Court Opinion

ID: 2704909
Source: CourtListenerOpinion
Date Created: 2014-08-04 22:05:02.399337+00
Date Added: 2024-06-11T12:55:03.276878
License: Public Domain

COURT OF CHANCERY
                                   OF THE
                             STATE OF DELAWARE

                                                             417 SOUTH STATE STREET
 JOHN W. NOBLE                                               DOVER, DELAWARE 19901
VICE CHANCELLOR                                             TELEPHONE: (302) 739-4397
                                                            FACSIMILE: (302) 739-6179

                                   June 13, 2014

Brian D. Long, Esquire                        Peter J. Walsh, Jr., Esquire
Rigrodsky & Long, P.A.                        Potter Anderson & Corroon LLP
2 Righter Parkway, Suite 120                  1313 North Market Street
Wilmington, DE 19803                          Wilmington, DE 19801

                          Kenneth J. Nachbar, Esquire
                          Morris, Nichols, Arsht & Tunnell LLP
                          1201 North Market Street
                          Wilmington, DE 19801

      Re:    In re TriQuint Semiconductor, Inc. Stockholders Litigation
             C.A. No. 9415-VCN
             Date Submitted: June 9, 2014

Dear Counsel:

      Plaintiffs, shareholders of TriQuint Semiconductor, Inc. (“TriQuint”),

moved to expedite their claims that TriQuint’s board breached its fiduciary duties

by agreeing to a stock merger with RF Micro Devices, Inc. (“RFMD”).

Specifically, Plaintiffs contend that TriQuint’s eight-member board failed to obtain

adequate consideration for shareholders, engaged in defensive tactics to thwart an

activist investor’s threat to replace the board, agreed to preclusive deal provisions,
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 2

and failed to provide all material information in advance of the shareholder vote.1

TriQuint and RFMD have agreed to a so-called merger of equals, in which the

shares of each company will be exchanged for shares of newly-formed Rocky

Holding, Inc. (“Rocky Holding”), with the shareholders of each company set to

own 50% of the new entity.2 Neither TriQuint nor RFMD has yet scheduled a

special meeting to seek shareholder approval.

                                           *****

       Some brief background is necessary.                Before agreeing to the merger,

TriQuint had been contemplating a possible combination with RFMD for almost

five years.3 More recently, in February 2013, RFMD proposed to acquire TriQuint

in an all-stock transaction. TriQuint’s board determined that RFMD’s offer was

inadequate in April 2013. Two months later, Company B submitted an unsolicited

1
  Verified Consolidated Am. Class Action Compl. (“Compl.”) ¶¶ 100-09. Plaintiffs also assert
claims of aiding and abetting the board’s breaches of duty against various parties. Id. ¶¶ 110-13.
2
  TriQuint’s common stock will be converted into the right to receive 0.4187 shares of Rocky
Holding common; RFMD’s common stock will be converted into the right to receive 0.25 shares
of Rocky Holding common. The proposed structure represents an implied price of $9.73 for
each TriQuint share, and a 5.4% premium based on the closing price of $9.23 per share on
February 21, 2014, the last trading day before the merger agreement was signed. Id. ¶ 3.
3
  Id. ¶ 53. The following account is drawn from the Complaint. Id. ¶¶ 55-78.
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 3

cash offer to acquire TriQuint for $8.25 per share; TriQuint’s board again decided

not to pursue a sale at that time.

      In August 2013, TriQuint and RFMD began new discussions on a possible

merger of equals. Soon thereafter, TriQuint’s board authorized Goldman Sachs, its

financial advisor, to contact Company B and assess its interest in a business

combination. By November 2013, TriQuint received a term sheet from RFMD and

an indication of interest from Company B to acquire TriQuint for $10.00 per share

through a 50% cash and 50% stock transaction. In December, in the midst of

considering these proposals, the TriQuint board received a letter from one of its

shareholders, Starboard Value (“Starboard”), proposing a new slate of six director

nominees for the company’s 2014 annual meeting.

      On December 13, 2013, the TriQuint board decided it would not accept

RFMD’s offer because of concerns regarding potential market reaction to both

companies’ near term financial results.     TriQuint’s board sought to improve

Company B’s proposal and was informed by Goldman Sachs, on December 15,

that Company B had increased its 50% cash and 50% stock offer to $10.10 per
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 4

share. On December 17, 2013, TriQuint’s board decided not to pursue either

transaction.

      Meanwhile, Starboard met with RFMD at the end of January 2014 to pitch

the merits of a merger with TriQuint. RFMD soon notified TriQuint, which

resulted in TriQuint’s CEO contacting Company B’s CEO and scheduling a

meeting with another possible acquirer, Company C. TriQuint also requested

Goldman Sachs to reengage with RFMD’s financial advisor regarding a possible

transaction.   For unclear reasons, Company B withdrew from the process on

February 18, 2014.     That same day, TriQuint’s board decided to pursue a

transaction with RFMD. The sale process culminated on February 22, 2014, when,

after receiving a fairness opinion from Goldman Sachs, TriQuint’s board approved

the merger with RFMD.

      During the briefing of this motion, TriQuint filed an amended proxy

statement disclosing information underlying several of Plaintiffs’ disclosure

claims. Plaintiffs do not dispute that those issues have been resolved, although the

parties may disagree about whether there was any causal connection between the

initial claims and the supplemental disclosures. Accordingly, the Court considers
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 5

Plaintiffs’ remaining claims related to the merger process, certain deal protection

devices in the merger agreement, and the remaining disclosure issues.

                                          *****

       Plaintiffs bear the burden of showing good cause for expedited proceedings.4

The standard for a motion to expedite is familiar: the Court must determine

“whether in the circumstances the plaintiff has articulated a sufficiently colorable

claim and shown a sufficient possibility of a threatened irreparable injury, as would

justify imposing on the defendants and the public the extra (and sometimes

substantial) costs of an expedited preliminary injunction proceeding.”5

A. The Process Claims

       Plaintiffs primarily contend that TriQuint’s board members, in response to

Starboard’s letter, took defensive actions to retain their lucrative positions by fast-

tracking the negotiations with RFMD to preserve the seats of five of eight TriQuint

directors in the post-merger entity. They assert that TriQuint’s board staved off a

cash offer from another bidder, Company B, and favored RFMD—and the

4
 See Greenfield v. Caporella, 1986 WL 13977, at *2 (Del. Ch. Dec. 3, 1986).
5
 Police & Fire Ret. Sys. of City of Detroit v. Bernal, 2009 WL 1873144, at *1 (Del. Ch. June 26,
2009) (citation omitted).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 6

possibility of post-merger directorships—in the process. Plaintiffs denigrate this

conduct as improper entrenchment under Unocal Corp. v. Mesa Petroleum Co.6

       Plaintiffs’ allegations do not give rise to a colorable claim under this theory

of liability. First, this theory is belied by Plaintiffs’ own allegations. In order to

entrench itself from a potential proxy contest by Starboard, the TriQuint board

purportedly agreed to merge with RFMD—a company with which it had been

considering a transaction for quite some time—in a deal that Starboard supported.

These facts do not support a colorable claim because Plaintiffs have not articulated,

even for purposes of a motion to expedite, how the stock merger with RFMD—

pursuant to which Starboard will presumably become a shareholder of the

combined company, Rocky Holding—entrenches the TriQuint board from a

subsequent proxy contest.

6
  493 A.2d 946 (Del. 1985).
   Plaintiffs’ submissions to the Court could arguably be read to suggest that the TriQuint
board’s agreeing to the stock merger with RFMD implicated Revlon, Inc. v. MacAndrews &
Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), and the enhanced standard of review in which
the Court examines the reasonableness of the directors’ conduct in maximizing the corporation’s
value. However, this stock-for-stock transaction in which ownership of the corporation will
remain “in a large, fluid, changeable and changing market” is outside the bounds of Revlon. See
Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1290 (Del. 1994) (citing Paramount
Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 47 (Del. 1994)).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 7

       Second, Plaintiffs have not alleged a colorable claim that the TriQuint

directors were sufficiently interested in continuing as directors that they could not

impartially consider the merits of the RFMD merger. “In most circumstances

Delaware law routinely rejects the notion that a director’s interest in maintaining

his office, by itself, is a debilitating factor.”7 Similarly, “the mere fact that the

directors receive fees for their service is not enough to establish an entrenchment

motive.”8 To state a claim that otherwise independent and disinterested directors

acted disloyally by agreeing to a transaction, “a plaintiff must allege facts as to the

interest and lack of independence of the individual members of that board,”9

including the materiality of that interest to the directors.10 Plaintiffs have not

demonstrated that remaining a director—especially where three of the eight

7
  Solomon v. Armstrong, 747 A.2d 1098, 1126 (Del. Ch. 1999), aff’d, 746 A.2d 277 (Del. 2000)
(Table).
8
  Kahn v. MSB Bancorp, Inc., 1998 WL 409355, at *3 (Del. Ch. July 16, 1998), aff’d, 734 A.2d
158 (Del. 1999).
9
  Orman v. Cullman, 794 A.2d 5, 22 (Del. Ch. 2002) (emphasis in original).
10
   In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 25 (Del. Ch. 2014).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 8

TriQuint directors will not be on the board of the combined entity11—was material

to the TriQuint board, even to support a colorable claim of entrenchment.

       Third, Plaintiffs’ contention that TriQuint’s board “staved off” Company B

is also undermined by their allegations.            Plaintiffs pled that TriQuint’s CEO

reinitiated contact with Company B in February 2014 and that it was Company B

which withdrew from the sale process.12              It is not colorable, based on these

allegations, that the TriQuint board had any influence on Company B’s decision to

withdraw.

       In summary, Plaintiffs’ process allegations, viewed separately or

collectively, do not give rise to a colorable claim of entrenchment that may warrant

enhanced scrutiny by the Court of the TriQuint board’s actions. Further, under the

resulting business judgment standard of review, it is not colorable that the merger

with RFMD was irrational. Thus, these allegations do not justify expediting this

action.

11
   See Krim v. ProNet, Inc., 744 A.2d 523, 528 n.16 (Del. Ch. 1999) (“[T]hat several directors
would retain board membership in the merged entity does not, standing alone, create a conflict of
interest.”).
12
   Compl. ¶ 28.
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 9

B. The Deal Protection Devices

       Plaintiffs also contend that enhanced scrutiny should apply because the

merger agreement contains certain deal protection devices, including a no

solicitation provision, matching rights for RFMD, and a termination fee of $66.7

million (representing approximately 2.8% of the $2.385 billion preliminary

purchase price).13 When evaluating the reasonableness of deal protection measures

under Unocal, this Court engages in a “nuanced, fact-intensive inquiry”14 and will

consider “the preclusive or coercive power of all deal protections included in a

transaction, taken as a whole.”15 For purposes of a motion to expedite, Plaintiffs

must articulate a sufficiently colorable claim that a “given set of deal protections

operate[s] in an unreasonable, preclusive, or coercive manner.”16

       The individual contract provisions that Plaintiffs challenge are not

uncommon. This Court has recently declined to enjoin transactions because of

13
   TriQuint Defs.’ Br. in Opp’n to Pls.’ Mot. for Expedited Proceedings (Defs.’ Br.), Ex. 2 at 47.
14
   In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 1015 (Del. Ch. 2005).
15
   Louisiana Mun. Police Employees’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1181 n.10 (Del. Ch.
2007).
16
   Cf. id. (analyzing various deal protection devices in the preliminary injunction context).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 10

their existence, even in combination with other deal protection devices.17 This

preliminary injunction case law is not dispositive of the Court’s analysis here

because a given set of deal protection devices must be analyzed under the facts and

circumstances alleged in the case at hand,18 but it is nonetheless instructive.

Plaintiffs have not sufficiently articulated how these familiar and generally

permissible merger agreement provisions, individually or in tandem, operate in a

colorably unreasonable, preclusive, or coercive manner. Plaintiffs’ allegations

regarding the contract provisions of the merger agreement do not support an

expedited proceeding.

17
   See, e.g., In re BioClinica, Inc. S’holder Litig., 2013 WL 673736, at *2-4 (Del. Ch. Feb. 25,
2013) (declining to enjoin a transaction where the operative agreement included a no-shop
clause, a top-up feature, matching rights, a termination fee, a poison pill feature, and a standstill
agreement); see also In re Orchid Cellmark Inc. S’holder Litig., 2011 Wl 1938253, at *6-8 (Del.
Ch. May 12, 2011).
18
   See In re Toys “R” Us, Inc., 877 A.2d at 1016 (“That reasonableness inquiry [of deal
protection devices] does not presume that all business circumstances are identical or that there is
any naturally occurring rate of deal protection, the deficit or excess of which will be less than
economically optimal. Instead, that inquiry examines whether the board granting the deal
protections had a reasonable basis to accede to the other side’s demand for them in negotiations.
In that inquiry, the court must attempt, as far as possible, to view the question from the
perspective of the directors themselves, taking into account the real world risks and prospects
confronting them when they agreed to the deal protections.”).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 11

C. The Disclosure Claims

          Plaintiffs also assert a series of disclosure claims that can be grouped into

four general categories: (i) TriQuint’s financial projections; (ii) Goldman Sachs’s

financial analysis; (iii) alleged conflicts of interest; and (iv) the sale process.

“[D]irectors of Delaware corporations are under a fiduciary duty to disclose fully

and fairly all material information within the board’s control when it seeks

shareholder action.”19 Such information is material when there is a substantial

likelihood a reasonable shareholder would regard it as having significantly altered

the “total mix” of information available.20 Thus, the inquiry here is whether it is

sufficiently colorable that the alleged misstatements or omissions are material

information within the TriQuint board’s control.

          1. TriQuint’s Financial Projections

          Plaintiffs argue that the quantified effects of certain non-routine transactions

and certain acquisition and restructuring charges are material information that

should have been disclosed in the summary of TriQuint’s projections in its proxy

19
     Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994).
20
     See id. (emphasis omitted).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 12

materials. Plaintiffs, in effect, seek additional details that are not just granular, but

border on minutiae. It is not colorable that this additional information would be

material because, by its very terms, it is non-routine. In addition, it is not colorable

that this non-routine information is necessary to make the financial projections

non-misleading.21

       For similar reasons, Plaintiffs have not stated a colorable claim that the

TriQuint directors must disclose whether the projections contemplate spin-offs or

divestitures. Under Delaware law, “[s]peculation is not an appropriate subject for

a proxy disclosure.”22 Plaintiffs have not demonstrated, even under the minimal

colorable claim standard, that this type of speculative information is currently

within the TriQuint board’s control, let alone material.

       2. Goldman Sachs’s Financial Analysis

       According to Plaintiffs, the proxy statement fails to disclose certain material

analyses conducted by Goldman Sachs, TriQuint’s financial advisor. When a

board of directors relies upon a financial advisor in justifying to shareholders the

21
   See, e.g., Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175, 1178 (Del.
Ch. 2010).
22
   Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 145 (Del. 1997).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 13

merits of a proposed transaction, the board must disclose “a fair summary of the

substantive work performed by the investment bankers upon whose advice the

recommendations of their board as to how to vote . . . rely.” 23 In other words,

“when a banker’s endorsement of the fairness of a transaction is touted to

shareholders, the valuation methods used to arrive at that opinion as well as the key

inputs and range of ultimate values generated by those analyses must also be fairly

disclosed.”24

          The Court cannot conclude that it is colorable that a fair summary of

Goldman Sachs’s financial analysis was not disclosed in the proxy materials. The

desired value uplift range was provided in the Value Uplift section of the proxy,

relative equity contribution ratios were disclosed, and the implied per share value

uplift ranges for the fiscal years 2015-17 were disclosed. Again, Plaintiffs seek

more information, such as the basis for using certain earnings per share multiples,

more information in the Selected Companies Analysis, and the assumptions behind

the cost of equity for TriQuint and the post-merger company, Rocky Holding. It is

23
     In re Pure Res., Inc., S’holders Litig., 808 A.2d 421, 449 (Del. Ch. 2002).
24
     In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 203-04 (Del. Ch. 2007).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 14

not colorable that this information, although certain TriQuint shareholders may not

mind having to parse through an even longer proxy statement, was within the

TriQuint board’s control or material to a reasonable TriQuint shareholder.25 This

claim epitomizes the “limitless opportunities for disagreement on the appropriate

valuation methodologies to employ, as well as the appropriate inputs to deploy

within those methodologies.”26 Plaintiffs have plainly not stated a colorable claim.

       3. Alleged Conflicts of Interest

       Next, Plaintiffs allege additional disclosure violations regarding potential

management and financial advisor conflicts of interest. As to the first category, the

TriQuint board’s supplemental proxy disclosures included additional information

on this point, such as noting the conversations between the CEOs of TriQuint and

RFMD regarding management retention and board composition. It is not colorable

that additional information beyond this and related supplemental disclosures would

alter the total mix of information available to TriQuint shareholders in considering

25
   Counsel for the TriQuint board represented to the Court that Goldman Sachs did not calculate,
and thus did not present to the TriQuint board, a range of prices per share using a discounted-
cash flow approach because the proposed transaction is a stock-for-stock merger. See Letter
from Peter J. Walsh, Esquire (June 10, 2014). Plaintiffs’ suspicions to the contrary do not
change the Court’s conclusion. See Letter of Brian D. Long, Esquire (June 11, 2014).
26
   In re 3Com S’holders Litig., 2009 WL 5173804, at *6 (Del. Ch. Dec. 18, 2009).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 15

the merits of the proposed merger. That is, it is not colorable that the additional

information sought by Plaintiffs here is material.

         As to the second category, Plaintiffs seek further information regarding the

possible contingency of Goldman Sachs’s $23 million fee and the TriQuint board’s

discretion to pay Goldman Sachs an additional $3 million.27 The proxy statement

notes:

         Pursuant to the terms of the engagement letter, TriQuint has agreed to
         pay Goldman Sachs a transaction fee of approximately $23 million
         plus an additional amount in TriQuint’s sole discretion of up to
         approximately $3 million, all of which is payable upon completion of
         the mergers.28

The only reasonable reading of this sentence is that, were the merger with RFMD

not to close, then Goldman Sachs would not receive any portion of the $23 million

fee. Consequently, the $23 million mandatory fee appears to be fully contingent.

Plaintiffs’ allegations do not support a colorable claim to the contrary.                   The

additional $3 million discretionary fee is less than 15% of the $23 million fee

payable to Goldman Sachs upon closing of the merger. Given the disclosed fee
27
   As with the alleged management conflict disclosure violations, the TriQuint board disclosed
additional information underlying Plaintiffs’ financial advisor conflict disclosure claims in the
supplemental proxy materials.
28
   Defs.’ Br., Ex. 2 at 97.
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 16

and this easy-to-calculate ratio, it is not colorable that additional information

regarding the $3 million would be material to TriQuint stockholders.

       4. The Sale Process

       Finally, Plaintiffs contend the TriQuint board failed to disclose material

information about its efforts to sell the company. The allegation advanced most

strongly by Plaintiffs relates to the value the board attributed to the company’s

infrastructure and defense business in early 2013 when it concluded that RFMD’s

acquisition proposal was inadequate. This information is not colorably material.29

The failure to disclose the value ascribed to a division of TriQuint’s business at

one point during a years’ long sale process cannot be said to state a colorable claim

that this information would alter the total mix regarding the negotiations between

TriQuint and RFMD.           The other sale process allegations, to the extent the

underlying information was not disclosed in TriQuint’s supplemental proxy, are

likewise not colorable disclosure claims.

29
   See, e.g., Van de Walle v. Unimation, Inc., 1991 WL 29303, at *15 (Del. Ch. Mar. 7, 1991)
(“Where, as here, ‘arm’s-length negotiation has resulted in an agreement which fully expresses
the terms essential to an understanding by shareholders of the impact of the merger, it is not
necessary to describe all the bends and turns in the road which led to that result.’”).
In re TriQuint Semiconductor, Inc. Stockholders Litigation
C.A. No. 9415-VCN
June 13, 2014
Page 17

                                              *****

          For the reasons set forth above, Plaintiffs have failed to allege a colorable

claim that TriQuint’s directors have breached their fiduciary duties to warrant

expediting these proceedings.30 Therefore, Plaintiffs’ motion is denied.

          IT IS SO ORDERED.

                                                Very truly yours,

                                                /s/ John W. Noble

JWN/cap
cc: Ryan M. Ernst, Esquire
     Blake A. Bennett, Esquire
     Register in Chancery-K

30
     Without a colorable claim, there is no need to address the likelihood of irreparable harm.