Delaware Chancery Court Dismisses Post-Closing Merger Challenge Alleging Inadequate Disclosures Of Projections And Financial Advisor Fees
On September 28, 2016, Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery dismissed a shareholder challenge to the acquisition of Millennial Media, Inc. (“Millennial”) by AOL Inc. (“AOL”). Nguyen v. Barrett, C.A. No. 11511-VCG (Del. Ch. Sept. 28, 2016). Plaintiff had sought post-closing damages for the Millennial board’s alleged failure to disclose (1) certain unlevered free cash flows and (2) details of compensation for Millennial’s financial advisor. The Court rejected both claims.
More specifically, the Court found both claims were foreclosed by plaintiff’s failure to state a non-exculpated breach of fiduciary duty. With respect to the second claim, the Court relied on the additional ground that the plaintiff failed to plead any facts suggesting that the financial advisor’s compensation was excessive.
The plaintiff had argued that the proxy’s disclosure that a “substantial portion” of the financial advisor’s $3.6 million fee was “contingent upon the completion of the Merger” was inadequate, and that the precise percentage of the fee that was contingent should have been disclosed. In support, the plaintiff attempted to rely on In re Atheros Communications, where the court found that a fee that was 98% contingent exceeded “common practice” and the “common understanding of what constitutes ‘substantial.’” 2011 WL 864928, at *8 (Del. Ch. Mar. 4, 2011). The Court distinguished Atheros finding that, here, there was no indication that the contingent portion of the financial advisor’s fee was more than “substantial,” or that it was “exorbitant or unusual, or otherwise improper.”