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Chancery Denies Motion to Dismiss in Part Because Certain Discussions Between CEO and Acquirer Were not Disclosed in Proxy When Other Similar Communications Were


Teamsters Local 237 Additional Security Benefit Fund v. Caruso, C.A. No. 2020-0620-PAF (Del. Ch. Aug. 31, 2021)
Under Revlon, a director must focus on obtaining a transaction that provides the maximum value for stockholders in a sale of control. In addition, when directors solicit stockholder approval, they must disclose fairly and fully all material information.

In this case, the stockholder-plaintiffs’ claimed that the company’s CEO and chairman of the board, who was under threat of removal by activist stockholders, breached his fiduciary duties by steering the sales process towards an acquirer so he could capture upside through a roll-over of his stock and remain as CEO post-merger. Furthermore, the plaintiffs alleged that the company’s board was aware of the CEO’s actions and did not properly oversee his actions to maximize stockholder value. Lastly, the plaintiffs alleged that the CEO was liable for making misleading disclosures and omissions in a proxy statement recommending that stockholders approve the merger. The Court held that although the CEO was subject to a conflict of interest, the complaint lacked allegations supporting a reasonable inference that the company’s board did not oversee the conflict and otherwise act in a manner reasonably designed to maximize stockholder value. However, the Court also held that the failure to disclose in the proxy statement certain information regarding a discussion between the CEO and acquirer was a material omission because other similar communications were disclosed concerning the subject at-issue, i.e., the potential merger price. Therefore, the Court granted in part and denied in part the motion to dismiss.

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