In this letter opinion denying plaintiffs’ motion to expedite, the Court of Chancery held that plaintiffs, shareholders of TriQuint Semiconductor, Inc. (“TriQuint” or the “Company”), failed to assert a colorable claim that TriQuint’s board of directors (the “Board”) breached its fiduciary duties by agreeing to a stock-for-stock merger of equals with RF Micro Devices, Inc. (“RFMD”) or that it failed to provide all material information necessary for shareholders to vote on approval of the merger. In so ruling, the Court refused plaintiffs’ invitation to apply an enhanced standard of review, determining instead that the business judgment standard applied.
TriQuint had contemplated a potential combination with RFMD for almost five years. Over the course of 2013, the Board considered and rejected numerous proposals from RFMD to acquire the Company. As recently as April 2013, the Board rejected an all-stock proposal to acquire TriQuint. In June 2013, a third company (“Company B”) submitted an unsolicited cash offer to buy TriQuint for $8.25 per share, which the Board also rejected. In August 2013, however, TriQuint and RFMD began discussions for a possible merger of equals. Shortly thereafter, the Board authorized its financial advisor, Goldman Sachs, to solicit Company B’s interest in a business combination and, by November 2013, TriQuint had received a term sheet from RFMD as well as an indication of interest from Company B to acquire the Company for $10.00 per share through a 50/50% cash/stock transaction. While considering these proposals, the Board also received a letter from one of TriQuint’s shareholders, Starboard Value (“Starboard”), proposing a new slate of director nominees to stand for election at the Company’s 2014 annual meeting.
In December 2013, the Board rejected RFMD’s offer. Soon thereafter, Company B increased its cash/stock merger proposal to $10.10 per share, which the Board also rejected. Meanwhile, Starboard met with RFMD to pitch the merits of a merger with TriQuint. After RFMD notified TriQuint of its discussions with Starboard, TriQuint’s CEO reached out to Company B (and another potential bidder) to solicit further interest. Company B, however, withdrew from the process, and the Board decided to pursue a transaction with RFMD. On February 22, 2014, after receiving a fairness opinion from Goldman Sachs, the Board approved the proposed merger with RFMD.
Following announcement of the proposed merger, plaintiffs filed suit alleging that the 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 protections, and failed to provide material disclosures to shareholders in advance of the shareholder vote on the merger. During briefing on plaintiffs’ motion to expedite, TriQuint filed an amended proxy statement providing supplemental disclosures, resolving some of the disclosure claims. Accordingly, the Court considered plaintiffs’ claims relating to the merger process, deal protections, and remaining disclosure issues.
The Court held that plaintiffs had failed to show good cause necessary for expedited proceedings. First, with respect to the process claims, the Court found plaintiffs’ allegation that the Board agreed to the merger with RFMD in order to shield itself from a proxy contest by Starboard did not give rise to a colorable claim of entrenchment warranting enhanced scrutiny under Unocal. Plaintiffs failed to articulate how the merger—pursuant to which Starboard would become a shareholder of the combined entity—insulated the Board from a later proxy contest. In addition, the Court found plaintiffs had also failed to advance a colorable claim that the Board was sufficiently interested in retaining their directorships that they could not impartially consider the merits of the merger. The Court also held that that the enhanced standard implicated under Revlon did not apply as ownership of the corporation would remain “in a large, fluid, changeable and changing market” following the stock-for-stock merger. Therefore, applying the business judgment standard, the Court held that plaintiffs failed to allege any basis to conclude that the decision to merge with RFMD was irrational.
Next, the Court reviewed the various deal protection devices included in the merger agreement, including non-solicitation and matching rights provisions and a 2.8% termination fee, for reasonableness under Unocal. Finding the measures to be common and among those previously held to be acceptable under Delaware law, the Court found plaintiffs’ allegations in this regard insufficient to support expedited proceedings.
Finally, the Court found that none of plaintiffs’ disclosure claims were colorable. First, in response to claims seeking disclosure of certain financial projections relating to non-routine transactions, spin-offs and divestitures, the Court found none were material but rather speculative and “border[ed] on minutiae.” Second, in response to claims seeking additional information relating to Goldman’s financial analysis, the Court found the proxy already disclosed key information related to the analysis and that the additional information plaintiffs sought, such as the assumptions behind the cost of equity employed by Goldman, was immaterial. Third, the Court rejected plaintiffs’ assertions that additional information to assess potential management conflicts was necessary, finding that the disclosures relating to management retention and board composition following the merger already presented all material information. The Court also rejected plaintiffs’ claim that the proxy failed to disclose the contingent nature of Goldman’s fee, as the proxy made clear that Goldman’s $23 million mandatory fee was fully contingent on completion of a transaction and that the Board had discretion to pay Goldman an additional $3 million. Further information was not necessary. Finally, the Court found plaintiffs’ claims that the Board needed to disclose additional information relating to the details of its sales efforts and negotiations were without merit. Finding none of plaintiffs’ claims colorable, the Court denied plaintiffs’ motion to expedite.
The full opinion is available here