Court Opinion

ID: 9476613
Source: CourtListenerOpinion
Date Created: 2023-08-05 06:00:33.486107+00
Date Added: 2024-06-11T17:45:24.823128
License: Public Domain

GUY, Circuit Judge,
concurring in part and dissenting in part.
Although I concur in most of Judge Merritt’s well-written and thorough opinion, I disagree with the conclusions reached in *1482Part B, Item 8, Disclosure. Since it is this part of the court’s decision that results in this case being remanded, I must dissent.
I believe the district court properly analyzed plaintiffs’ disclosure claims pursuant to Rule 13e-3, which sets forth disclosure requirements for going-private mergers, notwithstanding that the disclosure requirements under Rule 13e-3 are more detailed in a going-private transaction than in other types of mergers. See Radol v. Thomas, 772 F.2d 244, 254-255 (6th Cir.1985), cert. denied, - U.S. -, 106 S.Ct. 3272, 91 L.Ed.2d 562 (1986) (as quoted in the majority opinion). Along with Rule 13e-3, the regulations provide an itemized list of information which must be included in the proxy statement. In accord with this list, plaintiffs’ claims relating to alleged inadequate disclosure can be separated into three components. First, plaintiffs claim that the proxy statement did not adequately disclose the “benefits and detriments” of the merger. Second, plaintiffs claim that the proxy statement did not sufficiently explain why the merger occurred at the time that it did. Finally, plaintiffs contend that the proxy statement did not discuss the fairness of the transaction in sufficient detail. As I read the majority opinion, it is only that part of the district court’s decision dealing with the fairness of the transaction with which they find fault.
Item 8 of Schedule 13e-3, 17 C.F.R. § 240.13e-100, requires:
Item 8. Fairness of the Transaction. (a) State whether the issuer or affiliate filing this schedule reasonably believes that the Rule 13e-3 transaction is fair or unfair to unaffiliated security holders.
(b) Discuss in reasonable detail the material factors upon which the belief stated in Item 8(a) is based and, to the extent practicable, the weight assigned to each such factor. Such discussion should include an analysis of the extent, if any, to which such belief is based on the factors set forth in instruction (1) to paragraph (b) of this Item, paragraphs (c), (d), and (e) of this Item, and Item 9.
Instructions. (1) The factors, which are important in determining the fairness of a transaction to unaffiliated security holders and the weight, if any, which should be given to them in a particular context will vary. Normally such factors will include, among others, those referred to in paragraphs (c), (d), and (e) of this Item and whether the consideration offered to unaffiliated security holders constitutes fair value in relation to:
(i) Current market prices,
(ii) Historical market prices,
(iii) Net book value,
(iv) Going concern value,
(v) Liquidation value,
(vi) The purchase price paid in previous purchases disclosed in Item 1(f) of Schedule 13e-3,
(vii) Any report, opinion, or appraisal described in Item 9 and
(c) State whether the transaction is structured so that approval of at least a majority of unaffiliated security holders is required.
(d) State whether a majority of directors who are not employees of the issuer has retained an unaffiliated representative to act solely on behalf of unaffiliated security holders for the purposes of negotiating the terms of a Rule 13e-3 transaction and/or preparing a report concerning the fairness of such transaction.
(e) State whether the Rule 13e-3 transaction was approved by a majority of the directors of the issuer who are not employees of the issuer.
Plaintiffs contend that in setting forth the factors upon which the fairness determination was made, the proxy statement did not adequately discuss the “going concern value,” the “net asset value,” or the “liquidation value” óf Nationwide. Plaintiffs’ argument is not persuasive for a number of reasons. First, plaintiffs are incorrect in asserting that Nationwide was required to discuss these factors in the proxy statement. Item 8 does not require the discussion of any factor, it only sets forth the factors which “normally” will be included. *1483Moreover, the detail of the discussion of any single factor will necessarily depend upon the weight, if any, which was placed upon the factor in reaching a fairness decision. Second, each of the factors which plaintiffs contend were not adequately discussed were at least mentioned in the fairness discussion. The statement explains that First Boston, which independently considered the fairness of the price, considered these factors in reaching its conclusion. Third, and most importantly, the fairness discussion sets forth clearly and in reasonable detail the factors upon which defendants relied in reaching their fairness conclusion.
The proxy statement explained:
Although the Evaluation Committee did not give specific weight to each of the various factors considered in evaluating the fairness of the proposed merger, particular emphasis was placed upon the receipt of the opinion of First Boston.
The members of the Evaluation Committee believed it to be particularly important that the price to be paid to the public shareholders for their Class A Common shares ($42.50 per share) represented a premium over the quoted bid price of the Class A Common shares on the next to last trading day prior to the public announcement of the proposed merger on November 3,1982, as reported by the National Quotation Bureau, Inc.
In evaluating the overall fairness of the proposed merger, the Evaluation Committee also considered it significant that First Boston would notify the Corporation on the date hereof and on the date immediately preceding the effective date of the merger if events render the financial terms of the proposed merger unfair to the public shareholders; that the Corporation’s Class A Directors (five out of six of whom constitute the Evaluation Committee) would have the authority under the Agreement to terminate the Agreement if a majority of public shareholders fail to approve the proposed merger; that the terms of the Agreement were negotiated by independent legal counsel retained by the Evaluation Committee; that the Agreement may be terminated in the event the Corporation receives, prior to the special meeting of the shareholders, a bona fide offer to acquire the publicly held Class A Common shares which offer, in the judgment of the Class A Directors, is more favorable to the public shareholders than the proposed merger; and that the Evaluation Committee had been given full authority to evaluate, make recommenda-tions regarding and respond to offers made or proposed to be made to the Corporation by Nationwide Mutual or any of its affiliates. The Evaluation Committee consisted solely of Class A Directors of the Corporation who are neither directors, officers nor employees of Nationwide Mutual or Nationwide Mutual Fire, nor officers or employees of the Corporation.
Considered in its entirety, I would conclude that the fairness discussion contained in the proxy statement satisfies the disclosure requirements set forth in Item 8. In this regard, it is important to emphasize that the issue before us is not whether the price arrived at was fair, but rather, whether the proxy statement adequately discussed the factors upon which Nationwide could reasonably conclude that the price was fair to the unaffiliated shareholders. The methodology employed in this merger to arrive at a price, including an independent appraisal as well as a review by the Evaluation Committee, supplied a reasonable basis for believing that the ultimate price arrived at was fair.
Plaintiffs also argue that the fairness discussion should have disclosed data about other companies involved in “comparative transaction.” Neither Rule 13e-3, nor Schedule 13E-3 contain any requirement that a going-private proxy statement provide any comparative data on mergers involving other companies. Moreover, plaintiffs cite no cases to support this argument. Since there is no evidence indicating that Nationwide relied upon such data in reaching its conclusion regarding the fairness of this transaction, disclosure was not required. In addition, because such information has the potential to mislead, other *1484courts have held that such information is not material and need not be included in a proxy statement. Mindell v. Greenberg, 612 F.Supp. 1543, 1551 (S.D.N.Y.1985) (“The fact that other transactions might have been negotiated on terms plaintiff may have found more favorable is irrelevant”); Gans v. Filmways, Inc., 453 F.Supp. 1116, 1120 (E.D.Pa.1978), aff'd, 595 F.2d 1212 (3rd Cir.1979) (“insurance companies are not fungible entities and the value of one company is not a reliable indication of the value of another”).
Plaintiffs also contend that the fairness discussion should have disclosed the “fact” that Nationwide’s public stock was “thinly traded.” This fact according to plaintiffs would tend to offset the importance of the fact that the price offered by Mutual represented a premium of 51.8% over the stock’s market price. This argument conflicts with the well-established rule that the proxy statement must set forth a full and fair picture, without interpretation or characterization. Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 474-477, 97 S.Ct. 1292, 1301-1303, 51 L.Ed.2d 480 (1977). As disclosed in the proxy statement, Nationwide's Class A Common stock was traded in the over-the-counter market, and 85.6% of the shares were owned by Mutual. Whether under these circumstances the stock should be characterized as “thinly traded,” is difficult to say — which is the reason why this type of conclusion need not be included in a proxy statement. The facts speak for themselves.
I would affirm the district court.
APPENDIX A
The proxy statement provides in pertinent part:
The members of the Evaluation Committee believe that, from a financial point of view, the terms of the proposed merger are fair to the public shareholders of the Corporation. The committee members considered important, as an indication of the fairness of the proposed merger, the receipt of the written opinion of First Boston. The committee members also considered important a number of other factors discussed with the representatives of First Boston. These factors are the current market price of the Class A Common shares as compared with stock prices of other comparable entities; past and current earnings of the Corporation; past and current priee/earnings ratios of the Corporation and other companies having similar operations; past and current price/equity ratios of the Corporation (as computed in accordance with generally accepted accounting principles); and the premium over market price offered to the public shareholders in other similar transactions as well as in other recent acquisitions in the life insurance industry generally. In its discussions with the representatives of First Boston, upon whose opinion the Evaluation Committee has concluded that it is appropriate to rely, these representatives stated that in addition to the above noted factors they had also considered the current overall level of the stock market; historical market prices of the Class A Common shares as compared with market prices for the stock of other comparable entities; going concern value of the Corporation; net book value of the Corporation; liquidation value of the Corporation; various financial ratios; present revenues, expenses, earnings and dividends of the Corporation and trends with respect thereto; the purchase price paid to holders of Class A Common shares by Nationwide Mutual in connection with the December 1978 tender offer for the Class A Common shares; present value of projected future cash flows of the Corporation; replacement value of the Corporation; off balance sheet items of the Corporation; significant trends in the insurance business; competitive environment of the insurance industry; regulatory environment of the insurance industry; and the impact of inflation on the Corporation.
Joint Appendix pp. 545-46.
APPENDIX B
The First Boston opinion letter reads in its entirety as follows:
*1485November 1, 1982
Board of Directors
Nationwide Corporation
One Nationwide Plaza
Columbus, Ohio 43216
Gentlemen:
You have asked us to advise you as to the fairness to the shareholders of Nationwide Corporation, other than Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company, of the financial terms of a proposed merger whereby the owners of 685,545 publicly held Class A common shares would receive cash for their shares and Nationwide Mutual Insurance Company and Nationwide Mutual Fire Insurance Company would become the only shareholder of Nationwide Corporation. The terms of the merger transaction are that Nationwide Corporation shareholders will be entitled to receive $42.50 for each share of Nationwide Corporation Class A common shares.
In connection with our review, Nationwide Corporation furnished to us certain business and financial data concerning Nationwide Corporation. This information was furnished specifically for the purpose of our advising you as to the fairness of the financial terms of the proposed merger, and our Corporation’s representation that the information is complete and accurate in all material respects. We have not independently verified the information. We have also reviewed certain publicly available information that we considered relevant and have had discussions with certain members of Nationwide Corporation’s management.
In arriving at our opinion we have also considered, among other matters we deemed relevant, the historical financial record, operating statistics, current financial position and general prospects of Nationwide Corporation and the stock market performance of the Class A common shares of Nationwide Corporation. In addition, we have considered the terms and conditions of the proposed transaction as compared with the terms and conditions of comparable transactions.
Based on our analysis of the foregoing and of such other factors as we have considered necessary for the purpose of this opinion and in reliance upon the accuracy and completeness of the information furnished to us by Nationwide Corporation, it is our opinion that the financial terms of the proposed transaction are fair to the minority shareholders of Nationwide Corporation.
Very truly yours,
THE FIRST BOSTON
CORPORATION