-priced alternative is not immediately available, it has been appropriately modest about playing games with other people's money.").
Original Item: "In re Smurfit-Stone Container Corp. Shareholder Litigation"

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