In this memorandum opinion, the Court of Chancery granted the defendant’s motion to dismiss the plaintiff’s claims that defendants breached their fiduciary duties in connection with the sale of the defendant-corporation to a strategic buyer. The plaintiff claimed that the defendants failed to maximize the company’s value in the sale, failed to disclose material information, and aided and abetted breaches of fiduciary duty. The plaintiff also asserted a claim for quasi-appraisal rights, which was included in the defendants’ motion to dismiss. The Court granted the motion to dismiss, finding that the plaintiff failed, in every count of the complaint, to state a claim upon which relief could be granted.
On March 8, 2011, defendant Cypress Semiconductor Corporation (“Cypress”), a Delaware corporation, made an unsolicited offer to acquire defendant Ramtron International Corporation (“Ramtron”), also a Delaware corporation, for $3.01 per share. Ramtron evaluated and then rejected the offer. On June 12, 2012, Cypress made a renewed cash offer at $2.48 per share and indicated that it was prepared to take the necessary action to acquire Ramtron if a negotiated agreement could not be reached. On June 17, 2012, Ramtron rejected the offer and authorized its financial advisors Needham & Company (“Needham”) to begin exploring a strategic transaction. On June 21, 2012, Cypress commenced a tender offer for Ramtron shares. On July 5, 2012, Ramtron filed a Schedule 14D-9 recommending a rejection of the tender offer. Cypress renewed the tender offer three times but failed to generate sufficient stockholder interest. Contemporaneously, Ramtron contacted twenty-four potential purchasers and entered into confidentiality agreements with seven entities in exploration of various strategic alternatives. At no time was an offer for acquisition made by any of the entities.
On September 19, 2012, after a proposal and counter proposal, Cypress and Ramtron announced that they had reached an agreement for Cypress to purchase Ramtron for $3.10 per share in an all-cash tender offer. On September 25, 2012, Ramtron filed a Schedule 14D-9 recommending that its stockholders tender their shares. After being able to acquire only a 78% ownership stake, a vote was scheduled for a long-form merger. On October 29, 2012, a definitive proxy was filed, containing summaries of four financial analyses conducted by Needham, including a discounted cash flow analysis (DCF) based on Ramtron’s management projections, which were not included in the proxy. On November 20, 2012, Ramtron’s stockholders approved the Cypress merger. On January 11, 2013, the plaintiff filed a complaint asserting that the Ramtron board breached its fiduciary duties by failing to maximize the value of the entity, locking up the deal impermissibly in Cypress’s favor, and disseminating a proxy statement containing material misstatements or omissions. The plaintiff also asserted that Cypress aided and abetted those alleged breaches. In addition to Ramtron and Cypress, the plaintiff brought claims against the former members of Ramtron’s board (“Individual Defendants”) and against Rain Acquisition Corp., a subsidiary of Cypress. On January 24, 2012, the Individual Defendants and Cypress moved separately to dismiss.
In analyzing whether the Individual Defendants breached their fiduciary duties by failing to maximize the value of the entity, the Court first focused on whether the complaint supported a reasonable inference that the Individual Defendants breached their duty of loyalty or acted in bad faith via a nonexculpated breach of fiduciary duty. The Court concluded that the complaint failed to allege sufficiently any such nonexculpated breach, and therefore, the plaintiff’s claim for failure to maximize the value of the entity was dismissed. The Court reasoned that there were no well-pled allegations that a majority of Ramtron’s board lacked independence or had an impermissible personal interest in the transaction with Cypress. The Court further reasoned that on that basis, it was not reasonably conceivable that the plaintiff could prove on a full record that the Individual Defendants acted in bad faith or otherwise breached their duty of loyalty by agreeing to the transaction with Cypress. The Court explained that the Ramtron board’s decision to sell Ramtron at a 71% premium to its unaffected stock price after a lengthy and public sale process was not so far beyond the bounds of reasonable judgment that it seemed essentially inexplicable on any grounds other than bad faith. The Court also dismissed claims relating to the deal protection devices by reasoning that to the extent the deal protection devices went beyond those that previously had been upheld by the Court, there were no well-pled allegations that would support a reasonable inference that any such departure was significant enough to constitute bad faith.
Regarding breach of the duty of candor, the Court focused on whether the plaintiff’s pleading: 1) alleged facts that were missing from the proxy; 2) identified those facts and stated why they met the materiality standard; and 3) indentified how such an omission caused injury. The Court concluded that it was not reasonably conceivable that the plaintiff had a viable claim for a breach of the duty of candor against the Individual Defendants. The Court reasoned that not including Ramtron’s management projections within the proxy did not constitute a viable disclosure claim under Delaware law because the projections would not have significantly altered the total mix of information available to the Ramtron stockholders. The Court also reasoned that Ramtron's stockholders were given sufficient information to understand Needham’s DCF analysis. The Court then addressed the plaintiff’s claim that the proxy failed to disclose that one of the Individual Defendants, who was a member of a strategic transaction committee tasked with evaluating one of Cypress’s offers, had a material conflict because, prior to the transaction, he had served on a manufacturing advisory board that was associated with Cypress. The Court found that because there were no allegations that any of the Individual Defendants controlled or directed the strategic transaction committee, it was unclear why any past association with Cypress would have been relevant to stockholders weighing the choice between accepting the transaction consideration and seeking appraisal. Thus, the Court reasoned that it was not reasonably conceivable that such a prior relationship would have significantly altered the total mix of information available to Ramtron's stockholders and that there was no breach of a duty of candor.
In analyzing whether Cypress aided and abetted Ramtron’s alleged breaches of fiduciary duty, the Court focused on whether the plaintiff had adequately pled that Cypress knowingly participated in any breach by the Ramtron board. The Court concluded that it was not reasonably conceivable that Cypress aided and abetted any failure by the Ramtron board to maximize Ramtron’s sale price. The Court explained that the plaintiff faced a heavy burden in arguing that Cypress knowingly participated in any breaches of fiduciary duty by the Individual Defendants because there could be no dispute that the Cypress-Ramtron deal was negotiated at arm's-length. The Court further explained that none of the actions of the Ramtron board, either before or after Ramtron agreed to a transaction with Cypress, were so unreasonable that it would support an inference that Cypress knew that the Ramtron board was breaching its fiduciary duties and that it wished to facilitate any such breaches. The Court then mentioned that in arguing that Cypress aided and abetted the Individual Defendants' breaches of their fiduciary duties by obtaining a price below a financial advisor's valuation range, the plaintiff asserted that Cypress got too good of a deal, and that such conduct amounts to tortious conduct. The Court stated that Delaware courts have repeatedly rejected that theory of aiding and abetting liability.
The full opinion is available here.