Court Opinion

ID: 4420115
Source: CourtListenerOpinion
Date Created: 2019-07-25 16:03:07.748386+00
Date Added: 2024-06-11T14:50:59.335131
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE TOWERS WATSON & CO.                 )   Consolidated
STOCKHOLDERS LITIGATION                   )   C.A. No. 2018-0132-KSJM

                          MEMORANDUM OPINION
                          Date Submitted: April 11, 2019
                           Date Decided: July 25, 2019

Michael J. Barry, Christine M. Mackintosh, GRANT & EISENHOFER P.A.,
Wilmington, Delaware; Counsel for Plaintiff Alaska Laborers-Employers
Retirement Trust.

Michael J. Barry, Christine M. Mackintosh, GRANT & EISENHOFER P.A.,
Wilmington, Delaware; Lee D. Rudy, Geoffrey C. Jarvis, J. Daniel Albert, Stacey
A. Greenspan, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor,
Pennsylvania; Counsel for Plaintiff City of Fort Myers General Employees’ Pension
Fund.
Bradley R. Aronstam, Roger S. Stronach, ROSS ARONSTAM & MORITZ LLP,
Wilmington, Delaware; John A. Neuwirth, Joshua S. Amsel, Matthew S. Connors,
Amanda K. Pooler, Sean Moloney, WEIL, GOTSHAL & MANGES LLP, New
York, New York; Counsel for Defendants Victor F. Ganzi, John J. Haley, Leslie S.
Heisz, Brenda R. O’Neill, Linda D. Rabbitt, Gilbert T. Ray, Paul Thomas, and
Wilhelm Zeller.

Raymond J. DiCamillo, Sarah T. Andrade, RICHARDS, LAYTON & FINGER,
P.A., Wilmington, Delaware; Richard S. Horvath, Jr., PAUL HASTINGS LLP, San
Francisco, California; Counsel for Defendants ValueAct Capital Management, L.P.
and Jeffrey Ubben.

McCORMICK, V.C.
         This stockholder class action challenges the $18 billion merger-of-equals

between Towers Watson & Co. (“Towers”) and Willis Group Holdings plc

(“Willis”). After the transaction was publicly announced, multiple stockholders and

analysts disparaged the deal as a windfall for Willis. Unsure of whether the Towers

stockholders would approve the transaction, the Towers board postponed the

stockholder vote. Towers’s CEO, who was also Towers’s lead negotiator, then

renegotiated the transaction, securing a dividend for Towers’s stockholders more

than double the amount previously agreed upon by the merging parties.

         The defendants have moved to dismiss this action. In briefing, the defendants

focused on arguing under the recently fashionable Corwin doctrine that a fully

informed stockholder vote restored the business judgment rule.1 But this decision

need not reach Corwin, as long-settled corporate law principles warrant business

judgment deference. Namely, the plaintiffs do not argue that the merger, a mostly

stock-for-stock transaction between widely held, publicly traded entities, is subject

to enhanced scrutiny under Revlon. 2 Nor do they challenge any deal protection

devices to trigger enhanced scrutiny under Unocal.3            The transaction thus is

1
    Corwin v. KKR Fin. Hldgs. LLC, 125 A.3d 304 (Del. 2015).
2
    Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986).
3
    Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).

                                             1
presumptively subject to the business judgment rule, and the plaintiffs must plead

facts sufficient to rebut or overcome this presumption in order to state a claim.

         In an effort to rebut the presumption of the business judgment rule, the

plaintiffs rely on Cinerama, Inc. v. Technicolor, Inc., arguing that Towers’s CEO

and lead negotiator suffered a material conflict, which he failed to disclose to the

Towers board, and which a reasonable board member would have regarded as

significant in evaluating the proposed transaction. 4 The plaintiffs specifically point

to a compensation proposal made to the CEO by a holder of 10% of Willis’s stock

after the initial deal was struck but before the CEO secured a higher dividend. Under

the allegedly undisclosed proposal, the CEO would receive materially greater upside

in his compensation post-merger than he had received pre-merger. The plaintiffs

say that this proposal misaligned the CEO’s incentives at a critical juncture in the

negotiations, inspiring him to ask for no more of a dividend than he believed

necessary to secure Towers’s stockholder approval.

         The fact of the allegedly undisclosed compensation proposal fails to rebut the

business judgment rule. At bottom, the Towers board knew that the CEO would

become CEO of the combined company post-merger, that the combined company

would be much larger, and that the CEO thus would be entitled to increased

compensation. Knowing this potential conflict, the board nevertheless appointed the

4
    663 A.2d 1156, 1168 (Del. 1995).

                                            2
CEO as lead negotiator but kept apprised of the negotiations.         Further, the

compensation proposal was a proposal only; it reflected a theory of compensation

and upside potential in the event of pie-in-the-sky outcomes unconnected to any

business plan or forecast. Given what the board already knew, and the nature of the

compensation proposal at issue, a reasonable board member would not have

regarded the proposal as significant when evaluating the proposed transaction. The

business judgment rule therefore applies, and this decision grants the defendants’

motion to dismiss.

I.      FACTUAL BACKGROUND
        The facts are drawn from the Verified First Amended Class Action Complaint

(the “Amended Complaint”) 5 and documents it incorporates by reference.

        A.    The Original Merger Agreement
        Willis, an Ireland corporation, was a publicly traded global advisory,

brokering, and solutions company. Willis’s second largest stockholder, ValueAct

Capital Management, L.P. (“ValueAct”), held over 10% of Willis’s shares.

ValueAct’s founder and CEO, Jeffrey Ubben, sat on the Willis board of directors.

In late 2014, at Ubben’s recommendation, Willis began a review of strategic

alternatives that could provide enhanced scale for the company.         One such

alternative included a merger with Towers, a publicly traded professional services

5
    C.A. No. 2018-0132-KSJM Docket (“Dkt.”) 66, Am. Compl.

                                         3
firm incorporated under Delaware law, with a focus on helping organizations

improve performance through risk management, human resources, and actuarial and

investment consulting.

      In early 2015, the CEOs for Willis and Towers, Dominic Casserley and John

K. Haley respectively, met to discuss a business combination. After meetings in

January and February, the pair agreed to explore a transaction and entered into a

non-disclosure agreement on March 29, 2015.6 Each company retained financial

advisors. For Towers, Haley engaged Merrill Lynch, Pierce, Fenner & Smith Inc.

(“Merrill Lynch”).

      For a period of only eleven days in May 2015, the Towers board authorized a

special committee to negotiate the Willis transaction.7 On the tenth day, the special

committee met with Haley, who gave the special committee a detailed summary of

his conversations with Willis, addressing the strategic rationale for and potential

synergies from the transaction. The committee directed Haley to present this

information to the full Towers board at a board meeting scheduled for the following

6
 While the deal between Towers and Willis was developing, Haley sold 106,933 shares of
Towers stock, or 55% of his stake, for approximately $10 million. The Amended
Complaint alleges that if Haley thought a merger would increase the value of his Towers
shares he would not have sold his stock. Although alleged, this fact was not featured in
any of the plaintiffs’ arguments.
7
  The Towers board comprised directors Haley, Victor F. Ganzi, Leslie S. Heisz, Brendan
R. O’Neill, Linda D. Rabbitt, Gilbert T. Ray, Paul Thomas, and Wilhelm Zeller (together
the “director defendants”). The special committee comprised directors Ganzi, O’Neill,
Rabbitt, and Thomas.

                                           4
day. At that meeting, the directors excused Haley from much of the merger-related

discussions and disbanded the special committee. The committee neither evaluated

the merger nor helped negotiate it.

      Haley spearheaded negotiations for Towers. The transaction presented a

potential “merger of equals,” meaning that neither company was “acquiring” the

other. The nature of the transaction required negotiating several issues beyond price,

including who would lead the combined company, how to structure the transaction,

and whether one company was entitled to a premium over its public trading price.

      Leadership of the combined company was decided first. Before the special

committee was disbanded, the committee discussed the combined companies’

leadership, and independent director Rabbitt was tasked with recommending to

Willis’s Board Chairman James McCann that Haley run the combined entity.

Rabbitt reached out to McCann that same day. McCann then discussed the proposal

with Casserley, and Casserley accepted the proposal on May 19, 2015.

      Despite this leadership determination, the Towers board authorized Haley to

continue to lead the merger negotiations for Towers. During the discussions held in

early 2015, Haley had kept Rabbitt informed. After the parties agreed to name Haley

                                          5
CEO, on two instances, Towers independent director Ganzi joined Haley for

negotiations, 8 and Haley continued to update the Towers board on negotiations.9

      In the May 2015 negotiations, Haley suggested that the structure of the merger

should be based on the companies’ respective market capitalization.               Willis

responded that the pro forma ownership of the combined company should be based

on the relative contribution of several different financial metrics; this resulted in

Willis stockholders owning a larger percentage of the combined company. Haley

and Casserley also discussed the potential form of consideration, along with other

merger terms including a pre-merger cash dividend for Towers’s stockholders, the

exchange ratio, post-merger board composition, and the resulting ownership of the

combined company by Towers and Willis stockholders, respectively.

      By June 1, 2015, Haley and Ganzi proposed the following transaction: Willis

would pay a $500 million dividend to Towers’s stockholders, Willis’s stockholders

8
 As outlined below, Ganzi joined Haley in negotiating merger terms on June 1 and June 7,
2015. These negotiations concerned deal consideration, equity ownership, and the stock
exchange ratio. Although Willis rejected Towers’s initial proposal, Willis accepted Ganzi
and Haley’s revised deal structure, proposed on June 7.
9
  After the parties agreed in principle to the deal structure that Ganzi and Haley had
proposed, Haley met with the Towers board four times. On June 14, 2015, Haley presented
a transaction status report to the Towers board during a special telephonic meeting. On
June 20, 2015, Haley presented at an in-person board meeting an update on the status of
the transaction and the due diligence performed to date. Then, on both June 27 and June
29, 2015, Haley participated in special telephonic board meetings held to review the
transaction.

                                           6
would own approximately 51% of the combined company, and Towers’s

stockholders would own the remaining 49%.

      ValueAct’s Ubben was dissatisfied with Towers’s proposal and the progress

of negotiations. By email, Ubben demanded that Willis press Towers harder and

“use ValueAct in this negotiation” by telling Towers that (1) ValueAct would not

approve the merger without a reasonable premium; (2) there was no merger without

ValueAct’s support; and (3) ValueAct must meet Haley. 10 If the negotiators failed

to follow these demands, Ubben threatened to break up and sell Willis. 11

      Days later, on June 5, 2015, Willis counteroffered with terms that did not

include a dividend. The counteroffer provided that Willis’s stockholders would own

approximately 50.1% of the combined company while Towers’s stockholders would

own the remaining 49.9%.

      In response, on June 7, 2015, Haley and Ganzi proposed a $337 million

dividend (about $4.87/share) to Towers’s stockholders and adopted Willis’s June 5

proposal on stockholder ownership structure, with Willis’s stockholders owning the

majority. Casserley agreed in principle to the counteroffer on June 10, 2015. The

parties then engaged in diligence.

10
  Am. Compl. ¶ 63 (describing June 2, 2015 email from Ubben to Titus Leung, Willis’s
deal team head at financial advisor Perella Weinberg Partners LP).
11
  ValueAct had shared its break-up analysis for Willis on May 13, 2015, and told Leung
that it “represent[ed] something close to the maximum possible value for [Willis]
shareholders . . . .” Id. ¶ 59.

                                          7
      As the parties conducted diligence, the Towers board met multiple times with

their advisors and Towers management to discuss the status of the transaction,

requesting detailed follow-up on synergies, which management provided at

subsequent meetings.

      On June 27, 2015, Towers and Willis agreed in principle, subject to their

respective boards’ approval. The terms mirrored those reached by Haley and

Casserley just weeks earlier. That same day, the Towers board convened to review

the transaction. The board members discussed the transaction terms, due diligence,

potential synergies, and their legal obligations as directors. Over the next few days,

Towers’s outside counsel fielded additional questions from the Towers board.

      As a condition to entering into the merger agreement, Towers required that

ValueAct enter into a voting agreement in support of the merger. Willis consulted

with ValueAct and Ubben to ensure that ValueAct supported the merger and was

willing to enter into the voting agreement. Representatives of ValueAct, including

Ubben, discussed the proposed merger internally and with Willis. They also offered

to meet with Haley and other Towers representatives.

      The Towers board met on June 29, 2015, to review Merrill Lynch’s financial

analyses. Merrill Lynch rendered an oral fairness opinion and later confirmed its

opinion in writing. The Towers board unanimously approved the terms outlined in

the merger agreement, which the parties executed later that day.

                                          8
          Under the merger agreement, Towers’s stockholders would receive a dividend

of $4.87/share and following the closing of the merger, own approximately 49.9%

of the combined company. Based on the trading price of Willis shares, Haley’s

counteroffer valued each share of Towers stock at $125.13, or a 9% discount to the

$137.98 closing price of Towers stock on June 28, 2015.

          B.     Reactions to the Initial Merger Agreement
          Towers and Willis announced the merger on June 30, 2015. Towers’s

stockholders reacted negatively to the announcement. In the months before the

merger, Willis’s financial condition had worsened, and Towers’s financial condition

had strengthened. Regarding the merger, analysts noted that Willis “appears to be

extracting more value from the transaction than” Towers.12 By the close of trading

on the day the merger was announced, Towers’s stock price had dropped 9%.

          Negative reactions continued into September 2015. Willis’s financial woes

exacerbated the issue. Willis missed earnings in July. In contrast, Towers reported

in August earnings that beat street expectations and set a record-breaking fiscal year.

Analysts remarked, and the plaintiffs allege, that the market reaction imperiled the

deal by decreasing the likelihood that Towers would obtain the majority stockholder

approval necessary to close.

12
     Id. ¶ 76.

                                           9
          C.     The Compensation Proposal
          In early September 2015, ValueAct’s Ubben presented Haley with a three-

page document entitled “Towers [] Compensation Review September 2015.”13 The

presentation showed Haley’s long-term incentive compensation under three

scenarios: (1) Haley’s then-current plan at Towers, worth around $24 million;

(2) Haley’s then-current plan applied at the combined entity, worth around $48

million; and (3) ValueAct’s incentive-based compensation proposal reflecting

ValueAct’s compensation philosophy.

          ValueAct’s compensation philosophy aimed to tie Haley’s compensation to

comparable peer performance.         Haley would earn below executives of peer

companies for below average or average performance, and above executives of peer

companies for outperformance, defined to mean an annualized 30% internal rate of

return or higher.

          Haley did not inform the Towers board of ValueAct’s compensation proposal,

according to the plaintiffs. But the plaintiffs do not allege that Haley remained silent

or engaged in negotiations with ValueAct. The plaintiffs allege that Haley told

ValueAct to discuss the proposal with Gene Wickes, Towers’s managing director of

benefits.

13
     Id. ¶ 91.

                                          10
         D.       The Proxy
         On October 13, 2015, Towers and Willis jointly filed a proxy soliciting votes

in favor of the merger (the “Proxy”). 14 About two weeks later, Haley and ValueAct

presented to Institutional Shareholder Services (“ISS”) regarding the merger. They

also worked together to solicit support for the merger from Towers’s largest

stockholders, including The Vanguard Group and BlackRock, Inc.

         One stockholder launched a public campaign against the transaction in mid-

September. Driehaus Capital Management (“Driehaus”) sent an opposition letter to

stockholders (also filed with the SEC) noting that Haley was likely in line for a pay

raise commensurate with the increased size of the post-merger entity. Over the next

two months, Driehaus filed five additional opposition letters against the merger. One

of Driehaus’s letters pointedly asked whether Towers “management ha[s] ‘skin in

the game?’ Are incentives aligned?”15

         Towers publicly responded to Driehaus on November 3, 2015, filing an

investor presentation with the SEC that sought to “set the record straight” and that

touted Towers’s existing compensation practices.16 It did not refer to ValueAct’s

compensation proposal.

14
  Dkt. 74, Transmittal Aff. of Bradley R. Aronstam in Supp. of TW Defs.’ Mot. to Dismiss
Pls.’ Verified First Am. Class Action Compl. (“Aronstam Aff.”) Ex. B. (“Proxy”).
15
     Am. Compl. ¶ 114 (alteration in original).
16
     Id. ¶ 115.

                                              11
         Driehaus emailed his response to Towers six days later, asking about Haley

and ValueAct’s communications, including whether they had discussed Haley’s

post-merger compensation. Driehaus explained: “[S]hareholders are concerned that

[Haley’s] relationship with [ValueAct] has impaired—and, more importantly,

continues to impair—Mr. Haley’s ability to negotiate in good faith on behalf of

Towers . . . shareholders.”17

         Towers replied to Driehaus’s email, copying Ubben: “[T]here have been

various discussions between [Towers] representatives and members of the Willis

board, as well as large shareholders, including ValueAct, all of which were

appropriate.”18

         In November 2015, ISS recommended that Towers stockholders reject the

merger.

         E.     Renegotiated Terms
         In light of the negative market reaction, Towers determined to propose new

terms to Willis. On November 10, 2015, Haley proposed increasing the special

dividend to $10.00 per share. Willis rejected Haley’s proposal and instructed Haley

17
  Id. ¶ 116 (third alteration in original). The only public disclosure concerning ValueAct’s
involvement in the merger was its execution of the Voting Agreement and Ubben’s seat on
the Willis Board. See e.g., Proxy at 124, 182.
18
     Am. Compl. ¶ 118 (first alteration in original).

                                               12
to focus on soliciting Towers stockholders rather than renegotiating the merger

consideration.

         At a special meeting held on November 17, 2019, the Towers board voted to

adjourn the stockholder meeting scheduled for November 18, 2015, and determined

to renew the $10.00 per share dividend demand. Haley had consulted with Ubben

prior to the meeting. According to handwritten notes of the November 17, 2015

Towers board meeting, Haley recounted his conversation with Ubben to the Towers

board, and further told the board that the $10.00 amount “[d]idn’t trouble

[Ubben].” 19

         After the November 17, 2015 Towers board meeting, Haley renewed the

proposal to Willis for a $10.00 per share special dividend. In this meeting, Haley

allegedly informed Casserley that the $10.00 per share dividend would be the

minimum increase necessary to get the deal done. This time, the Willis board

accepted the proposal. By the close of business on November 18, 2015, Haley and

Willis had agreed upon the renegotiated terms, and Haley updated the board at

another special meeting.

         The day after the parties reached the renegotiated terms, on November 19,

2015, the Towers board convened the third special meeting of November. Merrill

Lynch rendered an oral opinion, later confirmed in writing, that the renegotiated

19
     Am. Compl. ¶ 124.

                                         13
terms were fair, from a financial point of view, to Towers’s stockholders. The

Towers board then unanimously voted to approve attendant amendments to the

merger agreement, and publicly announced the changes the next day. Towers then

filed a supplemental proxy on November 27, 2015.

           At the stockholder vote held on December 11, 2015, 62% of the Towers

stockholders voted in favor of the merger. The merger closed on January 4, 2016,

to form Willis Towers plc (“Willis Towers”).

           F.   Haley’s Compensation Agreement
           Days after the stockholder vote, Willis’s compensation committee chair

Wendy Lane contacted ValueAct “to catch up on the conversations” between Ubben

and Haley over compensation.20 ValueAct sent Lane the “analysis” of slides from

Ubben’s pitch to Haley 21 stating that ValueAct would “tweak[]” the compensation

proposal to make it more in depth before sharing it with Haley and the Willis Towers

board.22

           Post-closing, Ubben sat on Willis Towers’s board and compensation

committee, and Lane chaired the Willis Towers’s compensation committee. The

20
     Am. Compl. ¶ 135.
21
     Id.
22
     Id.

                                         14
compensation committee engaged compensation consultant Semler Brossy

Consulting Group LLC.

         About one month after the merger closed, the Willis Towers compensation

committee consultant proposed that Haley be eligible to earn far less long-term

compensation than set forth in ValueAct’s compensation proposal. Wickes, now in

his capacity as head of Willis Towers’s Exchange Solutions Division, objected:

“[W]e are not OK with this proposal . . . . The value in it is considerably less than

the ValueAct structure and proposal we have been working with . . . especially with

the significant cut in the number of shares.” 23 Haley also objected: “[W]e don’t

agree with this proposal . . . . Gene Wickes and Gordon Gould have been working

with [ValueAct Partners] . . . to adjust the original ValueAct proposal. These

discussions have been fruitful and they arrived at a solution that is satisfactory to all

of them.” 24

         The compensation committee finalized Haley’s compensation plan on March

1, 2016. Haley’s employment agreement differed in some ways from the ValueAct

compensation proposal.           The proposal focused on the amount of equity

compensation Haley hypothetically could achieve if the combined entity met certain

23
     Id. ¶ 140 (emphasis omitted).
24
     Id. ¶ 141 (emphasis omitted).

                                           15
shareholder return milestones. 25 The ultimate employment agreement included a

base salary, cash incentives, and a tiered performance-based equity component. The

potential payout Haley would receive for achieving milestones under the ValueAct

presentation differed from Haley’s eventual employment agreement; the agreement

provided more potential upside than the ValueAct compensation proposal.26

         G.     Litigations
         The merger inspired multiple waves of lawsuits in addition to this action.

Certain Towers stockholders sued to preliminarily enjoin the merger, but they

voluntarily dismissed the action after Towers supplemented its proxy materials.27

After the merger closed, another stockholder group filed an appraisal petition in this

Court in March 2016. 28         In that action, certain emails, depositions, and other

discovery was made available to the plaintiffs in this action. The appraisal case

settled in September 2017. Then, another stockholder filed an action in the United

States District Court for the Eastern District of Virginia. The federal action was

25
  Compare Aronstam Aff. Ex. J (“2016 Proxy Statement”) at 34, with id. Ex. E (“Towers
Compensation Review”).
26
  Compare Towers Compensation Review at 2 (300% maximum payout for achieving
shareholder return milestones), with 2016 Proxy Statement at 33–34 (350% maximum
payout for achieving shareholder return milestones).
27
     See In re Towers Watson & Co. S’holders Litig., C.A. No. 11270-CB (Del. Ch.).
28
     In re Appraisal of Towers Watson & Co., C.A. No. 12064-CB (Del. Ch.).

                                            16
dismissed with prejudice in July 2018.29 That dismissal decision is now on appeal.

Yet another set of Towers stockholders filed a case in New York state court in

October 2018 and voluntarily dismissed that action in April 2019. 30

         This lawsuit arose from three separate stockholder actions filed in early 2018

and consolidated in April 2018. The operative complaint names as defendants the

directors on the Towers board when the merger closed, ValueAct, and Ubben

(together, “Defendants”).          Defendants moved to dismiss the complaint on

November 17, 2018.          The plaintiffs (“Plaintiffs”) amended their complaint in

response, and Defendants renewed their motions to dismiss. The parties completed

briefing on March 29, 2019,31 and the Court held oral argument on April 11, 2019.32

II.      LEGAL ANALYSIS
         The Amended Complaint asserts three causes of action. In Count I, Plaintiffs

claim that Haley breached his fiduciary duties by failing to disclose the ValueAct

29
   In re Willis Towers Watson PLC Proxy Litig., 2018 WL 3423859, at *7 (E.D. Va.
July 11, 2018).
30
  See Compl., Naya Master Fund, LP v. Haley, Index No. 654968/2018 (N.Y. Sup. Ct.
Oct. 5, 2018).
31
  Dkt. 74, Opening Br. of the TW Defs. in Supp. of their Mot. to Dismiss Pls.’ Verified
First Am. Class Action Compl. (“Dir. Defs.’ Opening Br.”); Dkt. 75, Defs. ValueAct
Capital Mgmt., L.P.’s and Jeffrey Ubben’s Opening Br. in Supp. of their Mot. to Dismiss;
Dkt. 82, Pls.’ Omnibus Answering Br. in Opp’n to Defs.’ Mots. to Dismiss (“Pls.’ Ans.
Br.”); Dkt. 83, Reply Br. of the TW Defs. in Further Supp. of their Mot. to Dismiss Pls.’
Verified First Am. Class Action Compl. (“Dir. Defs.’ Reply Br.”); Dkt. 84, Defs. ValueAct
Capital Mgmt. L.P.’s and Jeffrey Ubben’s Reply Br. in Supp. of Their Mot. to Dismiss.
32
     Dkt. 88, Tr. of Oral Arg. on Defs.’ Mots. to Dismiss (“Oral Arg. Tr.”).

                                              17
proposal to the Towers board. In Count II, Plaintiffs claim that the director

defendants breached their fiduciary duties by allowing Haley to negotiate the

transaction. In Count III, Plaintiffs claim that ValueAct and Ubben aided and abetted

in the director defendants’ breach of their fiduciary duties.

           Defendants move to dismiss the Amended Complaint pursuant to Court of

Chancery Rule 12(b)(6).33         They argue that the business judgment standard

presumptively applies given the nature of the merger and Plaintiffs’ failure to plead

facts sufficient to rebut the business judgment rule. Alternatively, they argue under

Corwin that a fully informed stockholder vote invoked the business judgment

standard. Because the first issue is dispositive, this decision does not address the

second issue.34

           The Court will grant a motion to dismiss under Rule 12(b)(6) only if the

“plaintiff could not recover under any reasonably conceivable set of circumstances

susceptible of proof.”35 When considering such a motion, the Court must “accept

all well-pleaded factual allegations in the Complaint as true . . . [and] draw all

reasonable inferences in favor of the plaintiff[.]” 36 The Court need not “accept every

33
     Ct. Ch. R. 12(b)(6).
34
     See generally In re MeadWestvaco S’holder Litig., 168 A.3d 675, 684 (Del. Ch. 2017).
35
  Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del.
2011) (citing Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002)).
36
     Id.

                                            18
strained interpretation of the allegations,” 37 or “credit conclusory allegations that are

not supported by specific facts[.]” 38

         A.     Breach of Fiduciary Duties
         Defendants argue that the business judgment rule presumptively applies to the

challenged transaction because the transaction is a mostly stock-for-stock merger

between widely-traded public entities and because the propriety of deal protection

devices are not at issue. 39 Plaintiffs do not dispute that the business judgment rule

presumptively applies. 40 Instead, they try to rebut the business judgment rule and

invoke the entire fairness standard based solely on Haley’s alleged conflict of

interests.

                1.     The business judgment rule applies.
         To rebut the business judgment rule based solely on the material conflicts of

a minority of the directors of a multi-director board, a plaintiff must allege that those

conflicts affected the majority of the board. 41 A plaintiff can show this in one of two

37
     Malpiede v. Townson, 780 A.2d 1075, 1083 (Del. 2001).
38
     Norton v. K-Sea Transp. P’rs L.P., 67 A.3d 354, 360 (Del. 2013).
39
     Dir. Defs.’ Opening Br. at 6, 39; Oral Arg. Tr. at 21:3–7.
40
   Plaintiffs do not argue that the addition of the $10.00 dividend triggered Revlon scrutiny.
See In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 70–71 (Del. 1995) (merger
involving consideration of 33% cash and 67% stock did not trigger Revlon because there
is no change of control for Revlon purposes where control of post-merger entity remains in
“a large, fluid, changeable and changing market”).
41
     Cinerama, 663 A.2d at 1168.

                                               19
ways: by demonstrating that the conflicted director either “controls or dominates

the board as a whole” or “fail[ed] to disclose his interest in the transaction to the

board and a reasonable board member would have regarded the existence of the

material interest as a significant fact in the evaluation of the proposed transaction.”42

         Plaintiffs pursue the second theory, contending that the ValueAct

compensation proposal was a material interest, which Haley failed to disclose to the

board, and which a reasonable board member would have regarded as significant in

evaluating the merger. 43 In support, Plaintiffs compare this case to Mills Acquisition

Co. v. MacMillan, Inc., in which management and their financial advisor gave tips

to their preferred bidder and then failed to inform the board. 44 The Delaware

Supreme Court described the failure to disclose the tip as “fraud upon the board.” 45

42
  Id. (citation and emphasis omitted). See also Mills Acq. Co. v. Macmillan, Inc., 559 A.2d
1261, 1279–81 (Del. 1989) (applying entire fairness standard of review where insider
directors failed to disclose that they tipped off their favored bidder in a way that tainted
and manipulated the board’s deliberative process); Weinberger v. UOP, Inc., 457 A.2d 701,
707–09, 710–12 (Del. 1983) (applying entire fairness standard of review and determining
unfair dealing where two insider directors failed to disclose that they conducted and shared
a pricing analysis for the benefit of the acquirer).
43
   Pls.’ Ans. Br. at 50–54. At its core, Plaintiffs’ claim for breach of fiduciary duty sounds
in fraud. Such theories enjoy a long history under Delaware law. For an evocative read
contending that policing against fraud on the board is at the heart of all Delaware legal
standards, and urging this Court to evaluate all fiduciary duty claims under the lens of
fraud, see Joel E. Friedlander, Confronting the Problem of Fraud on the Board, The
Business Lawyer (forthcoming Winter 2019–2020).
44
     559 A.2d 1261 (Del. 1986).
45
     Id. at 1283.

                                             20
         In this case, Plaintiffs argue that Haley’s failure to inform the Towers board

of the ValueAct proposal constituted deceptive silence and fraud upon the board.46

Plaintiffs focus on the allegation that Haley viewed the $10.00 dividend as the

“minimum” of what stockholders would accept, 47 and that Ubben reported that this

amount “[d]idn’t trouble him.” 48 They contend that but for Haley’s undisclosed

conflicts and personal interest in seeing the merger through, Haley would have

pressed the Willis board for more than the “minimum” of what stockholders would

accept.

         The facts alleged do not support Plaintiffs’ argument. Again, the operative

question is whether a reasonable board member would have viewed the ValueAct

proposal as significant in evaluating the proposed transaction.             Three facts,

appropriately alleged or inferred, foreclose an inference that the Towers board would

have found the ValueAct compensation proposal significant.

46
   Pls.’ Ans. Br. at 52–54. From the extensive discovery uncovered from the appraisal
action, Plaintiffs point out that Towers director Ray stated during his deposition that he
would have wanted to know that Haley discussed compensation at the future company with
Ubben and ValueAct. Id. at 53 (citing Am. Compl. ¶ 123). This does not satisfy the
standard that a reasonable board member would have regarded the existence of the
ValueAct compensation proposal as a significant fact in the evaluation of the proposed
transaction.
47
     Am. Compl. ¶ 121.
48
     Id. ¶ 124.

                                           21
      First, at the time ValueAct made the proposal, the Towers board already knew

of Haley’s post-merger employment and resulting personal interest in seeing the

merger close. It was the board—through Rabbitt—that proposed to Willis that Haley

lead the combined entities post-merger. The board knew that Willis agreed to this

proposal as of March 19, 2015. The board knew that the combined entities would

be much larger and thus would likely generate a much larger salary for Haley. The

board was fully informed of this conflict and resulting risk when it empowered Haley

to negotiate the transaction.

      Second, the Towers board was generally apprised of the negotiations. Haley

reported to Rabbitt during the preliminary negotiations, worked with Ganzi during

the rounds of negotiations in June, and periodically updated the board on the

negotiations. In fact, the Towers board knew that Ubben was agreeable to the $10.00

dividend because Haley shared this information during a board meeting.

      Third, ValueAct’s compensation proposal was a proposal only.      Although it

offered greater potential upside to Haley, that upside was based on pie-in-the-sky

scenarios and a theory of compensation, not any alleged business plans or

projections. To put a fine point on it, according to Defendants, achieving the full

$140 million upside of ValueAct’s compensation proposal would require Herculean

efforts, such as more than doubling the combined entity’s market capitalization—

                                        22
from approximately $18 to $40 billion—in three years. 49 In any event, Haley did

not agree to the compensation proposal in September. Nor did he engage in

negotiations over his compensation until after the merger closed. It was not until

March 1, 2016, that the Willis Towers compensation committee formalized an

agreement with Haley on compensation.

         In the end, the facts alleged do not support a finding of deceptive silence, fraud

on the board, or a conflicted negotiator gone rogue. Given what the Towers board

knew and the nature of the ValueAct proposal, Plaintiffs fail to establish that a

reasonable director would consider the ValueAct proposal to be significant when

evaluating the merger. Plaintiffs have thus failed to show that the merger is subject

to the entire fairness standard of review based on the ValueAct compensation

proposal.

                2.     Plaintiffs have not stated a claim for breach of fiduciary
                       duty under the business judgment rule.
         Applying the business judgment rule insulates the merger from all attacks

other than on grounds of gift or waste.50 “[T]he doctrine of waste is a residual

49
     See Dir. Defs.’ Reply Br. at 10 (citing Aronstam Aff. Ex. E).
50
  In re KKR Fin. Hldgs. LLC S’holder Litig., 101 A.3d 980, 990 (Del. Ch. 2014), aff’d sub
nom., Corwin v. KKR Fin. Hldgs. LLC, 152 A.3d 304 (Del. 2015); see also Marciano v.
Nakash, 535 A.2d 400, 405 n.3 (Del. 1987) (“[A]pproval by fully-informed disinterested
directors under section 144(a)(1), or disinterested stockholders under section 144(a)(2),
permits invocation of the business judgment rule and limits judicial review to issues of gift
or waste with the burden of proof upon the party attacking the transaction.”).

                                              23
protection for stockholders that polices the outer boundaries of the broad field of

discretion afforded directors by the business judgment rule.”51 “The test to show

corporate waste is difficult for any plaintiff to meet; indeed, ‘[t]o prevail on a waste

claim . . . the plaintiff must overcome the general presumption of good faith by

showing that the board’s decision was so egregious or irrational that it could not

have been based on a valid assessment of the corporation’s best interests.’” 52

         Plaintiffs do not expressly apply the waste standard in the Amended

Complaint or briefing, but “[a] claimant need not necessarily expressly aver ‘gift’ or

‘waste’ in order to make out a claim on these theories[,] [s]o long as claimant alleges

facts in his description of a series of events from which a gift or waste may

reasonably be inferred . . . .” 53

         Plaintiffs direct their arguments to the non-exculpated claim standard. To

state a claim against the director defendants who are protected by an exculpatory

provision, Plaintiffs must plead facts supporting a rational inference that the

directors “harbored self-interest adverse to the stockholders’ interests, acted to

51
     Sample v. Morgan, 914 A.2d 647, 669 (Del. Ch. 2007).
52
  In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 136 (Del. Ch. 2009) (quoting
White v. Panic, 783 A.2d 543, 554 n.36 (Del. 2001)). “If given the facts pled in the
complaint, ‘any reasonable person might conclude that the deal made sense, then the
judicial inquiry ends.” In re Lear Corp. S’holder Litig., 967 A.2d 640, 656 (Del. Ch. 2008).
53
     Michelson v. Duncan, 407 A.2d 211, 217 (Del. 1979).

                                            24
advance the self-interest of an interested party from whom they could not be

presumed to act independently, or acted in bad faith.”54

         Aside from Haley, Plaintiffs concede that the director defendants were

disinterested with respect to the transaction, and they do not meaningfully contend

that the director defendants could not be presumed to have acted independently from

any interested party.        Plaintiffs appear to argue that the director defendants

nevertheless acted in bad faith. “[B]ad faith will be found if a ‘fiduciary intentionally

fails to act in the face of a known duty to act, demonstrating a conscious disregard

for his duties.’” 55 “In the transactional context, a very extreme set of facts would

seem to be required to sustain a disloyalty claim premised on the notion that

disinterested directors were intentionally disregarding their duties.” 56

         While “[t]he standards for corporate waste and bad faith by the board are

similar[,]” 57 the former is not necessarily a lesser-included act of the latter. That is,

54
  In re Cornerstone Therapeutics Inc., S’holder Litig., 115 A.3d 1173, 1179–80 (Del.
2015).
55
  Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009) (citing In re Walt Disney
Co. Deriv. Litig., 906 A.2d 27, 67 (Del. 2006)).
56
     Lear, 967 A.2d at 654–55 (citation omitted).
57
  Panic, 783 A.2d at 554 n.36. Compare Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000)
(defining corporate waste as “an exchange of corporate assets for consideration so
disproportionately small as to lie beyond the range at which any reasonable person might
be willing to trade”), with In re J.P. Stevens & Co., Inc. S’holders Litig., 542 A.2d 770,
780–81 (Del. Ch. 1988) (identifying bad faith by “assessing whether that decision is so far
beyond the bounds of reasonable judgment that it seems essentially inexplicable on any
ground other than bad faith”).

                                             25
“it is not necessarily true . . . that every act of bad faith by a director constitutes

waste.”58 This decision need not dilate on the distinctions between the two legal

theories, or their respective applicability in the context of this analysis, because

Plaintiffs have not adequately alleged bad faith.

         To show that the director defendants acted in bad faith, Plaintiffs focus on the

board’s oversight of Haley during the merger negotiations, and specifically during

the five-month interim period leading up to Haley’s renegotiation of the special

dividend. To be clear, Plaintiffs acknowledge that “[t]here is nothing inherently

wrong with allowing an interested CEO to negotiate a transaction.” 59 They further

admit that the Towers board acted consistently with their fiduciary duties during the

initial phase of merger negotiations. 60 Plaintiffs contend, however, that with respect

to the interim period, the Towers board took a dramatically different approach, by

“abdicat[ing] its fiduciary duties by failing to oversee Haley ‘creat[ing] the

atmosphere in which’ Haley ‘could act [] freely and improperly.’” 61 The board’s

failures were especially egregious, Plaintiffs allege, because stockholders like

58
  In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 749 (Del. Ch. 2005), aff’d, 906 A.2d
27 (Del. 2006).
59
 Pls.’ Ans. Br. at 61 (emphasis omitted) (quoting Alidina v. Internet.com Corp., 2002
WL 31584292, at *7 (Del. Ch. Nov. 6, 2002)).
60
 Id. at 4 (conceding that the Towers board’s decision to “let Haley be the sole negotiator
when initially putting together the Merger” was “likely not bad faith conduct under
Delaware law”).
61
     Id. (quoting Mills, 559 A.2d at 1284 n.32).

                                              26
Driehaus openly complained about Haley’s supposed adverse incentives in

connection with the transaction.62

         Several facts appropriately before the Court undermine Plaintiffs’ abdication

theory. Namely, the board was aware of Haley’s future employment with the

combined company when it delegated authority to Haley, 63 the Towers directors

attended meetings between Haley and Willis,64 and the board met to discuss the

transaction before approving the initial transaction and the renegotiated terms. 65

Plaintiffs quibble with the scope of the Towers board’s involvement, noting that the

board did not attend many of the negotiations between Haley and Willis, did not

know of the compensation proposal, and did not meet between June 28 and

November 17, 2015. 66 Still, these failures are a far cry from “abdication,” and

undercut Plaintiffs’ ability to show the “extreme facts” necessary to demonstrate that

disinterested directors acted disloyally.

         Plaintiffs’ reliance on Alidina v. Internet.com Corp. is misplaced. 67        In

Alidina, the target company’s CEO conditioned the sale of the company on his

62
     See id. at 56 (citing Am. Compl. ¶ 114).
63
     See Am. Compl. ¶¶ 3, 13, 50, 55.
64
     See Proxy at 75.
65
     See Am. Compl. ¶¶ 54, 70–72, 123.
66
  See Dir. Defs.’ Opening Br. 41, 43–47; Pls.’ Ans. Br. at 54–66; Dir. Defs.’ Reply Br. 9–
12, 14–15, 19–20, 25–26.
67
     2002 WL 31584292, at *1 (Del. Ch. Nov. 6, 2002).

                                                27
ability to purchase a controlling interest in a wholly-owned company subsidiary.68

In this case, Plaintiffs do not allege that Haley discussed compensation

contemporaneous with merger negotiations, much less that he conditioned the

merger on execution of a contract favorable to him. In Alidina, the board ceded

complete control over the negotiations to the CEO. 69 In this case, Plaintiffs cannot

allege wholesale abdication, as discussed above. In Alidina, the CEO negotiated the

“agreed upon” value of the subsidiary down by 25%, thereby securing for himself a

lower per share purchase price for the controlling stake in the subsidiary. 70 In this

case, Haley increased the special dividend by over 100%. 71

          Separately, Plaintiffs contend that the director defendants acted in bad faith

by issuing disclosures that the directors knew omitted a material fact.72 According

to Plaintiffs, the Towers board knew that Haley and Ubben renegotiated the merger

consideration in a “singular exchange,”73 but failed to disclose this to stockholders,

and instead implied that the board supervised Haley through an arm’s-length

68
     See id. at *2–3.
69
     Id. at *8.
70
   Id. The board approved the sale of the controlling interest in the subsidiary despite a
third-party consultant previously giving the subsidiary a value more than 50% higher than
the ultimately negotiated value.
71
     Compare Am. Compl. ¶ 67, with id. ¶ 126.
72
     Pls.’ Ans. Br. at 66–67.
73
  Id. at 45, 66; see also Am. Compl. ¶ 164 (“Haley informed the Towers Board about
material decisions after-the-fact.”).

                                            28
negotiation.74      Plaintiffs, however, plead no facts to suggest that the omitted

information should have been disclosed 75 or that the board acted with “‘intentional’

dereliction or a ‘conscious disregard’ of duty” in omitting that information. 76

         In sum, the Amended Complaint does not plead facts necessary to establish a

“reasonably conceivable bad-faith claim[,]” against the majority of Towers’s

board.77 Because Plaintiffs fail to state a non-exculpated claim of bad faith against

the director defendants, they also fail to state a claim under the “onerous”78 and

“exacting”79 test for waste. As a result, Plaintiffs’ claim for breach of fiduciary duty

against the director defendants is dismissed. 80

74
     Am. Compl. ¶¶ 164–65.
75
   Plaintiffs do not explain how this omission would significantly alter the total mix of
information made available to Towers’s stockholders. Nguyen v. Barrett, 2016 WL
5404095, at *3 (Del. Ch. Sept. 28, 2016) (“Information is material if there is a substantial
likelihood that a reasonable shareholder would consider it important in deciding how to
vote; or, in other words, if, from the perspective of a reasonable stockholder, there is a
substantial likelihood that it significantly alters the total mix of information made
available.” (citation and internal quotation marks omitted)).
76
     Id. at *6 (quoting Lyondell, 970 A.2d at 243).
77
     MeadWestvaco, 168 A.3d at 684.
78
  In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del. 2006); see also Hills Stores
Co. v. Bozic, 769 A.2d 88, 110 n.74 (Del. Ch. 2000).
79
     In re infoUSA, Inc. S’holders Litig., 953 A.2d 963, 1002 (Del. Ch. 2007).
80
  Because Plaintiffs have not stated a claim challenging the transaction as the product of
wrongdoing, Plaintiffs’ Count I for breach of fiduciary duty against Haley alone is also
dismissed.

                                              29
       B.     Aiding and Abetting
       To state a claim for aiding and abetting in breach of fiduciary duty, a

complaint must adequately allege an underlying breach.81 Because the Amended

Complaint fails to state a claim for breach of fiduciary duty, Count III for aiding and

abetting is dismissed.

III.   CONCLUSION
       For all of these reasons, the Amended Complaint is dismissed in its entirety.

       IT IS SO ORDERED.

81
   Santa Fe, 669 A.2d at 72 (“A claim for aiding and abetting requires the following three
elements: (1) the existence of a fiduciary relationship, (2) a breach of the fiduciary’s duty,
and (3) a knowing participation in that breach by [the non-fiduciary].”). See also RBC
Capital Mkts., LLC v. Jervis, 129 A.3d 816, 861–62 (Del. 2015).

                                             30