Sullivan & Cromwell recently released a publication discussing the Delaware Chancery Court’s decision in In re Micromet, Inc. Securities Litigation, which reaffirms the Revlon duties related to pre-signing market checks and parameters of the fiduciary duty of disclosure, as well as the significance of the decision.
As the publication notes, “Micromet is useful to practitioners as a primer for the application of fiduciary duty of disclosure claims to the specifics of financial analyses, and as a reminder of the importance of disclosure with respect to significant conflicting interests of transaction participants.”
The Sullivan & Cromwell publication, entitled, Delaware Chancery Court Reaffirms Revlon Duties related to Pre-Signing Market Checks and Parameters of Fiduciary Duty of Disclosure, is available in its entirety here. Below is a brief excerpt of the publication:
In its recent Micromet preliminary injunction decision, the Delaware Chancery Court reaffirmed that (i) Revlon’s enhanced scrutiny is a reasonableness standard based on the particular circumstances of the target company and (ii) Delaware’s fiduciary duty of disclosure only requires that the information provided to shareholders for purposes of their vote on a merger be sufficiently robust in its entirety so that the information omitted would not significantly alter the total mix of information available to shareholders.
Specifically, the Micromet court found adequate (because of the nature of Micromet’s fledgling pharmaceutical company’s business that involved partnering with strategics and its Board’s understanding of the Company and its needs) a pre-signing market check that was limited to strategic buyers with which Micromet previously had a commercial relationship, and to one week of diligence. In addition, the Micromet court was not persuaded that the following omissions from the 14D-9 disclosure statement sent to shareholders were sufficient to show a reasonable probability of success on a breach of fiduciary duty of disclosure claim: (i) the specific fees paid by Micromet to Goldman Sachs, its financial advisor, for unrelated work for the previous two years, (ii) the amount of Goldman’s ownership of the buyer’s stock, (iii) the basis for Micromet management’s probability of success rates for trial drugs, (iv) management’s projections regarding the use of net operating loss carry-forwards, (v) Goldman’s sum of the parts DCF analysis (that was not significantly different than Goldman’s DCF analysis) and (vi) management’s “upside case” projections provided to Goldman but described by the CEO as “highly optimistic and, in fact, not realistic” and that were not relied upon by Goldman in its analysis. The Micromet court, citing precedent, noted that “Delaware courts have repeatedly held that a board need not disclose specific details of the analysis underlying a financial advisor’s opinion” in satisfying the fiduciary duty of disclosure.