On January 12, 2021, the United States District Court for the Southern District of New York dismissed a putative class action complaint against Bemis Company Inc. and members of its board of directors (collectively, “Bemis”) that alleged materially misleading statements in connection with a merger, in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) in In re Bemis Co. Sec. Litig.[1]  This decision is significant because it provides favorable precedent for companies targeted for Section 14(a) litigation, a problem that plagues at least 80% of public companies following M&A transactions.  The decision, and its implications, are discussed below.

Background

In 2018, Amcor Limited (“Amcor”), an Australian packaging company, began merger negotiations with Bemis, a Missouri-based packaging company.  On March 27, 2019, Bemis filed the Definitive Proxy Statement (the “Proxy”) with the SEC describing the merger between Bemis and Amcor (the “Transaction”).  The Proxy outlined “four sets of projected financial information” (the “Forecasts”), including Net Synergies, which were jointly developed by the management of Amcor and Bemis.  Bemis stockholders approved the Transaction on May 2, 2019, and the Transaction closed on June 11, 2019.  The merger resulted in the creation of New Amcor.

On April 15, 2019, the plaintiff initiated a lawsuit and, on May 11, 2020, filed an amended complaint “on behalf of all Bemis stockholders entitled to vote on the proposal to approve the Transaction and whose Bemis common stock was exchanged for 5.1 New Amcor shares in connection with the Transaction.”  The amended complaint asserted Section 14(a) violations alleging misrepresentations and omissions in the Proxy.  Specifically, the amended complaint alleged the Proxy contained misleading information concerning the Net Synergies and “Defendants’ good-faith opinions and beliefs” regarding the purported Net Synergies.  In addition, the plaintiff claimed the Proxy “was false and misleading” because it was “silent as to the most important facts concerning [the] basis and formulation” of the Net Synergies.  The amended complaint also alleged Bemis board members were liable under Section 20(a) as controlling persons of Bemis.     

Dismissal Order

The court dismissed the amended complaint in its entirety.  The Section 14(a) claim was rejected for essentially two reasons.  First, the court found Bemis’ statements about expected Net Synergies were forward-looking and accompanied by meaningful cautionary language and as a result were protected from liability by the safe harbor provision of the Private Securities Litigation Reform Act (“PSLRA”).  Similarly, the Proxy specifically noted that its board members’ beliefs in the Net Synergies “reflect[ed] the best currently available estimates and judgments of management of Bemis” and the court found that the amended complaint failed to allege this statement was untrue.  The court also rejected the plaintiff’s argument that based on the “similarity between the Net Synergies and Amcor’s predicted synergies, Defendants must have ‘capitulated’ to Amcor’s ‘self-serving estimates.’”  It explained a “more compelling inference” is that “the two companies shared certain information” while the merger negotiations were ongoing and using that shared information developed similar estimates of “potential synergies.”

Second, the court concluded the plaintiff failed to point to material facts that Bemis omitted from the Proxy.  The court disagreed with the plaintiff’s contention that the Proxy was “silent” as to “the assumptions and methodologies underlying the projected Net Synergies,” explaining the Proxy stated that all of the Forecasts, including the Net Synergies, “reflected ‘numerous assumptions and estimates as to future events,’ and provided a non-exhaustive set of those assumptions.”  It noted that although the Proxy included more detail with regard to the three Forecasts other than the Net Synergies, “these calculations did not somehow mandate parallel disclosures for the Net Synergies.”  The court similarly rejected the plaintiff’s argument that the Proxy was misleading because it failed to disclose the specific role played by Bemis in calculating the Net Synergies, finding the “plain text of the Proxy . . . clearly did provide significant details regarding the roles of the various parties involved in the Transaction.”  Furthermore, the court disagreed with the plaintiff that the Proxy was false because it did not disclose “the identity and role played by Amcor’s ‘third-party’ consultant” with regard to the Net Synergies because he failed to plead “how the absence of further details as to this third-party consultant constituted an omission of a material fact.”   

Finally, the Section 20(a) claim was dismissed because it is a derivative claim and the court found no primary violation of Section 14(a).

Implications

In re Bemis is a favorable decision for companies defending allegations of Section 14(a) violations in connection with a merger.  To survive a motion to dismiss, plaintiffs must not only allege that information was omitted from a proxy statement, but specify how that omitted information made challenged statements materially misleading.  Moreover, the ruling makes clear that not every detail underlying a projection must be disclosed.

[1] No. 19 Civ. 3356 (JPC), 2021 WL 101559 (S.D.N.Y. Jan. 12, 2021).