M&A Litigation: You Sold the Company and Bought ... - RR Donnelley

M&A Litigation: You Sold the Company and 

Bought Litigation? 

Moderator 

Girard Miller, Shareholder, Leonard, Street and Deinard 

Panelists 

Bruce M. Engler, Partner, Faegre Baker Daniels LLP 

Terence M. Fruth, Fruth, Jamison & Elsass PLLC 

David L. Hallett, Managing Director, Lazard Middle Market 

• Overview of M&A Activity 

• Board Conduct during the M&A Process 

• M&A Litigation Trends 

• Recent case law 

• Typical litigation scenarios 

• Legal: Defense perspective 

• Panel Discussion

RR Donnelley SEC Hot Topics Institute 

Overview of M&A Activity 

Presented by: 

Dave Hallett, Managing Director 

Lazard Middle Market 

OVERVIEW OF M&A ACTIVITY 

1

M&A Deals by Year (U.S. Buyer or Seller) 

16,000 

14,000 

12,000 

Number of Deals 

10,000 

8,000 

6,000 

4,000 

2,000 

0 

2 

Source: Thomson Financial 


16,000 

14,000 

13,283 

14,308 


12,000 

10,000 

8,000 

6,000 

12,142142 

9,908 

10,521 

10,804 10,849 

4,000 

2,000 

0 

2006 2007 2008 2009 2010 2011 2012 

3 


2


$2,500 

$2,000 

$1,967.3 

$2,106.5 

$ in Billions 

$1,500 

$1,000 

$1,299.6 

$892.5 

$1,039.5 

$1,349.1 

$1,027.3 

$500 

$0 

2006 2007 2008 2009 2010 2011 2012 

4 


Middle Market M&A Deals by Year (U.S. Buyer or Seller) 

Transaction size under $1 billion (includes undisclosed values) 

14,000 

12,000 

11,287 

11,982 


10,000 

8,000 

6,000 

4,000 

9,969 

7,678 

8,384 

8,695 8,690 

2,000 

0 

2006 2007 2008 2009 2010 2011 2012 

5 


3

Middle Market M&A Deals by Year (U.S. Buyer or Seller) 

Transaction size under $1 billion (includes undisclosed values) 

$600 

$500 

$434.5 

$475.9 

$ in Billions 

$400 

$300 

$276.7 

$318.1 $325.0 $318.6 

$200 

$188.5 

$100 

$0 

2006 2007 2008 2009 2010 2011 2012 

6 



3,000 

2,500 

2,735 

2,631 


2,000 

1,500 

1,000 

1,994 

1,400 

1,783 

1,897 1,887 

500 

0 

265 271 

319 

201 

125 143 172 165 158 170 154 175 

85 106 

2006 2007 2008 2009 2010 2011 2012 

$10 million - $500 million $500 million - $1 billion > $1 billion 

7 


4


$1,400 

$1,200 

$1,235.7 

$1,261.2 

$1,000 

$ in Billions 

$800 

$600 

$706.1 

$648.2 

$554.9 

$802.2 

$400 

$200 

$0 

$440.4 

$287.7 $277.4 

$197.6 

$213.6 

$187.2 

$196.6 

$209.4 

$143.7 

$130.3 

$122.3 

$88.9 

$110.5 $111.0 

$57.4 

2006 2007 2008 2009 2010 2011 2012 

$10 million - $500 million $500 million to $1 billion > $1 billion 

8 


M&A Deals by Quarter (U.S. Buyer or Seller) 

4,000 

3,605 

3,500 

3,287 

3,000 

2,763 


2,500 

2,000 

2,402 

2,546 

2,494 2,524 

1,500 

1,000 

500 

0 

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 

1Q13 deal volume down from 4Q12 

9 


5

Number of Middle Market M&A Deals by Quarter 

Number of Transactions 

3,500 

3,000 

2,500 

2,000 

1,500 

1,000 

1Q07 

3,053 

1Q08 

2,778 

1Q09 

1,914 

1Q10 

2,002 

1Q11 

2,235 

1Q12 

2,072 

1Q13 

1,861 

500 

- 

1Q13 deal volume = 27% decrease from 4Q12 

10 

Source: Thomson Financial; transaction size under $1 billion; including undisclosed values 

M&A Deals by Deal Size, by Year (U.S. Buyer or Seller) 

3500 

3,126 

3000 

2500 

2,158 

2000 

1500 

1000 

500 

0 

524 

1,114 

1,017 

664 

1,465 

1,207 

839 

487 404 

210 

$10M - $100M $100M - $500M >$500M 

11 


6

M&A Deals by Deal Size, by Quarter (U.S. Buyer or Seller) 

600 

500 

475 

454 

400 

389 

300 

200 

100 

212 

99 

250 

89 

228 

120 

262 

126 

278 

169 

83 

0 

34 

1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 

$10M - $100M $100M - $500M >$500M 

81% of 1Q2013 deal volume < $500 million 

12 


Strategic vs. Financial Buyers in the Middle Market 

100% 

1992 

0.9% 

2007 

8.2% 

2012 

9.1% 

80% 

60% 

40% 

20% 

0% 

Strategic Buyers 

Financial Buyers 

Financial buyers executing a consistent share of middle market 

transactions – current high of 9.1% in 2012 

13 

Source: Thomson Financial; transaction size under $1 billion; including undisclosed values 

7

Private Equity Demand 

Private Equity Uninvested Capital 

$900 

$800 

$700 

$600 

($ in Billions) 

$500 

$400 

$428 

$501 

$481 

$433 

$373 

$348 

$300 

$200 

$150 

$198 

$230 $222 $232 

$263 

$292 

$100 

$0 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 

Estimated Cumulative Uninvested Capital Capital Invested Capital Raised 

14 

Source: Buyouts 

Source: Thomson Reuters & Pitchbook 

Strategic Buyers Flush with Cash 

• Corporate Cash of $2.0 trillion as of June 2012 was all-time record 

• Over 5% of total assets 

% of Total Assets 

2010 2011 2012 

Source: Wall Street Journal 

15 

8

Private Equity Portfolio Company Inventory 

Number of PE Backed Compan nies 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

2,244 

2,960 

3,796 

4,693 

5,347 

5,625 

6,031 

6,358 

6,665 

Year of 

Investment 

2009 - 2012* 

2005 - 2008 

2000 - 2004 

1,000 

0 

2004 2005 2006 2007 2008 2009 2010 2011 2012* 

Private equity company inventory remains at record levels, with the majority of 

inventory still being held from investments made between 2005 and 2008 

16 

Source: Pitchbook 

Private vs. Public Targets in the Middle Market 

8,000 

7,000 

6,000 

Number of Transactions 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

Public Target 

Private Target 

17 

Source: Thomson Financial; U.S. Target with transaction size under $1 billion; including undisclosed values 

9

SEC Hot Topics institute 

R.R. Donnelley 

“M&A Litigation: You Sold the Company and Bought Litigation?” 

May 29, 2013 

I. Primary Areas of Emphasis 

A. Assumptions. 

1. Public company is the target. 

2. Target’s public shareholders are being cashed out. 

B. Frequency of M&A litigation. 

C. Deal process/terms. 

1. Board duties/process/advisable or required deal terms. 

2. Conflicts of interest – special considerations. 

D. Writing the script. 

1. Courts have referred to M&A lawyers as “writing the script” for litigation in an 

M&A deal. 

2. Creating a proper, convincing record is just as important as running a good 

process and negotiating appropriate deal terms. 

II. M&A Litigation Statistics 1 

A. Deals over $100 million (2012). 

1. 93% involved class action litigation. 

2. 4.8 lawsuits per deal. 

B. Deals over $500 million (2012). 

1. 96% involved class action litigation. 

2. 5.4 lawsuits per deal. 

C. Litigation outcomes. 

1. Majority (64%) settled. 

2. 33% dismissed. 

3. 3% voluntarily withdrawn. 

D. Settlement results. 

1. 81% involved additional disclosures only. 

2. In four cases, the deal termination fee was reduced. 

3. In six cases, an agreement regarding appraisal rights was reached. 

4. The parties acknowledged that litigation contributed to an increase in the merger 

price in only one deal. 

1 Source: Cornerstone Research, Shareholder Litigation Involving Mergers & Acquisitions (February 2013). 

dms.us.52127568.01

5. Most of the largest settlements included allegations of significant conflicts of 

interest. 

6. The first step: “We are launching an investigation . . . .” 

E. Overall conclusion: Litigation is a virtual certainty in any public company M&A deal 

over $100 million. 

1. M&A deal lawyers should prepare for litigation but project confidence. 

2. Remind clients of litigation risk—early and often! 

3. Be prepared! 

III. Deal Process/Terms 

A. Director fiduciary duties. 

1. General. 

a. Duty of loyalty. 

b. Duty of care. 

2. Minnesota (Minnesota Business Corporation Act §302A.251): A director has a 

fiduciary duty: 

a. To act in good faith; 

b. In a manner reasonably believed to be in the corporation’s best interests; and 

c. With the care an ordinarily prudent person in a like position would exercise 

under similar circumstances. 

3. Delaware – similar general fiduciary duty based on case law. 

4. Revlon duty. 

a. In change-of-control situations, courts have imposed a heightened standard on 

directors. 

b. Revlon, Inc. vs. MacAndrews & Forbes Holdings, Inc., 506 A. 2d 173 (Del. 

1986) held that when directors decide to sell the company in a cash-out 

merger, their role changes from protectors of the corporate entity to 

“auctioneers” whose duty is to get the best price for stockholders. 

c. Revlon duty applies to Delaware corporations and, by analogy, to Minnesota 

corporations. 

5. Multiple constituency statutes. 

a. Minnesota Business Corporation Act §302A.251, Subd. 5 permits a director to 

consider “other constituencies” such as the interests of the corporation’s 

employees, customers, suppliers, and creditors, among others. 

b. Delaware has no multiple constituency statute. 

c. Even in Minnesota, the shareholders’ interest should be paramount. 

B. Standard of judicial review. 

1. No conflict of interest – business judgment rule. 

2. Conflict of interest – “entire fairness” review. 

dms.us.52127568.01 

2

C. Identify conflicts of interest. 

1. Board. 

2. Lawyers. 

3. Financial advisers. 

4. Identify conflicts early for proper consideration and resolution. 

D. Deal considerations. 

1. Courts have emphasized that no “blueprint” exists for maximizing value and 

satisfying the Revlon duty. 

2. Process/deal terms. 

a. No duty to auction. 

b. Consider pre-signing market check. 

c. Consider post-signing market check (“go shop” in Merger Agreement). 

d. Merger Agreement must include a “fiduciary out” that allows the Board to 

accept a superior offer. 

IV. Writing the Script 

A. Just as important as running a good process and getting appropriate deal terms. 

B. Formal Board minutes. 

1. Cases suggest increasing scrutiny. 

2. What is there. 

3. What isn’t there. 

4. Netsmart (keep timely minutes throughout the process). 

C. General guidelines for Board minutes. 2 

1. “Minutes should be drafted in a manner that reflects a process of conscientious 

and informed decision-making; they should demonstrate that directors were 

active, engaged and fully informed and that they understood their obligations and 

endeavored to carry them out in a good faith and reasonably manner.” 

2. Minutes should be thorough rather than minimalist (even if that is the typical 

approach), but not a verbatim transcript. 

3. “Minutes should, among other things: (i) identify significant issues discussed and 

important questions raised (and answered) during meetings; (ii) describe and 

explain key decisions and strategic choices made by directors and the reasons for 

them; (iii) identify the information and advice the directors considered and relied 

upon in making critical decisions, including legal and financial advice; and 

(iv) describe the specific decisions made or authorized at the meeting (including 

the vote by which they were approved, whether unanimous or otherwise).” 

4. Specific matters to be addressed: consideration of alternatives; terms of the deal; 

deliberation on important issues; debate, dissent and abstentions; legal advice; and 

other professional advice (such as financial advisors). 

2 M. Pittenger et al., “M&A Deal Counsel’s Role in Creating a Winning Written Record for Defending Breach of 

Fiduciary Duty Litigation” (2013 Section of Business Law Spring Meeting, April 4, 2013) at page 31. 

dms.us.52127568.01 

3

D. Advise clients early and often to undertake practices and procedures that will enhance 

their defense. 

1. Litigation is likely. 

2. Emphasize risks associated with personal notes and informal communications 

such as emails, texts, voicemails, etc. 

E. Attorney-client privilege. 

5. Easy to waive inadvertently. 

6. May be voluntarily waived in advice-of-counsel defense. 

7. Don’t rely on it to protect written statements you would not otherwise make. 

E. Document preservation. 

1. Applies when litigation is “reasonably anticipated.” 

2. What does “reasonably anticipated” mean in a public company M&A deal in light 

of the litigation statistics described above? 

3. Consult with an experienced litigator throughout the M&A process. 

dms.us.52127568.01 

4

2013 Donnelly Conference: M&A Litigation 

I. The Current Scene 

1. M&A litigation thrives. About 85% of all deals have litigation filed before 

closing, much of it within a week of announcement. 

2. Forum shopping is a major part of the problem. Most of the cases are filed in 

the state of domicile (usually the state where the headquarters is), and a 

significant percentage are filed in the Chancery Court in Delaware, a popular state 

for incorporation. Defendants generally prefer Delaware. Assigning a forum in 

the articles or by-laws is permitted by some state statutes. This practice is being 

challenged in the courts. It is too early to say where it will go. Public companies 

prefer to have their shareholder litigation in Delaware. Plaintiffs’ lawyers like 

Marshall County, Texas. 

The bigger the deal - the more the litigation and the more forums. Plaintiffs like 

federal courts least of all. The federal courts are not as friendly to these cases as 

they once were. The PSLRA has created burdens and raised the bar for plaintiffs. 

3. Deference to the board of directors. The modern business corporation codes 

defer to the boards of directors. Gone are the days when courts would intervene 

in a proposed deal to substitute their own judgments. The courts are now much 

less likely to enjoin a transaction before closing – where the complaint is the price 

or the process. 

4. The law of director duty is now quite crystalized. There are the duties of care, 

loyalty and proportionality. Proportionality means that what a director must do in 

connection with an M&A transaction depends on the type of transaction, though 

the concept of a director as a fiduciary is the overlay. A fiduciary is independent, 

informed, acts in good faith and is prudent – he brings to bear the same diligence 

and care that he would in his own affairs. He puts the interests of his principal 

before his own. 

5. BFD Suits Against Directors. Suits against directors for breach of fiduciary 

duty, prosecuted after the closing, are the most effective weapons. The suits 

prosecuted to conclusion before closing are rare and usually based on process – 

claims of flawed disclosure and conflicts of interest. But process cases are 

usually settled before closing with some curative action, such as amendment of a 

proxy statement. Undisclosed conflicts of interest might result in an injunction 

before closing, but, again, conflicts allegations are cured by disclosure or removal 

of the conflict, e.g., a banker that is on both sides of a deal will have to resign one 

of the engagements. When judges enjoin a deal, they run the deal. The parties 

are in their chambers and courtroom constantly. The heavy press of judicial 

business weighs heavily against a pre-closing injunction.

6. Directors Fiduciary Duty. 

Structure and complexity. A corollary of the growth of deferral of claims to postclosing 

is the growth of the notion of, and law of, directors’ fiduciary duty. The 

concepts have not changed so much as the application of the concepts, which have 

evolved ratable to the size, complexity and eccentricity of the deals. More 

regulation and more cross-border deals mean more litigation. 

Assessing Fairness. The more complex the deal, the more difficult the disclosure 

and the more difficult the assessment of fairness. Discussion of director fiduciary 

duty is an academic exercise and takes a few minutes. The application of the duty 

to a complex deal is difficult even for the virtuous. Learning to make your virtue 

work for you as a director takes more than a pure heart. You have to be schooled 

in the law, which means have a working knowledge of the leading cases. 

II. 

Case Law Has Defined the Role of the Director in M&A - How 

Do Directors Discharge Their Duties of Care, Loyalty and 

Proportionality? 

1. Be informed. An empty head and a pure heart is no longer a defense. But, the 

business judgment rule can be a defense. It is in the exercise of an informed 

business judgment that the director reacts to the exigencies of the deal. It is likely 

to benefit the shareholders more than the continuation of the current business 

plan. If the answer is not one that would be obvious to a judge, then proceed with 

care. An all cash offer for a significant premium over the current price, using 

metrics (price to sales, earnings, EBIDTA well above the norm, where there is 

only one class of stock) and the creditors will be in the care of a stronger debtor, 

is the easy and plain vanilla. Easy to be a good fiduciary and exercise your 

informed business judgment. 

2. Standard. A standard more rigorous than the business judgment standard is 

applied in certain circumstances: The entire fairness standard being the highest 

which applies when some directors will benefit personally from the transactions, 

e.g. an MBO. 

2

3. Del Monte, El Paso and Delphi. In re Del Monte Foods Co. Shareholders Litig., 

25 A.3d 813 (Del. Ch. 2011), In re El Paso Corp. S’holder Litig., 41 A.3d 432 

(Del. Ch. 2012) and In re Delphi Fin. Grp. S’holder Litig., CIV.A. 7144-VCG, 

2012 WL 729232 (Del. Ch. Mar. 6, 2012) cases are illustrative. This chart is 

helpful and is from the publication M&A Litigation 2012, from the Practicing 

Law Institute. These cases demonstrate how the facts and circumstances will 

determine what constitutes the proper exercise of director duties and when a Court 

will intervene. The proper use of proportionality in the exercise of business 

judgment is critical. 

III. The Special Committee has become a de facto mandate in some 

deals, such as the MBO 

1. Special Committees. The Special Committee is a defensive device. It is very 

important when the “entire fairness” standard is applied----as distinguished from 

the Revlon or business judgment standards. See Revlon, Inc. v. MacAndrews & 

Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986). 

Case law defines what constitutes a proper special committee in form and in 

action. Both a fair price and a fair process must be the result. If the process is not 

fair, the shareholders can obtain a fair process and price from the court. In the 

case of the ultimate conflict, the management led buy-out, the failure to appoint a 

special committee is itself evidence of a lack of fair dealing. When a committee 

is independent, gets competent and independent outside advice, is informed and 

deliberate, demands a proper proxy statement, it has done its duty. 

2. Special Committee Process. The Special Committee process has received a lot 

of attention by the courts recently. See In re S. Peru Copper Corp. S’holder 

Derivative Litig., 52 A.3d 761 (Del. Ch. 2011), judgment entered sub nom., 

CIV.A. 961-CS, 2011 WL 6382006 (Del. Ch. Dec. 20, 2011) vacated sub nom., 

961-CS, 2011 WL 6476919 (Del. Ch. Dec. 22, 2011). 

In Southern Peru, the control group caused the controlled company to enter a 

transaction with a company related to the control group. The Chancery Court 

found the special committee fatally flawed because the committee was not 

enabled to shop, negotiate, consider alternatives or, to do anything except to find a 

way to make the deal work. Perhaps the most important factor was denying the 

Committee the right to negotiate. Its charter was to approve or disapprove the 

deal on the table and it set out to rationalize that deal. 

IV. 

Price Maximization 

1. Deal Protection. In a deal where there are no conflicts, such as cash for stock, 

with no rival, when the target is a public company and the price is at a premium, 

3

the Revlon (Delaware) and business judgment rules apply. The court will defer to 

the decision of the board. 

However, that does not mean that the directors can approve the first deal that 

comes along that is at or above the latest closing price. The buyer will always ask 

for protection on the deal, including protection from deal jumpers, topping bids, 

go-shop clauses and ask for no shop and no talk, and the like. 

The seller will want deal protection such as a break-up fee. This is where the rule 

of proportionality comes in. Even when Revlon or business judgment applies, 

provisions to protect the deal will be suspect as avoidance of shopping for the best 

price reasonably attainable. The record of the board’s deliberations should prove 

that the board was well informed and made a considered judgment as to the 

alternatives to deal protection. 

2. Price Maximization for whom? When there is only one class of stock the 

enterprise valuation is the easy part. Allocating enterprise value along the classes 

- usually preferred vs. common - gets difficult. The preferred shareholders might 

deserve separate representation in the process. See LC Capital Master Fund vs. 

James, 990 A. 2d 435 (Del. Ch. 2010); Jedwab v. MGM Grand Hotel, 509 A.2d 

584 (Del. Ch. 1986) (preferred shareholder claims implicated fiduciary duties). 

Depending on the preferred instrument, the common shareholders might argue 

that the preferred shareholders are debt holders and owed no duty under Revlon. 

If there is a conversion provision, then it starts to look more like equity. 

V. Appraisal Rights 

1. When triggered? These rights are triggered usually by a short form merger. 

The business setting is often the acquisition of the public company by a private 

equity company and the buyer does not want to operate the target as a stand-alone 

public company. Also, appraisal rights can be triggered by a stock for stock deal. 

2. Valuation. Dissenters’ rights valuation practice is developing favorably for the 

shareholders. The traditional rule that only evidence existing at the valuation date 

is admissible is eroding in favor of consideration of subsequent developments if 

they were based on what was known or knowable before the valuation dates. 

Most often this litigation involves business plans and projections which are not 

consistent with the valuation adopted by the board and the price offered. See 

Gholl et al vs. EMACHINES, Inc., No. CIV.A. 19444-NC, 2004 WL 2847865 

(Del. Ch. Nov. 24, 2004), aff’d, 875 A.2d 632 (Del. 2005). 

In Minnesota, the courts in dissenters’ rights cases are likely, when faced with the 

situation, to follow the approach in EMACHINES. All evidence, whether created 

before or after the valuation date should be considered if reasonably bearing on 

value. 

4

The problem for the company, of course, is that there are, at any given time, more 

than one set of projections floating around with business plans as well. It should 

go to the weight, unless the document or statement occurs so long after or before 

the valuation date as to lack probative import on the question of value. 

VI. Derivative Cases 

1. Minnesota and Delaware. The rules are generally the same – tracking the 

Federal Rules of Procedure. 

2. Derivative claims. The question is whether the plaintiff’s claims belong to the 

shareholders or the company. If the latter, the claims must be brought as 

derivative claims. 

3. MakeMusic. A recent Minnesota trial court decision in the Kruglick v. 

MakeMusic, Inc., No. 27CV13-5508, Fourth Judicial District for the State of 

Minnesota, suggests Minnesota law might be going a different direction. In 

MakeMusic, the deal involved a tender offer by a significant shareholder for cash. 

The Plaintiffs complained about the price and the process. One of the complaints 

was that the proxy statement was misleading and inadequate. 

The gist of the disclosure claim was that there was not enough information being 

given so that the shareholders could make an informed decision. On motion by 

the company, the court ordered a stay and referral to a special litigation committee 

after finding that the claims belong to the Company. 

4. WWDHD? What would Delaware have done? Enjoin the vote, probably, but 

not make a referral to a special committee. The prescribed voting process is for 

the benefit of the shareholders. There is no relief afforded to a target company, 

financial or otherwise, to be derived from a successful disclosure complaint. 

Disclosure is an obligation owed by the tender offeror to the shareholders. A 

misrepresentation is fraud on the shareholder who gets brought out. 

VII. Major Trends in M&A Litigation - forum shopping, 

shareholder activism, increased proxy access and increased 

regulatory intervention 

1. Forum. The Delaware Chancery Court has been, and still is, a hot spot for M&A 

litigation involving corporations incorporated under Delaware law, though most 

M&A litigation is in the federal courts in the state where the corporation is 

domiciled. Yet, there is a trend toward multiple litigations over the same deal. 

This trend has created a significant increase in what was already a very expensive 

process. There seems no way to stop this. The federal courts cannot restrict a 

state court from taking jurisdiction over claims that state law has created and a 

state court cannot preempt a federal court’s jurisdiction. 

5

2. Forum Selection Clause in Bylaws. Some corporations are inserting provisions 

in the articles and bylaws limiting shareholder choice of forum. In Galavis v. 

Berg, No. C 10-3392 RS (N.D. Cal. Jan. 3, 2011), the federal district court for the 

Northern District of California denied a motion by Oracle to dismiss a shareholder 

action on the ground that its venue in federal court was prohibited by the articles 

and by-laws, which limited shareholder cases to a Delaware forum. The court 

applied federal law. Cases are pending which test the viability of forum choice by 

charter. 

VIII. Comparative Law: Minnesota and Delaware 

1. Minnesota and Delaware law. Much has been written on this subject. See the 

Reporters Notes to the Minnesota Business Corporations Act at Chapter 302A as 

a starting point. The Minnesota Act is based, in large measure, on the Model Act, 

at least as to the general approach of regulating the corporation. See also Philip S. 

Garon et. al., Challenging Delaware’s Desirability As A Haven for Incorporation, 

32 Wm. Mitchell L. Rev. 769, 771 (2006). This article is a rejoinder to Bryn 

Vaaler, Scrap the Minnesota Business Corporation Act!, 28 Wm. Mitchell L. Rev. 

1365, 1366 (2002). 

2. Anti-takeover provisions. Anti-takeover provisions in Minnesota are not 

significantly different from Delaware and from a litigation point of view do not 

seem to be a factor. It appears that there are work-arounds that do work around. 

Minnesota and Delaware have Business Combination Acts and Minnesota is one 

of twenty seven states that have a Control Share Acquisition Act. Delaware does 

not. 

3. Seven-Fifty-One. Minnesota has a minority shareholder protection statute like 

no other - Section 302A.751 of the MBCA. Garon et al. says .751 “may in itself 

be a reason to incorporate in Delaware.” It has been said that .751 means that 

shareholders are entitled to be treated more like partners than shareholders. The 

combination of a fiduciary duty of shareholders, one to the other, and great 

equitable powers granted to the court to remedy a breach of duty, results in 

considerable litigation and litigation forced changes of ownership and even 

control. This is accomplished by what is called a “buy-out” order. 

While ordinarily the shareholder bought out is a minority shareholder, sometimes 

an equal shareholder, usually it is a minority shareholder who is also an employee 

– or was an employee. While the statute is not, to the letter, a no-fault divorce 

approach, it comes close, in practice. 

When properly administered this statute solves a major problem in small, often 

family businesses. No buy-out order should impair the balance sheet and so any 

buyout is to be on terms the business and its creditors can adapt to, without defeat 

of their reasonable expectations. 

6

4. Squeeze-outs and Split-outs. Minnesota, unlike Delaware, does not require a 

business purpose, to legally justify the elimination of unwanted minority 

shareholders. They can be eliminated by merger and have appraisal rights. 

In a recent Minnesota case, U.S. Bank N.A. v. Cold Spring Granite Co., 802 

N.W.2d 363, 371 (Minn. 2011), the control group family used the fractional 

shares reverse split statute to eliminate the minority shareholder group(s). This 

decision is controversial as it goes against the seeming policies codified in .751. 

The Minnesota Supreme Court, in its decision, seemed to recognize this problem, 

but said it is one the legislature must fix. Id. (“While the fairness of this approach 

is open to debate, these policy decisions are within the province of the 

Legislature.”). 

The result is that the minority, despite their expectations down the generations 

that they would continue as owners, were squeezed out, not at fair value, as would 

be the case under .751, but at the price set as fair by the board, the board price 

being subject to judicial scrutiny only with proof of common law fraud. This case 

has probably sent many a control group in Minnesota scurrying to the share 

register to calculate whether the reverse split statute could be used to reduce, if 

not eliminate, the non-control group. 

In MakeMusic, the court’s decision that the claims were derivative suggests that 

the court was unaware that the merger would extinguish the derivative claims, 

thereby depriving the plaintiffs from having their claims of a flawed tender 

process extinguished. See In re Massey Energy Co., CIV.A. 5430-VCS, 2011 WL 

2176479 (Del. Ch. May 31, 2011) ( holding that failure of the corporate board to 

secure the derivative claims for corporation’s current stockholders did not justify 

the entry of a preliminary injunction against corporation’s merger); Kahn v. 

Kolberg Kravis Roberts & Co., 23 A.3d 831 (Del. 2011) (actual harm to a 

corporation was not required in order for stockholders to assert derivative claims 

for insider trading by fiduciaries). 

Again, it is the process the law is protecting – an honest market where all 

shareholders have access to the same information. In many M&A transactions the 

plaintiffs claim that the process approved by the board is calculated to injure the 

shareholder. The company is not a juridical person in this context and cannot 

suffer injury. 

IX. Recent Developments 

1. Quasi appraisal rights. Quasi appraisal rights are a Delaware phenomenon 

which could catch on elsewhere. In denying pre-closing relief to a class attacking 

the process, the Courts have given the class “quasi appraisal rights”. After the 

closing, the shareholders can opt into the class and pursue appraisal rights – or 

7

pursue the claim that they have appraisal rights and if it is decided that they do, 

they will try the valuation issue. 

2. Quasi-Appraisal case law. These cases are highly idiosyncratic except the 

dynamics are the same pre-closing. The companies are concerned that an 

injunction might issue and they fear exposing the deal to delay more than a 

successful attack on the price pre-closing. By agreeing to quasi-appraisal, they 

get the stick away from the spokes of the deal, taking leverage from the plaintiffs. 

They get certainty of the deal in return for some uncertainty of the cost. Defense 

lawyers who do this have a high degree of confidence in the judge’s appraisal 

talents. See Weinberger v. UOP, Inc., 457 A.2d 701, 703 (Del. 1983)(holding that 

appraisal is the remedy for minority shareholders in a cash-out merger); Krieger 

v. Wesco Fin. Corp., 30 A.3d 54, 60 (Del. Ch. 2011) (holding common 

shareholders did not have appraisal rights as a result of merger). 

This trend is another symptom of the increasing reluctance of the courts to grant 

pre-closing injunctive relief. 

X. Can A Deal Be Made Bullet Proof? 

Yes, but only if you pay what they ask for, plus attorneys’ fees. Short of that: 

1. Have a plan that is neutral. A plan full of anti-takeover measures but no price 

maximization measures is not neutral. 

2. Make it a practice to read all the filings to make sure you are current on what 

management and the lawyers and auditors believe is material and that nothing 

material is omitted. Do not wait until your deposition is about to be taken. 

3. Be objective and test and verify management claims. 

4. Look at the special meeting demand requirements in the charter documents. Is it 

too easy or too difficult for shareholders to call a meeting? Delaware does not 

require that shareholders be given the right to call a special meeting. 

5. Pay attention to Williams Act filings and Hart-Scott-Rodino letters. 

6. Do not destroy any evidence. 

7. Take care not to accidentally waive the attorney client privilege. Very often 

directors’ primary defense against claims of breach of fiduciary duty, at least as to 

process, is reliance on the advice of counsel, thereby waiving the attorney client 

privilege - at least in part. The use of regular corporate counsel to advise directors 

8

on a sale transaction often leads to the waiver of the privilege. This risk can be 

mitigated. 1 

1 Special thanks to Thomas J. Dougherty and his book The Director’s Handbook, 101-146 (2011 

ed.), which was instrumental in creating these materials. 

9

Proposed 

Transaction 

Premium 

Offered 

Alleged Process 

Flaws Relevant 

to Plaintiffs’ 

Probability of 

Success on 

Breach of Duty 

Claims 

Preliminary 

Injunction? 

In re Del Monte Foods Co. 

S’holder Litig., 25 A.3d 813 

(Del. Ch. 2011) 

Merger of Del Monte Foods 

Company with Blue 

Acquisition Group, Inc., 

owned by KKR, Centerview 

Partners, and Vestar Capital 

Partners. 

$19/share, a premium of 

40% over the average Del 

Monte closing price for the 

three-month period prior to 

the announcement. 

• Del Monte’s financial 

advisor, Barclays, did not 

disclose that it intended to 

provide buy-side LBO 

financing. 

• Barclays did not disclose 

behind-the-scenes efforts 

to pair the two highest 

previous bidders (KKR 

and Vestar) together, 

which the Court found to 

be in violation of 

confidentiality 

agreements. 

• Barclays ultimately 

succeeded in securing onethird 

of the buy-side 

financing without 

providing any added 

benefit to Del Monte. 

• Barclays ran the go-shop 

period unsupervised, 

despite its apparent 

conflicts. 

Yes. Defendants were 

enjoined from proceeding 

with a shareholder vote for 

20 days, during which the 

parties were also 

enjoined from enforcing the 

Merger Agreement’s nosolicitation, 

match right and 

certain termination fee 

provisions. 

In re El Paso Corp. S’holder 

Litig., 2012 WL 653845 (Del. 

Ch. Feb. 29, 2012) 

Merger of El Paso Corporation 

with Kinder Morgan, Inc. 

A combination of cash, Kinder 

Morgan stock, and warrants 

valued at $30.37 at the time of 

the court's ruling, a premium of 

47.8% over El Paso’s stock 

price 30 days before Kinder 

Morgan made its first bid. 

• El Paso CEO Doug Foshee 

was the sole El Paso 

negotiator despite his 

undisclosed intention to 

participate in a managementled 

buyout of the company's 

E&P business after the 

merger with Kinder Morgan. 

• Goldman Sachs, El Paso’s 

financial advisor, owned 19% 

of Kinder Morgan (a $4 

billion value), and the Court 

concluded that it was not 

effectively walled off from 

providing advice. 

• Despite its ownership interest 

in the acquiror, Goldman 

continued to advise El Paso 

on alternatives to the 

proposed transaction. 

• Goldman’s lead banker failed 

to disclose his personal 

investment in Kinder 

Morgan. 

• Morgan Stanley, brought in to 

cleanse Goldman’s conflict, 

would not be paid unless El 

Paso adopted the proposed 

transaction with Kinder 

Morgan. 

No. Despite the “troubling 

behavior” of Foshee and 

Goldman, the balance of 

equities weighed against a 

preliminary injunction in light 

of the premium offered and the 

absence of any competing 

offers. 

In re Delphi Fin. Grp. 

S’holder Litig., 2012 WL 

729232 (Del. Ch. Mar. 6, 

2012) 

Merger of Delphi Financial 

Group with Tokio Marine 

Holdings, Inc. 

$44.875/share for Class A 

stockholders, a premium of 

76% over Delphi's closing 

price the day before 

announcement. 

• Delphi CEO Robert 

Rosenkranz, who held all 

Class B stock and 49.9% of 

the company's voting 

power, negotiated and 

secured for himself an 

incremental premium for 

his Class B shares despite 

provisions in Delphi’s 

charter requiring that each 

class of stock receive equal 

consideration in a merger. 

• Given the Court’s 

assumption that this charter 

provision caused the initial 

offering price of Delphi 

shares to be higher than it 

otherwise would have 

been, it held that 

Rosenkranz improperly 

secured a second control 

premium at the expense of 

public stockholders. 

No. Despite the incremental 

premium 

secured by Rosenkranz, the 

balance of equities weighed 

against a preliminary 

injunction in light of the 

“substantial” 

premium offered and the 

absence of any competing 

offers. 

Provided by Practicing Law Institute, David R. Marriott, Chair, M&A Litigation 2012, 401-403 (2012).

Revlon, Inc. 

v. 

MacAndrews and Forbes Holdings, Inc.

Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (1986) 

66 A.L.R.4th 157, 54 USLW 2483, Fed. Sec. L. Rep. P 92,525 

506 A.2d 173 

Supreme Court of Delaware. 

REVLON, INC., a Delaware corporation, Michel C. 

Bergerac, Simon Aldewereld, Sander P. Alexander, 

Jay I. Bennett, Irving J. Bottner, Jacob Burns, Lewis 

L. Glucksman, John Loudon, Aileen Mehle, Samuel 

L. Simmons, Ian R. Wilson, Paul P. Woolard, 

Ezra K. Zilkha, Forstmann Little & Co., a New 

York limited partnership, and Forstmann Little & 

Co. Subordinated Debt and Equity Management 

Buyout Partnership-II, a New York limited 

partnership, Defendants Below, Appellants, 

v. 

MacANDREWS & FORBES HOLDINGS, INC., a 

Delaware corporation, Plaintiff Below, Appellee. 

Submitted: Oct. 31, 1985. | Oral Decision: 

Nov. 1, 1985. | Written Opinion: March 13, 1986. 

Bidder for corporations stock brought action to enjoin certain 

defensive actions taken by the target corporation and others. 

The Court of Chancery, New Castle County, 501 A.2d 1239, 

granted preliminary injunction and defendants appealed. The 

Supreme Court, 505 A.2d 454 affirmed, with an opinion to 

issue. The Supreme Court, Moore, J., held that: (1) lockups 

and related agreements are permitted under Delaware law 

where their adoption is untainted by director interest or other 

breaches of fiduciary duties; (2) actions taken by directors in 

the instant case did not meet that standard; (3) concern for 

various corporate constituencies is proper when addressing a 

takeover threat; (4) that principle is limited by the requirement 

that there be some rationally related benefit accruing to the 

stockholders; (5) there were no such benefits in the instant 

case; and (6) when sale of the company becomes inevitable, 

duty of board of directors changes from preservation of the 

corporate entity to maximization of the company's value at a 

sale for the stockholders' benefits. 

Affirmed. 

Lockups and related agreements are permitted 

under Delaware law where their adoption is 

untainted by corporate director interest or other 

breaches of fiduciary duty. 

16 Cases that cite this headnote 

[2] Corporations and Business Organizations 

Fiduciary Duties of Directors and Officers 

Concern for various corporate constituencies is 

proper when directors address a takeover threat 

but that principle is limited by the requirement 

that there be some rationally related benefit 

accruing to the stockholders. 



Duties of directors and officers in general; 

business judgment rule 

Corporations and Business Organizations 


In discharging duties to manage business and 

affairs of a corporation, directors owe fiduciary 

duties of care and loyalty to the corporation 

and its shareholders; those principles apply with 

equal force when a board of directors approves 

a corporate merger and are the bedrock of the 

law regarding corporate takeovers. 8 Del.C. §§ 

141(a), 251(b). 




While the business judgment rule may be 

applicable to the actions of corporate directors 

responding to takeover threats, the principles of 

care, loyalty, and independence upon which it is 

founded must first be satisfied. 


West Headnotes (21) 


Lockups 


Actions by minority shareholders; judicial 

scrutiny 

© 2013 Thomson Reuters. No claim to original U.S. Government Works. 1



Potential for conflict when board of directors 

implements antitakeover measures places upon 

the directors the burden of proving that they had 

reasonable grounds for believing that there was 

a danger to corporate policy and effectiveness, a 

burden which is satisfied by showing good faith 

and reasonable investigation. 




Board of directors must analyze nature of 

proposed takeover and its effect on the 

corporation in order to ensure that responsive 

action taken by the board is reasonable in relation 

to the threat posed to the corporation. 

corporation's stock exceeded the amount set as 

the target in the plan. 




When corporation exercises power to deal in 

its own stock in an effort to forestall a hostile 

takeover, the board of directors' actions are 

strictly held to the fiduciary standards requiring 

the directors to determine the best interest of the 

corporation and its stockholders and to abjure 

any action that is motivated by considerations 

other than a good-faith concern for those 

interests. 8 Del.C. § 160(a). 



Poison pills 

Board of directors had authority to adopt a 

“poison pill” plan by which shareholders would 

receive the right to be bought out by the 

corporation at a substantial premium upon the 

occurrence of a stated triggering event. 8 Del.C. 

§§ 141, 157. 



Poison pills 

“Poison pill” plan which gave shareholders the 

right to be bought out by the corporation at a 

substantial premium upon the occurrence of a 

stated triggering event was a reasonable plan for 

adoption by board of directors in response to 

impending hostile takeover bid at a price which 

the board reasonably concluded was grossly 

inadequate. 




Question of propriety of actions taken by 

board of directors to combat hostile takeover 

was mooted when all offers made for the 



Board of directors' adoption of exchange offer 

for ten million of corporation's own shares was 

a reasonable response to a hostile takeover bid 

which it considered grossly inadequate. 




When it became apparent that breakup of 

company was inevitable as result of takeover 

bids and the board of directors recognized that 

the company was for sale, board's duties changed 

from the preservation of the company as a 

corporate entity to the maximization of the 

company's value at a sale for the stockholders' 

benefits; directors' role changed from defenders 

of the corporate bastion to auctioneers charged 

with getting the best price for the stockholders at 

a sale of the company. 



Lockups 

Where rights of noteholders needed no further 

protection, as they were fixed by contract, board 




of directors breached its primary duty of loyalty 

when it entered into a lockup agreement with 

a potential buyer on the basis of impermissible 

considerations of the noteholders' interests at the 

expense of the shareholders. 


corporation was a breach of the board's 

fiduciary duties where the agreement to negotiate 

with only the one bidder ended, rather than 

intensifying, the board's involvement in a 

bidding contest for the corporation. 



Fiduciary Duties as to Management of 

Corporate Affairs in General 

Concern for nonstockholder interest is 

inappropriate when there is in progress an 

auction among active bidders for the company 

and the object of the board of directors is 

no longer to protect or maintain the corporate 

enterprise but to sell it to the highest bidder. 




When a board of directors ends an intense 

bidding contest for the corporation on an 

insubstantial basis and a significant by-product 

of that action is to protect the directors against 

a perceived threat of personal liability for 

consequences stemming from the prior adoption 

of an antitakeover measure, the directors 

have breached their fiduciary duties to the 

shareholders. 




No-shop provision adopted by a corporate board 

of directors in response to hostile takeover bid 

is impermissible when the board's primary duty 

has become that of an auctioneer responsible for 

selling the company to the highest bidder. 





When bidders for corporation make relatively 

similar offers or dissolution of the company 

becomes inevitable, the directors cannot fulfill 

their fiduciary duties by playing favorites among 

the contending factions and market forces must 

be allowed to operate freely to bring the 

shareholders the best price available for their 

equity. 





When sale of corporation has become inevitable, 

directors' role remains an active one to obtain 

the highest price possible for the stockholders' 

benefit. 


[20] Injunction 

Mergers and acquisitions; anti-takeover 

measures 

Trial court did not abuse its discretion in 

enjoining payment of cancellation fee to one of 

two bidders for corporation pending a resolution 

of merits of other bidder's challenge to certain 

actions taken by the board of directors, including 

the cancellation fee agreement. 



Lockups 

Lockup agreement entered into by board of 

directors with one of two bidders for the 



measures 




Company bidding for purchase of corporation 

showed likelihood of irreparable harm if it were 

not granted injunction against certain defensive 

measures taken by the target corporation and that 

possible harm outweighed any potential harm to 

the target corporation and another bidder which 

might result from the grant of the injunction. 


*175 Upon appeal from the Court of Chancery. 

AFFIRMED. 

Attorneys and Law Firms 

A. Gilchrist Sparks, III (argued), Lawrence A. Hamermesh, 

and Kenneth Nachbar, of Morris, Nichols, Arsht & 

Tunnell, Wilmington, and Herbert M. Wachtell, Douglas S. 

Liebhafsky, Kenneth B. Forrest, and Theodore N. Mirvis, of 

Wachtell, Lipton, Rosen & Katz, New York City, of counsel, 

for appellant Revlon. 

Michael D. Goldman, James F. Burnett, Donald J. Wolfe, 

Jr., Richard L. Horwitz, of Potter, Anderson & Corroon, 

Wilmington, and Leon Silverman (argued), and Marc P. 

Cherno, of Fried, Frank, Harris, Shriver & Jacobson, New 

York City, of counsel, for appellant Forstmann Little. 

Bruce M. Stargatt (argued), Edward B. Maxwell, 2nd, David 

C. McBride, Josy W. Ingersoll, of Young, Conaway, Stargatt 

& Taylor, Wilmington, and Stuart L. Shapiro (argued), 

Stephen P. Lamb, Andrew J. Turezyn, and Thomas P. White, 

of Skadden, Arps, Slate, Meagher & Flom, Wilmington, and 

Michael W. Mitchell (New York City) and Marc B. Tucker, 

Washington, D.C., of Skadden, Arps, Slate, Meagher & Flom, 

for appellee. 

Before McNEILLY and MOORE, JJ., and BALICK, Judge 

(Sitting by designation pursuant to Del. Const., Art. IV, § 12.). 

Opinion 

MOORE, Justice: 

In this battle for corporate control of Revlon, Inc. (Revlon), 

the Court of Chancery enjoined certain transactions designed 

to thwart the efforts of Pantry Pride, Inc. (Pantry Pride) to 

acquire Revlon. 1 The defendants are Revlon, its board of 

directors, and Forstmann Little & Co. and the latter's affiliated 

limited partnership (collectively, Forstmann). The injunction 

barred consummation of an option granted Forstmann to 

purchase certain Revlon assets (the lock-up option), a promise 

by Revlon to deal exclusively with Forstmann in the face 

of a takeover (the no-shop provision), and the payment 

of a $25 million cancellation fee to Forstmann if the 

transaction was aborted. The Court of Chancery found that 

the Revlon directors had breached their duty of care by 

entering into the foregoing transactions *176 and effectively 

ending an active auction for the company. The trial court 

ruled that such arrangements are not illegal per se under 

Delaware law, but that their use under the circumstances 

here was impermissible. We agree. See MacAndrews & 

Forbes Holdings, Inc. v. Revlon, Inc., Del.Ch., 501 A.2d 1239 

(1985). Thus, we granted this expedited interlocutory appeal 

to consider for the first time the validity of such defensive 

measures in the face of an active bidding contest for corporate 

control. 2 Additionally, we address for the first time the extent 

to which a corporation may consider the impact of a takeover 

threat on constituencies other than shareholders. See Unocal 

Corp. v. Mesa Petroleum Co., Del.Supr., 493 A.2d 946, 955 

(1985). 

[1] [2] In our view, lock-ups and related agreements 

are permitted under Delaware law where their adoption is 

untainted by director interest or other breaches of fiduciary 

duty. The actions taken by the Revlon directors, however, did 

not meet this standard. Moreover, while concern for various 

corporate constituencies is proper when addressing a takeover 

threat, that principle is limited by the requirement that there be 

some rationally related benefit accruing to the stockholders. 

We find no such benefit here. 

Thus, under all the circumstances we must agree with 

the Court of Chancery that the enjoined Revlon defensive 

measures were inconsistent with the directors' duties to the 

stockholders. Accordingly, we affirm. 

I. 

The somewhat complex maneuvers of the parties necessitate 

a rather detailed examination of the facts. The prelude 

to this controversy began in June 1985, when Ronald O. 

Perelman, chairman of the board and chief executive officer 

of Pantry Pride, met with his counterpart at Revlon, Michel 

C. Bergerac, to discuss a friendly acquisition of Revlon by 

Pantry Pride. Perelman suggested a price in the range of $40– 

50 per share, but the meeting ended with Bergerac dismissing 




those figures as considerably below Revlon's intrinsic value. 

All subsequent Pantry Pride overtures were rebuffed, perhaps 

in part based on Mr. Bergerac's strong personal antipathy to 

Mr. Perelman. 

Thus, on August 14, Pantry Pride's board authorized Perelman 

to acquire Revlon, either through negotiation in the $42–$43 

per share range, or by making a hostile tender offer at $45. 

Perelman then met with Bergerac and outlined Pantry Pride's 

alternate approaches. Bergerac remained adamantly opposed 

to such schemes and conditioned any further discussions of 

the matter on Pantry Pride executing a standstill agreement 

prohibiting it from acquiring Revlon without the latter's prior 

approval. 

On August 19, the Revlon board met specially to consider 

the impending threat of a hostile bid by Pantry Pride. 3 

At the meeting, Lazard Freres, Revlon's investment *177 

banker, advised the directors that $45 per share was a 

grossly inadequate price for the company. Felix Rohatyn and 

William Loomis of Lazard Freres explained to the board 

that Pantry Pride's financial strategy for acquiring Revlon 

would be through “junk bond” financing followed by a breakup 

of Revlon and the disposition of its assets. With proper 

timing, according to the experts, such transactions could 

produce a return to Pantry Pride of $60 to $70 per share, 

while a sale of the company as a whole would be in the 

“mid 50” dollar range. Martin Lipton, special counsel for 

Revlon, recommended two defensive measures: first, that the 

company repurchase up to 5 million of its nearly 30 million 

outstanding shares; and second, that it adopt a Note Purchase 

Rights Plan. Under this plan, each Revlon shareholder would 

receive as a dividend one Note Purchase Right (the Rights) 

for each share of common stock, with the Rights entitling the 

holder to exchange one common share for a $65 principal 

Revlon note at 12% interest with a one-year maturity. The 

Rights would become effective whenever anyone acquired 

beneficial ownership of 20% or more of Revlon's shares, 

unless the purchaser acquired all the company's stock for cash 

at $65 or more per share. In addition, the Rights would not 

be available to the acquiror, and prior to the 20% triggering 

event the Revlon board could redeem the rights for 10 cents 

each. Both proposals were unanimously adopted. 

Pantry Pride made its first hostile move on August 23 with a 

cash tender offer for any and all shares of Revlon at $47.50 

per common share and $26.67 per preferred share, subject to 

(1) Pantry Pride's obtaining financing for the purchase, and 

(2) the Rights being redeemed, rescinded or voided. 

The Revlon board met again on August 26. The directors 

advised the stockholders to reject the offer. Further defensive 

measures also were planned. On August 29, Revlon 

commenced its own offer for up to 10 million shares, 

exchanging for each share of common stock tendered one 

Senior Subordinated Note (the Notes) of $47.50 principal 

at 11.75% interest, due 1995, and one-tenth of a share of 

$9.00 Cumulative Convertible Exchangeable Preferred Stock 

valued at $100 per share. Lazard Freres opined that the notes 

would trade at their face value on a fully distributed basis. 4 

Revlon stockholders tendered 87 percent of the outstanding 

shares (approximately 33 million), and the company accepted 

the full 10 million shares on a pro rata basis. The new Notes 

contained covenants which limited Revlon's ability to incur 

additional debt, sell assets, or pay dividends unless otherwise 

approved by the “independent” (non-management) members 

of the board. 

At this point, both the Rights and the Note covenants stymied 

Pantry Pride's attempted takeover. The next move came on 

September 16, when Pantry Pride announced a new tender 

offer at $42 per share, conditioned upon receiving at least 

90% of the outstanding stock. Pantry Pride also indicated that 

it would consider buying less than 90%, and at an increased 

price, if Revlon removed the impeding Rights. While this 

offer was lower on its face than the earlier $47.50 proposal, 

Revlon's investment banker, Lazard Freres, described the two 

bids as essentially equal in view of the completed exchange 

offer. 

The Revlon board held a regularly scheduled meeting on 

September 24. The directors rejected the latest Pantry Pride 

offer and authorized management to negotiate with other 

parties interested in acquiring Revlon. Pantry Pride remained 

determined in its efforts and continued to make cash bids for 

the company, offering $50 per share on September 27, and 

raising its bid to $53 on October 1, and then to $56.25 on 

October 7. 

*178 In the meantime, Revlon's negotiations with 

Forstmann and the investment group Adler & Shaykin had 

produced results. The Revlon directors met on October 3 

to consider Pantry Pride's $53 bid and to examine possible 

alternatives to the offer. Both Forstmann and Adler & 

Shaykin made certain proposals to the board. As a result, 

the directors unanimously agreed to a leveraged buyout by 

Forstmann. The terms of this accord were as follows: each 

stockholder would get $56 cash per share; management would 




purchase stock in the new company by the exercise of their 

Revlon “golden parachutes”; 5 Forstmann would assume 

Revlon's $475 million debt incurred by the issuance of the 

Notes; and Revlon would redeem the Rights and waive the 

Notes covenants for Forstmann or in connection with any 

other offer superior to Forstmann's. The board did not actually 

remove the covenants at the October 3 meeting, because 

Forstmann then lacked a firm commitment on its financing, 

but accepted the Forstmann capital structure, and indicated 

that the outside directors would waive the covenants in due 

course. Part of Forstmann's plan was to sell Revlon's Norcliff 

Thayer and Reheis divisions to American Home Products 

for $335 million. Before the merger, Revlon was to sell its 

cosmetics and fragrance division to Adler & Shaykin for $905 

million. These transactions would facilitate the purchase by 

Forstmann or any other acquiror of Revlon. 

When the merger, and thus the waiver of the Notes covenants, 

was announced, the market value of these securities began to 

fall. The Notes, which originally traded near par, around 100, 

dropped to 87.50 by October 8. One director later reported (at 

the October 12 meeting) a “deluge” of telephone calls from 

irate noteholders, and on October 10 the Wall Street Journal 

reported threats of litigation by these creditors. 

Pantry Pride countered with a new proposal on October 7, 

raising its $53 offer to $56.25, subject to nullification of the 

Rights, a waiver of the Notes covenants, and the election of 

three Pantry Pride directors to the Revlon board. On October 

9, representatives of Pantry Pride, Forstmann and Revlon 

conferred in an attempt to negotiate the fate of Revlon, but 

could not reach agreement. At this meeting Pantry Pride 

announced that it would engage in fractional bidding and 

top any Forstmann offer by a slightly higher one. It is also 

significant that Forstmann, to Pantry Pride's exclusion, had 

been made privy to certain Revlon financial data. Thus, the 

parties were not negotiating on equal terms. 

Again privately armed with Revlon data, Forstmann met on 

October 11 with Revlon's special counsel and investment 

banker. On October 12, Forstmann made a new $57.25 per 

share offer, based on several conditions. 6 The principal 

demand was a lock-up option to purchase Revlon's Vision 

Care and National Health Laboratories divisions for $525 

million, some $100–$175 million below the value ascribed 

to them by Lazard Freres, if another acquiror got 40% of 

Revlon's shares. Revlon also was required to accept a noshop 

provision. The Rights and Notes covenants had to 

be removed as in the October 3 agreement. There would 

be a $25 million cancellation fee to be placed in escrow, 

and released to Forstmann if the new agreement terminated 

or if another acquiror got more than 19.9% of Revlon's 

stock. Finally, there would be no participation by Revlon 

management in the merger. In return, Forstmann agreed to 

support the par value *179 of the Notes, which had faltered 

in the market, by an exchange of new notes. Forstmann also 

demanded immediate acceptance of its offer, or it would be 

withdrawn. The board unanimously approved Forstmann's 

proposal because: (1) it was for a higher price than the Pantry 

Pride bid, (2) it protected the noteholders, and (3) Forstmann's 

financing was firmly in place. 7 The board further agreed to 

redeem the rights and waive the covenants on the preferred 

stock in response to any offer above $57 cash per share. 

The covenants were waived, contingent upon receipt of an 

investment banking opinion that the Notes would trade near 

par value once the offer was consummated. 

Pantry Pride, which had initially sought injunctive relief from 

the Rights plan on August 22, filed an amended complaint on 

October 14 challenging the lock-up, the cancellation fee, and 

the exercise of the Rights and the Notes covenants. Pantry 

Pride also sought a temporary restraining order to prevent 

Revlon from placing any assets in escrow or transferring them 

to Forstmann. Moreover, on October 22, Pantry Pride again 

raised its bid, with a cash offer of $58 per share conditioned 

upon nullification of the Rights, waiver of the covenants, and 

an injunction of the Forstmann lock-up. 

On October 15, the Court of Chancery prohibited the 

further transfer of assets, and eight days later enjoined 

the lock-up, no-shop, and cancellation fee provisions of 

the agreement. The trial court concluded that the Revlon 

directors had breached their duty of loyalty by making 

concessions to Forstmann, out of concern for their liability 

to the noteholders, rather than maximizing the sale price of 

the company for the stockholders' benefit. MacAndrews & 

Forbes Holdings, Inc. v. Revlon, Inc., 501 A.2d at 1249–50. 

II. 

To obtain a preliminary injunction, a plaintiff must 

demonstrate both a reasonable probability of success on the 

merits and some irreparable harm which will occur absent 

the injunction. Gimbel v. Signal Companies, Del.Ch., 316 

A.2d 599, 602 (1974), aff'd, Del.Supr., 316 A.2d 619 (1974). 

Additionally, the Court shall balance the conveniences of and 

possible injuries to the parties. Id. 




A. 

[3] [4] We turn first to Pantry Pride's probability of success 

on the merits. The ultimate responsibility for managing the 

business and affairs of a corporation falls on its board of 

directors. 8 Del.C. § 141(a). 8 In discharging this function 

the directors owe fiduciary duties of care and loyalty to 

the corporation and its shareholders. Guth v. Loft, Inc., 23 

Del.Supr. 255, 5 A.2d 503, 510 (1939); Aronson v. Lewis, 

Del.Supr., 473 A.2d 805, 811 (1984). These principles apply 

with equal force when a board approves a corporate merger 

pursuant to 8 Del.C. § 251(b); 9 Smith v. Van Gorkom, 

Del.Supr., 488 A.2d 858, 873 (1985); and of course they are 

the bedrock of our law regarding corporate takeover issues. 

Pogostin v. Rice, Del.Supr., 480 A.2d 619, 624 (1984); 

Unocal Corp. v. Mesa *180 Petroleum Co., Del.Supr., 

493 A.2d 946, 953, 955 (1985); Moran v. Household 

International, Inc., Del.Supr., 500 A.2d 1346, 1350 (1985). 

While the business judgment rule may be applicable to the 

actions of corporate directors responding to takeover threats, 

the principles upon which it is founded—care, loyalty and 

independence—must first be satisfied. 10 Aronson v. Lewis, 

473 A.2d at 812. 

[5] [6] If the business judgment rule applies, there is a 

“presumption that in making a business decision the directors 

of a corporation acted on an informed basis, in good faith 

and in the honest belief that the action taken was in the best 

interests of the company.” Aronson v. Lewis, 473 A.2d at 812. 

However, when a board implements anti-takeover measures 

there arises “the omnipresent specter that a board may be 

acting primarily in its own interests, rather than those of the 

corporation and its shareholders ...” Unocal Corp. v. Mesa 

Petroleum Co., 493 A.2d at 954. This potential for conflict 

places upon the directors the burden of proving that they 

had reasonable grounds for believing there was a danger to 

corporate policy and effectiveness, a burden satisfied by a 

showing of good faith and reasonable investigation. Id. at 

955. In addition, the directors must analyze the nature of the 

takeover and its effect on the corporation in order to ensure 

balance—that the responsive action taken is reasonable in 

relation to the threat posed. Id. 

B. 

[7] The first relevant defensive measure adopted by 

the Revlon board was the Rights Plan, which would be 

considered a “poison pill” in the current language of corporate 

takeovers—a plan by which shareholders receive the right to 

be bought out by the corporation at a substantial premium 

on the occurrence of a stated triggering event. See generally 

Moran v. Household International, Inc., Del.Supr., 500 A.2d 

1346 (1985). By 8 Del.C. §§ 141 and 122(13), 11 the board 

clearly had the power to adopt the measure. See Moran v. 

Household International, Inc., 500 A.2d at 1351. Thus, the 

focus becomes one of reasonableness and purpose. 

[8] The Revlon board approved the Rights Plan in the face 

of an impending hostile takeover bid by Pantry Pride at 

$45 per share, a price which Revlon reasonably concluded 

was grossly inadequate. Lazard Freres had so advised the 

directors, and had also informed them that Pantry Pride 

was a small, highly leveraged company bent on a “bustup” 

takeover by using “junk bond” financing to buy Revlon 

cheaply, sell the acquired assets to pay the *181 debts 

incurred, and retain the profit for itself. 12 In adopting the 

Plan, the board protected the shareholders from a hostile 

takeover at a price below the company's intrinsic value, while 

retaining sufficient flexibility to address any proposal deemed 

to be in the stockholders' best interests. 

To that extent the board acted in good faith and upon 

reasonable investigation. Under the circumstances it cannot 

be said that the Rights Plan as employed was unreasonable, 

considering the threat posed. Indeed, the Plan was a factor in 

causing Pantry Pride to raise its bids from a low of $42 to an 

eventual high of $58. At the time of its adoption the Rights 

Plan afforded a measure of protection consistent with the 

directors' fiduciary duty in facing a takeover threat perceived 

as detrimental to corporate interests. Unocal, 493 A.2d at 

954–55. Far from being a “show-stopper,” as the plaintiffs 

had contended in Moran, the measure spurred the bidding to 

new heights, a proper result of its implementation. See Moran, 

500 A.2d at 1354, 1356–67. 

[9] Although we consider adoption of the Plan to have been 

valid under the circumstances, its continued usefulness was 

rendered moot by the directors' actions on October 3 and 

October 12. At the October 3 meeting the board redeemed 

the Rights conditioned upon consummation of a merger with 

Forstmann, but further acknowledged that they would also be 

redeemed to facilitate any more favorable offer. On October 

12, the board unanimously passed a resolution redeeming the 

Rights in connection with any cash proposal of $57.25 or 




more per share. Because all the pertinent offers eventually 

equalled or surpassed that amount, the Rights clearly were no 

longer any impediment in the contest for Revlon. This mooted 

any question of their propriety under Moran or Unocal. 

C. 

[10] The second defensive measure adopted by Revlon 

to thwart a Pantry Pride takeover was the company's own 

exchange offer for 10 million of its shares. The directors' 

general broad powers to manage the business and affairs 

of the corporation are augmented by the specific authority 

conferred under 8 Del.C. § 160(a), permitting the company to 

deal in its own stock. 13 Unocal, 493 A.2d at 953–54; Cheff 

v. Mathes, 41 Del.Supr. 494, 199 A.2d 548, 554 (1964); Kors 

v. Carey, 39 Del.Ch. 47, 158 A.2d 136, 140 (1960). However, 

when exercising that power in an effort to forestall a hostile 

takeover, the board's actions are strictly held to the fiduciary 

standards outlined in Unocal. These standards require the 

directors to determine the best interests of the corporation and 

its stockholders, and impose an enhanced duty to abjure any 

action that is motivated by considerations other than a good 

faith concern for such interests. Unocal, 493 A.2d at 954– 

55; see Bennett v. Propp, 41 Del.Supr. 14, 187 A.2d 405, 409 

(1962). 

[11] The Revlon directors concluded that Pantry Pride's 

$47.50 offer was grossly inadequate. In that regard the board 

acted in good faith, and on an informed basis, with reasonable 

grounds to believe that there existed a harmful threat to the 

corporate enterprise. The adoption of a defensive measure, 

reasonable in relation to the threat posed, was proper and 

fully accorded with the powers, duties, and responsibilities 

conferred upon directors under our law. Unocal, 493 A.2d at 

954; Pogostin v. Rice, 480 A.2d at 627. 

*182 D. 

[12] However, when Pantry Pride increased its offer to $50 

per share, and then to $53, it became apparent to all that 

the break-up of the company was inevitable. The Revlon 

board's authorization permitting management to negotiate 

a merger or buyout with a third party was a recognition 

that the company was for sale. The duty of the board had 

thus changed from the preservation of Revlon as a corporate 

entity to the maximization of the company's value at a sale 

for the stockholders' benefit. This significantly altered the 

board's responsibilities under the Unocal standards. It no 

longer faced threats to corporate policy and effectiveness, 

or to the stockholders' interests, from a grossly inadequate 

bid. The whole question of defensive measures became moot. 

The directors' role changed from defenders of the corporate 

bastion to auctioneers charged with getting the best price for 

the stockholders at a sale of the company. 

III. 

This brings us to the lock-up with Forstmann and its emphasis 

on shoring up the sagging market value of the Notes in 

the face of threatened litigation by their holders. Such a 

focus was inconsistent with the changed concept of the 

directors' responsibilities at this stage of the developments. 

The impending waiver of the Notes covenants had caused the 

value of the Notes to fall, and the board was aware of the 

noteholders' ire as well as their subsequent threats of suit. The 

directors thus made support of the Notes an integral part of 

the company's dealings with Forstmann, even though their 

primary responsibility at this stage was to the equity owners. 

[13] The original threat posed by Pantry Pride—the breakup 

of the company—had become a reality which even the 

directors embraced. Selective dealing to fend off a hostile but 

determined bidder was no longer a proper objective. Instead, 

obtaining the highest price for the benefit of the stockholders 

should have been the central theme guiding director action. 

Thus, the Revlon board could not make the requisite showing 

of good faith by preferring the noteholders and ignoring its 

duty of loyalty to the shareholders. The rights of the former 

already were fixed by contract. Wolfensohn v. Madison Fund, 

Inc., Del.Supr., 253 A.2d 72, 75 (1969); Harff v. Kerkorian, 

Del.Ch., 324 A.2d 215 (1974). The noteholders required no 

further protection, and when the Revlon board entered into 

an auction-ending lock-up agreement with Forstmann on the 

basis of impermissible considerations at the expense of the 

shareholders, the directors breached their primary duty of 

loyalty. 

[14] The Revlon board argued that it acted in good 

faith in protecting the noteholders because Unocal 

permits consideration of other corporate constituencies. 

Although such considerations may be permissible, there 

are fundamental limitations upon that prerogative. A board 

may have regard for various constituencies in discharging 

its responsibilities, provided there are rationally related 

benefits accruing to the stockholders. Unocal, 493 A.2d at 




955. However, such concern for non-stockholder interests is 

inappropriate when an auction among active bidders is in 

progress, and the object no longer is to protect or maintain the 

corporate enterprise but to sell it to the highest bidder. 

Revlon also contended that by Gilbert v. El Paso Co., Del. 

Ch., 490 A.2d 1050, 1054–55 (1984), it had contractual and 

good faith obligations to consider the noteholders. However, 

any such duties are limited to the principle that one may not 

interfere with contractual relationships by improper actions. 

Here, the rights of the noteholders were fixed by agreement, 

and there is nothing of substance to suggest that any of 

those terms were violated. The Notes covenants specifically 

contemplated a waiver to permit sale of the company at a 

fair price. The Notes were accepted by the holders on that 

basis, including the risk of an adverse market effect stemming 

from a waiver. Thus, nothing remained for Revlon *183 to 

legitimately protect, and no rationally related benefit thereby 

accrued to the stockholders. Under such circumstances we 

must conclude that the merger agreement with Forstmann was 

unreasonable in relation to the threat posed. 

A lock-up is not per se illegal under Delaware law. Its 

use has been approved in an earlier case. Thompson v. 

Enstar Corp., Del. Ch., –––A.2d ––– (1984). Such options 

can entice other bidders to enter a contest for control of 

the corporation, creating an auction for the company and 

maximizing shareholder profit. Current economic conditions 

in the takeover market are such that a “white knight” 

like Forstmann might only enter the bidding for the target 

company if it receives some form of compensation to cover 

the risks and costs involved. Note, Corporations-Mergers 

—“Lock-up” Enjoined Under Section 14(e) of Securities 

Exchange Act—Mobil Corp. v. Marathon Oil Co., 669 F.2d 

366 (6th Cir.1981), 12 Seton Hall L.Rev. 881, 892 (1982). 

However, while those lock-ups which draw bidders into the 

battle benefit shareholders, similar measures which end an 

active auction and foreclose further bidding operate to the 

shareholders' detriment. Note, Lock-up Options: Toward a 

State Law Standard, 96 Harv. L. Rev. 1068, 1081 (1983). 14 

Recently, the United States Court of Appeals for the Second 

Circuit invalidated a lock-up on fiduciary duty grounds 

similar to those here. 15 Hanson Trust PLC, et al. v. ML SCM 

Acquisition Inc., et al., 781 F.2d 264 (2nd Cir.1986). Citing 

Thompson v. Enstar Corp., supra, with approval, the court 

stated: 

In this regard, we are especially mindful that some lock-up 

options may be beneficial to the shareholders, such as those 

that induce a bidder to compete for control of a corporation, 

while others may be harmful, such as those that effectively 

preclude bidders from competing with the optionee bidder. 

781 F.2d at 274. 

In Hanson Trust, the bidder, Hanson, sought control of 

SCM by a hostile cash tender offer. SCM management 

joined with Merrill Lynch to propose a leveraged buyout 

of the company at a higher price, and Hanson in turn 

increased its offer. Then, despite very little improvement in 

its subsequent bid, the management group sought a lock-up 

option to purchase SCM's two main assets at a substantial 

discount. The SCM directors granted the lock-up without 

adequate information as to the size of the discount or the 

effect the transaction would have on the company. Their 

action effectively ended a competitive bidding situation. The 

Hanson Court invalidated the lock-up because the directors 

failed to fully inform themselves about the value of a 

transaction in which management had a strong self-interest. 

“In short, the Board appears to have failed to ensure that 

negotiations for alternative bids were conducted by those 

whose only loyalty was to the shareholders.” Id. at 277. 

The Forstmann option had a similar destructive effect on 

the auction process. Forstmann had already been drawn into 

the contest on a preferred basis, so the result of the lockup 

was not to foster bidding, but to destroy it. The board's 

stated reasons for approving the transactions were: (1) better 

financing, (2) noteholder *184 protection, and (3) higher 

price. As the Court of Chancery found, and we agree, any 

distinctions between the rival bidders' methods of financing 

the proposal were nominal at best, and such a consideration 

has little or no significance in a cash offer for any and all 

shares. The principal object, contrary to the board's duty of 

care, appears to have been protection of the noteholders over 

the shareholders' interests. 

[15] While Forstmann's $57.25 offer was objectively higher 

than Pantry Pride's $56.25 bid, the margin of superiority is 

less when the Forstmann price is adjusted for the time value 

of money. In reality, the Revlon board ended the auction 

in return for very little actual improvement in the final bid. 

The principal benefit went to the directors, who avoided 

personal liability to a class of creditors to whom the board 

owed no further duty under the circumstances. Thus, when 

a board ends an intense bidding contest on an insubstantial 

basis, and where a significant by-product of that action is to 

protect the directors against a perceived threat of personal 




liability for consequences stemming from the adoption of 

previous defensive measures, the action cannot withstand the 

enhanced scrutiny which Unocal requires of director conduct. 

See Unocal, 493 A.2d at 954–55. 

[16] [17] In addition to the lock-up option, the Court 

of Chancery enjoined the no-shop provision as part of 

the attempt to foreclose further bidding by Pantry Pride. 

MacAndrews & Forbes Holdings, Inc. v. Revlon, Inc., 501 

A.2d at 1251. The no-shop provision, like the lock-up option, 

while not per se illegal, is impermissible under the Unocal 

standards when a board's primary duty becomes that of an 

auctioneer responsible for selling the company to the highest 

bidder. The agreement to negotiate only with Forstmann 

ended rather than intensified the board's involvement in the 

bidding contest. 

[18] [19] It is ironic that the parties even considered a noshop 

agreement when Revlon had dealt preferentially, and 

almost exclusively, with Forstmann throughout the contest. 

After the directors authorized management to negotiate 

with other parties, Forstmann was given every negotiating 

advantage that Pantry Pride had been denied: cooperation 

from management, access to financial data, and the exclusive 

opportunity to present merger proposals directly to the board 

of directors. Favoritism for a white knight to the total 

exclusion of a hostile bidder might be justifiable when 

the latter's offer adversely affects shareholder interests, but 

when bidders make relatively similar offers, or dissolution 

of the company becomes inevitable, the directors cannot 

fulfill their enhanced Unocal duties by playing favorites with 

the contending factions. Market forces must be allowed to 

operate freely to bring the target's shareholders the best price 

available for their equity. 16 Thus, as the trial court ruled, the 

shareholders' interests necessitated that the board remain free 

to negotiate in the fulfillment of that duty. 

[20] The court below similarly enjoined the payment of the 

cancellation fee, pending a resolution of the merits, because 

the fee was part of the overall plan to thwart Pantry Pride's 

efforts. We find no abuse of discretion in that ruling. 

[21] Having concluded that Pantry Pride has shown a 

reasonable probability of success on the merits, we address 

the issue of irreparable harm. The Court of Chancery ruled 

that unless the lock-up and other aspects of the agreement 

were enjoined, Pantry Pride's opportunity to bid for Revlon 

was lost. The court also held that the need for both bidders to 

compete *185 in the marketplace outweighed any injury to 

Forstmann. Given the complexity of the proposed transaction 

between Revlon and Forstmann, the obstacles to Pantry Pride 

obtaining a meaningful legal remedy are immense. We are 

satisfied that the plaintiff has shown the need for an injunction 

to protect it from irreparable harm, which need outweighs any 

harm to the defendants. 

V. 

In conclusion, the Revlon board was confronted with a 

situation not uncommon in the current wave of corporate 

takeovers. A hostile and determined bidder sought the 

company at a price the board was convinced was inadequate. 

The initial defensive tactics worked to the benefit of the 

shareholders, and thus the board was able to sustain its Unocal 

burdens in justifying those measures. However, in granting 

an asset option lock-up to Forstmann, we must conclude 

that under all the circumstances the directors allowed 

considerations other than the maximization of shareholder 

profit to affect their judgment, and followed a course that 

ended the auction for Revlon, absent court intervention, to 

the ultimate detriment of its shareholders. No such defensive 

measure can be sustained when it represents a breach of the 

directors' fundamental duty of care. See Smith v. Van Gorkom, 

Del.Supr., 488 A.2d 858, 874 (1985). In that context the 

board's action is not entitled to the deference accorded it 

by the business judgment rule. The measures were properly 

enjoined. The decision of the Court of Chancery, therefore, is 

AFFIRMED. 

Parallel Citations 


IV. 

Footnotes 




1 The nominal plaintiff, MacAndrews & Forbes Holdings, Inc., is the controlling stockholder of Pantry Pride. For all practical purposes 

their interests in this litigation are virtually identical, and we hereafter will refer to Pantry Pride as the plaintiff. 

2 This appeal was heard on an expedited basis in light of the pending Pantry Pride offer and the Revlon-Forstmann transactions. We 

accepted the appeal on Friday, October 25, 1985, received the parties' opening briefs on October 28, their reply briefs on October 29, 

and heard argument on Thursday, October 31. We announced our decision to affirm in an oral ruling in open court at 9:00 a.m. on 

Friday, November 1, with the proviso that this more detailed written opinion would follow in due course. 

3 There were 14 directors on the Revlon board. Six of them held senior management positions with the company, and two others 

held significant blocks of its stock. Four of the remaining six directors were associated at some point with entities that had various 

business relationships with Revlon. On the basis of this limited record, however, we cannot conclude that this board is entitled to 

certain presumptions that generally attach to the decisions of a board whose majority consists of truly outside independent directors. 

See Polk v. Good & Texaco, Del.Supr., ––– A.2d ––––, –––– (1986); Moran v. Household International, Inc., Del.Supr., 500 A.2d 

1346, 1356 (1985); Unocal Corp. v. Mesa Petroleum Co., Del.Supr., 493 A.2d 946, 955 (1985); Aronson v. Lewis, Del.Supr., 473 

A.2d 805, 812, 815 (1984); Puma v. Marriott, Del. Ch., 283 A.2d 693, 695 (1971). 

4 Like bonds, the Notes actually were issued in denominations of $1,000 and integral multiples thereof. A separate certificate was 

issued in a total principal amount equal to the remaining sum to which a stockholder was entitled. Likewise, in the esoteric parlance 

of bond dealers, a Note trading at par ($1,000) would be quoted on the market at 100. 

5 In the takeover context “golden parachutes” generally are understood to be termination agreements providing substantial bonuses 

and other benefits for managers and certain directors upon a change in control of a company. 

6 Forstmann's $57.25 offer ostensibly is worth $1 more than Pantry Pride's $56.25 bid. However, the Pantry Pride offer was immediate, 

while the Forstmann proposal must be discounted for the time value of money because of the delay in approving the merger and 

consummating the transaction. The exact difference between the two bids was an unsettled point of contention even at oral argument. 

7 Actually, at this time about $400 million of Forstmann's funding was still subject to two investment banks using their “best efforts” 

to organize a syndicate to provide the balance. Pantry Pride's entire financing was not firmly committed at this point either, although 

Pantry Pride represented in an October 11 letter to Lazard Freres that its investment banker, Drexel Burnham Lambert, was highly 

confident of its ability to raise the balance of $350 million. Drexel Burnham had a firm commitment for this sum by October 18. 

8 The pertinent provision of the statute is: 

(a) The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a 

board of directors, except as may be otherwise provided in this chapter or in its certificate of incorporation. 8 Del.C. § 141(a). 

9 The statute provides in pertinent part: 

(b) The board of directors of each corporation which desires to merge or consolidate shall adopt a resolution approving an 

agreement of merger or consolidation. 8 Del.C. § 251(b). 

10 One eminent corporate commentator has drawn a distinction between the business judgment rule, which insulates directors and 

management from personal liability for their business decisions, and the business judgment doctrine, which protects the decision itself 

from attack. The principles upon which the rule and doctrine operate are identical, while the objects of their protection are different. 

See Hinsey, Business Judgment and the American Law Institute's Corporate Governance Project: The Rule, the Doctrine and the 

Reality, 52 Geo. Wash. L.Rev. 609, 611–13 (1984). In the transactional justification cases, where the doctrine is said to apply, our 

decisions have not observed the distinction in such terminology. See Polk v. Good & Texaco, Del.Supr., ––– A.2d ––––, –––– (1986); 

Moran v. Household International, Inc., Del.Supr., 500 A.2d 1346, 1356 (1985); Unocal Corp. v. Mesa Petroleum Co., Del.Supr., 

493 A.2d 946, 953–55 (1985); Rosenblatt v. Getty Oil Co., Del.Supr., 493 A.2d 929, 943 (1985). Under the circumstances we do not 

alter our earlier practice of referring only to the business judgment rule, although in transactional justification matters such reference 

may be understood to embrace the concept of the doctrine. 

11 The relevant provision of Section 122 is: 

Every corporation created under this chapter shall have power to: 

(13) Make contracts, including contracts of guaranty and suretyship, incur liabilities, borrow money at such rates of interest 

as the corporation may determine, issue its notes, bonds and other obligations, and secure any of its obligations by mortgage, 

pledge or other encumbrance of all or any of its property, franchises and income, ...”. 8 Del.C. § 122(13). 

See Section 141(a) in n. 8, supra. See also Section 160(a), n. 13, infra. 

12 As we noted in Moran, a “bust-up” takeover generally refers to a situation in which one seeks to finance an acquisition by selling off 

pieces of the acquired company, presumably at a substantial profit. See Moran, 500 A.2d at 1349, n. 4. 

13 The pertinent provision of this statute is: 

(a) Every corporation may purchase, redeem, receive, take or otherwise acquire, own and hold, sell, lend, exchange, transfer or 

otherwise dispose of, pledge, use and otherwise deal in and with its own shares. 8 Del.C. § 160(a). 




14 For further discussion of the benefits and detriments of lock-up options, also see: Nelson, Mobil Corp. v. Marathon Oil Co.—The 

Decision and Its Implications for Future Tender Offers, 7 Corp. L.Rev. 233, 265–68 (1984); Note, Swallowing the Key to Lock-up 

Options: Mobil Corp. v. Marathon Oil Co., 14 U.Tol.L.Rev. 1055, 1081–83 (1983). 

15 The federal courts generally have declined to enjoin lock-up options despite arguments that lock-ups constitute impermissible 

“manipulative” conduct forbidden by Section 14(e) of the Williams Act [15 U.S.C. § 78n(e) ]. See Buffalo Forge Co. v. Ogden Corp., 

717 F.2d 757 (2nd Cir.1983), cert. denied, 464 U.S. 1018, 104 S.Ct. 550, 78 L.Ed.2d 724 (1983); Data Probe Acquisition Corp. v. 

Datatab, Inc., 722 F.2d 1 (2nd Cir.1983); cert. denied 465 U.S. 1052, 104 S.Ct. 1326, 79 L.Ed.2d 722 (1984); but see Mobil Corp. 

v. Marathon Oil Co., 669 F.2d 366 (6th Cir.1981). The cases are all federal in nature and were not decided on state law grounds. 

16 By this we do not embrace the “passivity” thesis rejected in Unocal. See 493 A.2d at 954–55, nn. 8–10. The directors' role remains 

an active one, changed only in the respect that they are charged with the duty of selling the company at the highest price attainable 

for the stockholders' benefit. 

End of Document 

© 2013 Thomson Reuters. No claim to original U.S. Government Works. 


Delphi Financial Group Shareholder Litigation

In re Delphi Financial Group Shareholder Litigation, Not Reported in A.3d (2012) 

2012 WL 729232 

Only the Westlaw citation is currently available. 

UNPUBLISHED OPINION. CHECK 

COURT RULES BEFORE CITING. 

Court of Chancery of Delaware. 

In re DELPHI FINANCIAL GROUP 

SHAREHOLDER LITIGATION. 

C.A. No. 7144–VCG. | Submitted: 

March 2, 2012. | Decided: March 6, 2012. 


Stuart M. Grant and Cynthia A. Calder, of Grant & Eisenhofer 

P.A., Wilmington, Delaware; Michael Hanrahan, Bruce E. 

Jameson, Paul A. Fioravanti, Jr., and Laina M. Herbert, of 

Prickett, Jones & Elliot, P.A., Wilmington, Delaware; of 

Counsel: Mark Lebovitch and Jeremy Friedman, of Bernstein 

Litowitz Berger & Grossman LLP, New York, New York; 

Samuel H. Rudman, Joseph Russello, Mark S. Reich, and 

Christopher M. Barrett, of Robbins Geller Rudman & Dowd 

LLP, Melville, New York; Randall J. Baron, of Robbins 

Geller Rudman & Dowd LLP, San Diego, California; Marc 

A. Topaz, Lee D. Rudy, Michael C. Wagner, and J. Daniel 

Albert, of Kessler Topaz Meltzer & Check, LLP, Radnor, 

Pennsylvania, Attorneys for Plaintiffs. 

William M. Lafferty, Kevin M. Coen, and Bradley D. Sorrels, 

of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, 

Delaware, Attorneys for Defendants Delphi Financial Group, 

Inc., Kevin R. Brine, Edward A. Fox, Steven A. Hirsh, James 

M. Litvack, James N. Meehan, Philip R. O'Connor, and 

Robert F. Wright. 

Gary Bornstein and Kevin J. Orsini, of Cravath, Swaine & 

Moore LLP, New York, New York, Attorneys for Edward A. 

Fox, Steven A. Hirsh, James M. Litvack, James N. Meehan, 

and Philip R. O'Connor. 

Raymond J. DiCamillo and Kevin M. Gallagher, of Richards, 

Layton & Finger, P.A., Wilmington, Delaware; of Counsel: 

Brian T. Frawley, of Sullivan & Cromwell LLP, New York, 

New York, Attorneys for Defendants Tokio Marine Holdings 

Inc. and TM Investment (Delaware) Inc. 

Donald J. Wolfe, Jr., Matthew E. Fischer, Breton W. Ashman, 

Jr., and Matthew F. Davis, of Potter Anderson & Corroon 

LLP, Wilmington, Delaware; of counsel: Christopher P. 

Moore and Sara A. Sanchez, of Cleary Gottlieb Steen 

& Hamilton LLP, New York, New York, Attorneys for 

Defendant Robert Rosenkranz. 

Collins J. Seitz, Jr., Bradley M. Aronstam, and S. Michael 

Sirkin, of Seitz Ross Aronstam & Moritz LLP, Wilmington, 

Delaware, Attorneys for Defendants Donald A. Sherman, 

Stephan A. Kiratsous, and Harold F. Ilg. 

Andre G. Bouchard, of Bouchard Margules & Friedlander, 

P.A., Wilmington, Delaware, Attorney for Defendant Chad 

W. Coulter. 

Opinion 

MEMORANDUM OPINION 

GLASSCOCK, Vice Chancellor. 

*1 This matter involves the proposed takeover of Delphi 

Financial Group, Inc. (“Delphi” or the “Company”), by Tokio 

Marine Holdings, Inc. (“TMH”). Delphi is an insurance 

holding company founded by Defendant Robert Rosenkranz. 

Rosenkranz took Delphi public in 1990. In so doing, he 

created two classes of stock, Class A, largely held by the 

public, and Class B, retained by Rosenkranz. Although 

Rosenkranz retained less than 13% of the shares outstanding, 

each share of Class B stock represented the right to ten votes 

in stockholder matters, while each share of Class A stock 

entitled the holder to one vote. In other words, Rosenkranz 

retained control of Delphi. Among the rights associated with 

control is the ability to seek a control premium should Delphi 

be sold. Rosenkranz could retain or bargain away that right; 

he chose to sell it to the Class A stockholders. This was 

accomplished by a charter provision, which directed that, 

on sale of the company, each share of Class B stock would 

be converted to Class A, entitled to the same consideration 

as any other Class A stock. This concession to the Class A 

stockholders resulted, presumably, in a higher purchase price 

for Class A stock than would have been the case without the 

provision. 

In 2011, TMH, through an intermediary, contacted 

Rosenkranz about the possible purchase of Delphi. While 

negotiating with TMH on behalf of Delphi, Rosenkranz 

at the same time made it clear to Delphi's board that, 

notwithstanding the charter provision, he would not consent 

to the sale without a premium paid for his Class B stock. 

Although the Delphi board was reluctant to recommend a 



differential for the Class B stock, it also recognized that the 

premium TMH was willing to pay over market was very 

large, and would probably be attractive to the stockholders. 

It therefore set up a committee of independent directors to 

negotiate a differential for the Class B stock. The committee 

was ultimately able to negotiate the per share price demanded 

by Rosenkranz from $59 down to $53.875. 1 

Meanwhile, Rosenkranz continued to negotiate with TMH on 

behalf of Delphi. TMH ultimately agreed to pay $46 per share 

for Delphi. TMH was then informed that the deal would be 

structured to provide a differential: $44.875 per share for the 

Class A shares; $53.875 per share for the Class B shares. 

The deal was conditioned on a majority of the publicly held 

Class A shares being voted in favor, and a successful vote to 

amend the Delphi Charter to allow Rosenkranz to receive the 

differential. 

Before creating Delphi, Rosenkranz had established an 

investment advising firm, Acorn Advisory Capital L.P. 

(“Acorn”), which provided investment services to third 

parties. After Rosenkranz founded Delphi, Delphi established 

a contractual relationship with Acorn under which Acorn 

would use Delphi employees and resources to provide 

services both to third parties and to Delphi. Acorn would then 

reimburse Delphi for the use of its employees, office facilities, 

and the like. Acorn provided investment advisory services 

to Delphi pursuant to contractual agreements (the “RAM 

Contracts”), under which Acorn would bill Delphi through 

another Rosenkranz entity, Rosenkranz Asset Management, 

LLC (“RAM”). The RAM Contracts are terminable upon 

thirty days' notice from either party. The revenue from the 

sale of Acorn's services to third parties and to Delphi went to 

Rosenkranz. 

*2 During the negotiation of the Delphi/TMH deal, 

Rosenkranz discussed with TMH the retention of the RAM 

Contracts by TMH for a period of years, or, alternatively, 

the purchase of RAM by TMH. While Rosenkranz and TMH 

deny that any agreement was reached, Rosenkranz testified 

that he expects the parties to complete such an agreement 

shortly after the Delphi/TMH deal closes. 

The Plaintiff stockholders argue that Rosenkranz is not 

entitled to the stock price differential, that the Delphi Board 

breached its duty to the stockholders in structuring the deal 

to include such a differential at the Class A stockholders' 

expense, and that the fiduciary breaches of Rosenkranz 

and the Board were aided wrongfully by TMH. They also 

argue that the RAM Contract was nothing but a device for 

Rosenkranz to skim money from Delphi for work Delphi 

could have provided for itself at lower cost, and that the 

Acorn services sold to third parties represented an opportunity 

of Delphi's usurped by Rosenkranz. They argue that the 

agreement discussed between TMH and Rosenkranz to 

retain the RAM Contracts for a term of years, or to buy 

RAM outright, really involved disguised consideration for 

Rosenkranz's assent to the Delphi/TMH deal, which therefore 

constituted additional consideration that should belong to the 

stockholders. The Plaintiffs seek to enjoin the stockholders' 

vote on the Delphi/TMH merger. 

Based upon the record developed through expedited 

discovery and presented at the preliminary injunction hearing, 

I find that the Plaintiffs have demonstrated a likelihood of 

success on the merits at least with respect to the allegations 

against Rosenkranz. However, because the deal represents 

a large premium over market price, because damages are 

available as a remedy, and because no other potential 

purchaser has come forth or seems likely to come forth to 

match, let alone best, the TMH offer, I cannot find that 

the balance of the equities favors an injunction over letting 

the stockholders exercise their franchise, and allowing the 

Plaintiffs to pursue damages. Therefore, the Plaintiffs' request 

for a preliminary injunction is denied. 

I. BACKGROUND 2 

A. Parties 

Delphi is a financial services holding company incorporated 

in Delaware. Delphi's subsidiaries are insurance and 

insurance-related businesses that provide small- to midsized 

businesses with employee benefit services, including 

group coverage for long term and short term disability, life, 

travel accident, dental, and health insurance, and workers' 

compensation. Delphi was founded in 1987 by Defendant 

Robert Rosenkranz, who is Delphi's current CEO and 

Chairman. 

Delphi's board comprises nine directors, all of whom 

are Defendants in this action. Seven of the directors are 

independent and do not hold officer positions within Delphi. 3 

They are Kevin R. Brine, Edward A. Fox, Steven A. Hirsh, 

James M. Litvack, James N. Meehan, Philip R. O'Connor, 

and Robert F. Wright. The Complaint also names Harold 

F. Ilg, a former director whose retirement was announced 

in January 2012, as a Defendant (together with Brine, Fox, 



Hirsh, Litvack, Meehan, O'Connor, and Wright, the “Director 

Defendants”). 4 

*3 Delphi's board also includes two directors who hold 

officer positions in the Company: Rosenkranz, who is 

Chairman of the Board and CEO, and Donald A. Sherman, 

who has served as President and COO of Delphi since 2006 

and as a director since 2002. Sherman also serves as a 

director of Delphi's principal subsidiaries and as President 

and COO of Delphi Capital Management, Inc. (“DCM”), a 

wholly owned subsidiary of Delphi through which Delphi 

conducts its New York activities and which is involved in an 

expense allocation agreement, discussed below, with certain 

Rosenkranz-affiliated entities. 

The Complaint also names several of Delphi's non-director 

officers: Defendant Stephan A. Kiratsous, Executive Vice 

President and CFO of Delphi since June 2011, and Chad 

W. Coulter, General Counsel of Delphi since January 1998, 

Secretary since May 2003, and Senior Vice President since 

February 2007 (together with Rosenkranz, Sherman, and 

Kiratsous, the “Executive Defendants”). 5 

Defendant TMH is a Japanese holding company whose 

subsidiaries offer products and services in the global property 

and casualty insurance, reinsurance, and life insurance 

markets. TMH has no affiliation with Rosenkranz, Delphi, or 

any of the Director or Executive Defendants. 

power by voting agreement, the Delphi Charter contains other 

restrictions on the Class B shares and Rosenkranz's rights 

as the holder of those shares. Except for transfers to certain 

affiliates, the Delphi Charter provides that the transfer of any 

Class B shares first effects a share-for-share conversion of 

those shares into Class A stock; 7 thus, while Rosenkranz 

exercises with his Class B voting power an effective veto 

right over any action requiring stockholder approval, he 

is unable to transfer that voting power. Moreover, the 

Delphi Charter contains a provision prohibiting disparate 

consideration between Class A and B stock in the event of a 

merger: 

[I]n the case of any distribution or payment ... on Class 

A Common Stock or Class B Common Stock upon the 

consolidation or merger of the Corporation with or into 

any other corporation ... such distribution payment shall be 

made ratably on a per share basis among the holders of the 

Class A Common Stock and Class B Common Stock as a 

single class. 8 

*4 These Charter provisions were in force at Delphi's IPO, 

and while they preserve Rosenkranz's voting power and 

effective right of approval over all Delphi actions requiring 

a majority stockholder vote, they severely limit Rosenkranz's 

ability to realize any other benefits by means of his Class B 

stock ownership, beyond those he of course possesses as a 

12.9% equity holder in Delphi. 

B. Delphi's Capital Structure and Relevant Charter 

Provisions 

Delphi first issued shares to the public in 1990. Following 

this IPO, Delphi's ownership was divided between holders 

of Class A common stock and Class B common stock. 

Delphi Class A shares are widely held, publicly traded, 

and entitled by the Delphi Charter 6 to one vote per share. 

Class B shares are held entirely by Rosenkranz and his 

affiliates and are entitled to ten votes per share; however, 

the the Delphi Charter caps the aggregate voting power of 

the Class B shares at 49.9%. Rosenkranz also owns Class A 

shares, but a voting agreement with Delphi caps Rosenkranz's 

total voting power, regardless of his stock ownership, at 

49.9%. Although Rosenkranz possesses 49.9% of the Delphi 

stockholder voting power due to his Class B shares, his stock 

ownership accounts for roughly 12.9% of Delphi's equity. 

In addition to the cap the Delphi Charter places on Class B 

voting power and the cap placed on Rosenkranz's total voting 

C. Delphi's Consulting Contracts with Rosenkranz– 

Affiliated Entities 

Before founding Delphi in 1987, Rosenkranz created in 1982 

a group of private investment funds to construct and manage 

investment portfolios. One such fund was Acorn Partners, 

L.P., which is managed by Acorn, a financial advisory firm 

registered with the U.S. Securities and Exchange Commission 

under the Investment Advisers Act of 1940. Since 1982, 

Acorn has provided consulting services to third parties. 

Pursuant to two contracts entered into in 1987 and 1988, 

Delphi and its largest subsidiary, Reliance Standard, receive 

investment consulting services from Acorn under the RAM 

Contracts. Although Acorn provides the services under these 

contracts, payment under the contracts is made by Delphi 

to RAM, another Rosenkranz-affiliated entity, in order to 

segregate the fees Acorn receives from Delphi from those it 

receives from other parties to which it provides services. 9 

This payment arrangement is purportedly for accounting 



purposes and does not affect the economics of the contracts, 

as Rosenkranz is the beneficial owner of both Acorn and 

RAM. 10 The RAM Contracts have been publicly disclosed 

in Delphi's SEC filings since the Company's 1990 IPO. 

Additionally, they are terminable by either RAM or Delphi 

upon thirty days' notice. 

For the consulting services it provides to Delphi, Acorn 

operates through an Expense Allocation Agreement (“EAA”) 

with DCM, a wholly owned subsidiary of Delphi and the 

entity through which Delphi conducts its New York activities. 

Under the EAA, DCM provides Acorn with office space, 

facilities, and personnel; in fact, Acorn's “employees” are on 

the DCM payroll. 11 Acorn then reimburses DCM for these 

personnel, facility, and office space costs. 12 Acorn itself does 

not actually own any assets beyond, according to Rosenkranz, 

proprietary trading systems and models developed by him that 

Acorn uses for its business. 13 At oral argument, Defendants' 

counsel seemed unclear as to exactly what tangible value 

the RAM Contracts bring to Delphi that Delphi could not 

provide to itself at cost. The nature of the benefit of the RAM 

Contracts to Delphi remains unclear to me, perhaps because 

the contracts are, as the Plaintiffs allege, sham agreements 

through which Rosenkranz has being skimming money from 

Delphi since the Company's inception. That theory, however, 

awaits factual development on a full record. 

D. TMH Approaches Delphi Regarding an Acquisition 

On July 20, 2011, TMH made an unsolicited approach, 

through its investment banker MacQuarie Capital 

(“MacQuarie”), to Delphi to express its interest in acquiring 

the Company. TMH had plans to expand internationally 

and enter the property, casualty, and life insurance markets, 

and it had identified Delphi as a potential acquisition target 

in pursuit of that strategy. A MacQuarie representative 

called Rosenkranz to request a preliminary meeting between 

the senior management of Delphi and TMH. Rosenkranz's 

initial response was that he did not think Delphi was for 

sale. Eventually, however, Rosenkranz called the MacQuarie 

representative back and indicated that he would report TMH's 

interest to Delphi's Board at the upcoming quarterly meeting. 

Rosenkranz also tentatively scheduled a meeting between 

Delphi and TMH representatives for the day after the board 

meeting. 14 

*5 At the Delphi Board's August 3rd meeting, Rosenkranz 

informed the other directors of the Delphi Board of 

TMH's interest in acquiring Delphi. The Director Defendants 

authorized preliminary discussions and disclosures with 

TMH. 15 The directors also discussed the seriousness of 

TMH's interest, and Rosenkranz suggested 1.5–2.0 times 

book value as a reference point for an attractive deal, or $45– 

$60 per share, approximately an 80–140% premium over the 

Class A stock price at the time. 

For most of August, senior management from Delphi 

and TMH had general discussions regarding a potential 

merger, with Rosenkranz representing Delphi with assistance 

from Delphi COO Sherman and CFO Kiratsous. Delphi 

began providing due diligence materials in late August and 

continued to discuss potential synergies with TMH; however, 

no discussions of price or other specific terms occurred. 

During this time, Rosenkranz considered how he might 

receive a premium on his Class B shares above what the 

Class A stockholders would receive in the Merger. Because 

the Delphi Charter prohibits disparate distributions of merger 

consideration through a provision that was in place when 

Delphi went public in 1990, Rosenkranz knew that any 

premium would require a charter amendment. Apparently 

undeterred by the fact that Section 7 of Delphi's Charter would 

likely be viewed by Delphi's public stockholders as expressly 

prohibiting the differential consideration he sought, and that 

the Delphi stock price paid by these investors likely reflected 

a company in which the controlling stockholder, though 

retaining voting control, had bargained away his right to be 

compensated disparately for his shares, Rosenkranz discussed 

with Sherman, Kiratsous, and Coulter, Delphi's General 

Counsel, how such a division of the merger proceeds might 

be accomplished. 16 The Executive Defendants obtained data 

on acquisitions of corporations with dual-class stock, and 

Coulter advised Rosenkranz that a special committee should 

be formed and that the transaction should be conditioned 

on approval by a majority vote of the disinterested Class A 

stockholders. 17 Despite using Delphi resources in procuring 

this advice, Rosenkranz did not inform the Board of his 

desire for disparate consideration until a Board meeting in 

mid September. 

On September 7, 2011, at a meeting attended by the 

Executive Defendants, Brimecome conveyed TMH's interest 

in acquiring Delphi at a price between $33–$35 per share (a 

50–59% premium over Delphi's then-market price of $21.98). 

After initially responding that TMH's offer was inadequate, 

Rosenkranz later contacted Brimecome to reiterate his 

disappointment and convey his expectation of an opening 



offer in the range of 1.5–2.0 times book value, or $45–$60 per 

share, which was consistent with the price he had suggested 

to Delphi's Board in early August. 18 Rosenkranz countered 

with this range despite the fact that he knew at the time that 

he was unwilling to sell at $45. Nevertheless, he thought $45 

per share might be attractive to the Class A stockholders, as 

Delphi's stock was at the time trading around the low twenties, 

and he suspected that demanding his own desired price of 

$55–$60 at that stage of the negotiations would have turned 

off TMH and killed the discussions. 19 Several days later, 

Brimecome called and informed Rosenkranz that TMH, after 

hearing that $40 was a nonstarter for Delphi's controlling 

stockholder, was raising its offer to $45 per share, then a 

106% premium over market. Rosenkranz advised Brimecome 

that he would take the offer to Delphi's Board. 

E. The Board Forms a Special Committee and Sub– 

Committee 

*6 On September 16, 2011, Rosenkranz presented 

TMH's $45 per share offer to the Board. 20 Rosenkranz 

acknowledged the offer's substantial premium over Delphi's 

stock price, but he disclosed to the Board that he nonetheless 

found it inadequate from his perspective as controlling 

stockholder, and that he would be unlikely to vote his Class 

B shares in favor of Merger at that price . 21 Because of the 

conflict of interest Rosenkranz's position created between him 

and Delphi's public stockholders, Rosenkranz suggested, and 

the Board agreed, to form a Special Committee, comprising 

the Board's seven independent directors (the Director 

Defendants), to evaluate the proposal from TMH, direct 

further discussions with TMH, and consider alternatives 

to the TMH proposal. 22 

The members of the Special 

Committee held Class A shares only, 23 aligning their 

financial interests with those of the public stockholders. 

The Special Committee retained Cravath, Swaine & Moore 

LLP (“Cravath”) as legal advisor and Lazard Frères & Co. 

LLC (“Lazard”) as financial advisor. 24 Cravath advised the 

Special Committee of its fiduciary obligations, including 

its mandate to represent only the Class A stockholders, 

and interviewed the directors about their connections to 

Rosenkranz. 25 Based on these interviews and per Cravath's 

advice, the Special Committee limited its membership to five 

directors—Fox, Hirsh, Litvack, Meehan, and O'Connor— 

each chosen for his relative business and industry experience 

and his lack of any connection, economic or social, to 

Rosenkranz. 

At a later board meeting, the full Delphi Board formally 

established the Special Committee and set forth its 

mandate. 26 The Board charged the Special Committee with 

representing the best interests of the Class A stockholders, 

granted the Special Committee full authority to take any 

action that would be available to the Board in connection 

with the transaction, and authorized the Special Committee 

to pursue and consider alternative transactions to the TMH 

bid if it deemed such alternatives to be of interest to the 

Class A stockholders. Additionally, the Board conditioned 

its approval or recommendation of the potential transaction 

on the Special Committee's affirmative recommendation 

thereof. The Special Committee then met and created a 

Sub–Committee—comprising Fox, Meehan, and O'Connor 

—to act on the Special Committee's behalf with respect 

to any matters related to Rosenkranz and differential 

merger consideration. 27 The Sub–Committee was given 

full authority with respect to these matters. Finally, just as 

the Board conditioned its approval of any transaction on a 

favorable recommendation by the Special Committee, the 

Special Committee conditioned its approval on the favorable 

recommendation of the Sub–Committee. 

The Special Committee then sought advice from its legal and 

financial advisors on its obligations and the valuation of the 

Company. Lazard advised the Special Committee that the 

premium offered by the TMH proposal—more than 100% 

over Delphi's stock price at the time—was a tremendous deal, 

and that in light of the significant premium offered, Delphi 

was unlikely to see a comparable proposal from another 

buyer. 28 The Special Committee discussed Lazard's advice 

and considered whether to solicit additional offers, such as 

through an auction or a quiet shopping of the Company. 

Ultimately, the Special Committee concluded that since TMH 

was the acquirer most likely to be interested in acquiring 

Delphi and had already offered a colossal premium over 

market price, shopping Delphi was not worth the impact such 

a course of action would have on negotiations with TMH 

or the risk of a potential leak disrupting Delphi's ongoing 

business. 29 

F. Price Differential Negotiations 

*7 Leading up to and simultaneously with the negotiations 

with TMH, the Sub–Committee negotiated with Rosenkranz 

regarding whether there would be any disparate allocation 

of the Merger consideration and, if so, what the differential 

would be. Rosenkranz opened the discussion with a request 



of $59 per Class B share and $43 per Class A share, 

asserting to the Special Committee that he did not expect 

TMH to raise its offer price; that if TMH did raise its 

price, Rosenkranz expected that increase to be allocated 

evenly dollar-for-dollar on top of the $59/$43 split; that 

he was unequivocally not a seller at $45; and that if his 

demands were not met, he would have no qualms about 

walking away from the deal and continuing the status quo of 

running Delphi on a standalone basis. 30 The Sub–Committee 

reviewed comparable acquisitions of companies with dualclass 

stock, and, after hearing from its financial and legal 

advisors that disparate consideration in such cases is unusual 

and problematic, attempted to persuade Rosenkranz, over 

a number of meetings and phone conversations, to accept 

the same price as the Class A stockholders. 31 Nevertheless, 

Rosenkrantz remained obstinate, refusing to back down on 

his demand for some level of disparate consideration. 

The Sub–Committee considered whether Rosenkrantz was 

truly willing to walk away from the merger rather than accept 

$45 per share, and it concluded, for several reasons, including 

Rosenkranz's plans for Delphi's expansion, that Rosenkranz 

was prepared to jettison the deal if he did not get his way. 

Thus, not wanting to deprive the Class A stockholders of 

the opportunity to realize a circa–100% premium on their 

shares, the Special Committee decided to accept the idea of 

differential consideration but to fight for a reduction in the 

consideration differential. 32 

The Sub–Committee engaged in a back-and-forth with 

Rosenkranz in the days leading up to an October 14, 2011, 

meeting with TMH representatives. The Sub–Committee 

informed Rosenkranz that it was willing to permit him 

differential consideration, but only if Rosenkranz's per share 

incremental premium was limited to less than 10%, to which 

Rosenkranz replied by reducing his request for disparate 

consideration to $55.50 per share for Class B shares and 

$43.50 per share for the Class A shares. 33 Just days before 

the October 14th meeting with TMH, the Sub–Committee 

and Rosenkranz remained far apart on the magnitude of the 

differential. Still, neither side wanted to lose momentum in 

the negotiations with TMH or insult the TMH representatives 

who were flying in from Japan, and so both sides felt that it 

was important to keep the October 14th meeting date. 

There was also the issue of what role Rosenkranz should have 

in the upcoming meeting, given his and the Sub–Committee's 

concurrent sparring over the differential consideration. After 

consulting with Cravath, the Sub–Committee decided that 

it was best to allow Rosenkranz to remain the point 

person, subject to direction and oversight by the Special 

Committee and Sub–Committee. 34 The Sub–Committee 

reasoned that Rosenkranz would be an effective negotiatior 

because, as Chairman, CEO, and founder of Delphi, 

Rosenkranz had intimiate knowledge of the business, and 

that while Rosenkranz's interests were adverse to the Class 

A stockholders', both Classes' interests were aligned with 

respect to securing the highest total offer from TMH. 

Moreover, as TMH did not at that point know of the potential 

for differential consideration, the Special Committee did 

not want to spook TMH by replacing Rosenkranz, who 

had theretofore represented Delphi in the negotiations. The 

Special Committee thus agreed that Rosenkranz would 

remain the face of the negotiations and would attend the 

October 14th meeting with TMH. Apparently not trusting 

Rosenkranz to act solely as a fiduciary for the stockholders, 

the Special Committee also directed Lazard to attend the 

meeting. 35 

G. Merger Price Negotiations 

*8 The morning before the October 14th meeting, the 

Special Committee met to decide on Delphi's position with 

respect to price. After a discussion with Lazard, the Special 

Committee directed Rosenkranz to request that TMH increase 

its offer to $48.50 and authorized Rosenkranz to convey to 

TMH that he would take a price of $47 or higher back to the 

Special Committee if the circumstances warranted. 36 At the 

meeting with TMH, Rosenkranz requested $48.50 per share, 

and TMH responded that it would consider whether it could 

increase its offer, although it expressed surprise that Delphi 

was asking for more money given that TMH had previously 

indicated that $45 was its maximum price. 37 

Several days later, Brimecome of TMH called Rosenkranz 

to inform him that $45 was TMH's best and final offer. 38 

Authorized by the Special Committee to drop Delphi's ask 

to $47 per share, Rosenkranz responded by proposing a $2 

special dividend per share at or around the time of the closing 

(which would effectively increase the merger consideration 

to $47). Brimecome then informed Rosenkranz that TMH 

would respond to this offer shortly. The next day, TMH 

contacted Rosenkranz to counter with a $1 special dividend; 

Rosenkranz agreed to take the offer to the Special Committee. 



Rosenkranz immediately called Fox, the Chairman of the 

Special Committee, and informed him of the call with 

TMH. 39 Rosenkranz relayed TMH's offer and indicated that 

he would not support a transaction based on TMH's revised 

offer unless the $1 special dividend was split evenly between 

Class A and Class B shares. Rosenkranz also warned Fox that 

he would refuse to entertain further negotiations regarding 

the differential consideration, and that he would walk away 

from the transaction if he did not receive $56.50 for each 

of his Class B shares (with the Class A consideration being 

$44.50 per share). 40 The Special Committee and the Sub– 

Committee thus decided to finish negotiating the terms of the 

differential consideration before responding to TMH's revised 

offer. 

H. Agreement on Price and Remaining Merger Terms 

With TMH's offer of $46 per share ($45 plus the $1 special 

dividend) on the table, the Sub–Committee and Rosenkranz 

continued their negotiations regarding the division of 

the Merger consideration. Fox and Rosenkranz engaged 

in extensive back-and-forth discussions, with Rosenkranz 

refusing to accept less than $56.50 for his Class B shares 

and Fox holding fast to his demand for $45.25 for the 

Class A shares, which would have left $51.25 per Class B 

share. Over the course of this back-and-forth, Rosenkranz's 

gamut of emotions confirmed that the Kübler–Ross Model 41 

indeed applies to corporate controllers whose attempts to 

divert merger consideration to themselves at the expense of 

the minority stockholders are rebuked by intractable special 

committees. Rosenkranz began in denial of the fact that he 

might not receive his original request of $59 per share and 

was isolated with the formation of the Special Committee, 

grew angry as the Sub–Committee held firm to its original 

demand of $45.25 for the Class A shares, 42 began to 

bargain and revised his proposal to $44.75 for the Class A 

shares, 43 plunged into depression when the Sub–Committee 

only reduced its demand to $45 per Class A share, 44 and 

finally arrived at “acceptance” when Fox, believing the deal 

to be in jeopardy, proposed $44.875 for Class A and $53.875 

for Class B. 45 

*9 Fox brought this proposal to the Sub–Committee, 

which approved the differential consideration of $53.875 and 

$44.875, which fell on the low end of the range of differential 

consideration transactions presented by Lazard. The Sub– 

Committee brought the proposal to the Special Committee, 

which upon hearing Fox's report approved the differential and 

agreed to accept TMH's $46 offer and move forward with 

the remaining terms of the transaction. On October 21, 2011, 

Rosenkranz relayed the Special Committee's acceptance to 

TMH and informed TMH for the first time of the differential 

consideration, toward which TMH reportedly did not express 

any concern. 46 

In the months following the agreement on price, the Special 

Committee and TMH negotiated the remaining terms of the 

Merger. One of the key provisions obtained by the Special 

Committee was the non-waivable conditioning of the Merger 

on the affirmative vote of a majority of the disinterested 

Class A stockholders. In other words, the Merger must 

receive majority approval from a group of Class A shares that 

excludes Class A shares owned directly or indirectly by Class 

B stockholders (Rosenkranz), Delphi officers or directors, 

TMH, or any of their affiliates. 

In addition, since Section 7 of Delphi's Charter prohibits 

the unequal distribution of merger consideration, the parties 

agreed to condition the Merger on the approval of a 

charter amendment that explicitly excludes the Merger from 

that prohibition (the “Charter Amendment”). The Sub– 

Committee found such an amendment to be in the best 

interests of the Class A stockholders as it was, in the view 

of the Sub–Committee and in light of Rosenkranz's demands, 

the only way to enable the Class A stockholders to obtain a 

substantial premium on their shares. 47 The differential was 

necessary to secure Rosenkranz's approval of the deal, and the 

Charter Amendment was necessary to allow that differential. 

I. Rosenkranz Tries to Hustle the RAM Contracts 

On December 12, 2011, shortly before the signing of the 

Merger Agreement, Rosenkranz informed Cravath that he and 

TMH had been discussing the possibility of having TMH 

acquire RAM, Rosenkranz's investment advising company 

that provides services to Delphi, immediately before the 

closing for a price around $57 million. This development 

concerned the Sub–Committee, as it realized that the $57 

million could be seen as additional Merger consideration 

being allocated to Rosenkranz, rather than as compensation 

for investment consulting services, if the transaction were 

structured as an up-front payment with no obligation for RAM 

or Acorn to continue to perform. 

As an alternative, TMH proposed an agreement to keep the 

RAM Contracts in place for five years. This alternative also 

concerned the Sub–Committee because the RAM Contracts 



are terminable by Delphi on thirty days' notice, and an 

agreement by TMH to continue those contracts for five 

years would guarantee additional payments to Rosenkranz 

that might otherwise be unavailable. Moreover, the Sub– 

Committee questioned the value of RAM's consulting 

services to TMH, which gave the Sub–Committee concern 

that TMH was purchasing the RAM Contracts to secure 

Rosenkranz's consent to the merger and not to obtain the 

services themselves. 

*10 Addressing its concerns, the Sub–Committee decided 

to push Rosenkranz and TMH to postpone their negotiations 

regarding the RAM Contracts until after the Merger 

Agreement was signed, at which point Rosenkranz would 

be contractually obligated through a voting agreement to 

support the merger. 48 The Sub–Committee reasoned that 

such a postponement would effectively ensure that the RAM 

Contracts purchase negotiations were based on the actual 

value TMH saw in RAM's services, rather than a need to 

induce Rosenkranz to support the merger. 

Although the Sub–Committee's proposition agitated 

Rosenkranz, he told the Sub–Committee that he would 

postpone any renegotiation of the RAM Contracts until 

after the merger and voting agreement were signed. 49 

The Sub–Committee also obtained the inclusion in the 

Merger Agreement of a contractual representation by TMH 

that there were no agreements or understandings between 

TMH and Rosenkranz other than those expressly set forth 

in the transaction documents. 50 Additionally, the Special 

Committee used this incident in an attempt to obtain a higher 

price from TMH, but TMH quickly rejected the Special 

Committee's request and made clear that it was unwilling to 

reopen the issue of price. 51 

J. Merger Signing and the Purported “Gentlemen's 

Agreement” 

On December 20, 2011, the Sub–Committee, Special 

Committee, and the full Board held meetings to discuss the 

finalized terms of the Merger Agreement. Lazard advised that 

the overall merger consideration was fair and represented a 

significant premium over market price. 52 Also, the Special 

Committee, considering data provided to it by Lazard, 

concluded that the consideration differential was well within 

and potentially at the low end of comparable precedent 

transactions. The Sub–Committee, Special Committee, and 

the Board then approved the transaction, and Delphi and 

TMH executed the Merger Agreement on December 21, 

2011. 

Despite Rosenkranz's representations to the Sub–Committee 

and TMH's contractual representations in the Merger 

Agreement, it became apparent during discovery for this 

action that there had been a non-binding understanding, or 

“Gentlemen's Agreement,” between TMH and Rosenkranz 

that TMH would continue to pay Rosenkranz for five years 

of investment consulting services, either under the RAM 

Contracts or, if TMH terminated the contracts, directly to 

Rosenkranz. After reviewing a series of emails that revealed 

this Gentlemen's Agreement, the Sub–Committee decided 

to revise Delphi's Preliminary Proxy filed on January 13, 

2012, to disclose the content of the emails and the Sub– 

Committee's conclusion that they indicated the existence of 

a non-binding agreement between Rosenkranz and TMH that 

existed before the signing of the Merger. The Sub–Committee 

also informed TMH and Rosenkranz that it was considering 

exercising its termination rights due to TMH's breach of a 

contractual representation or changing its recommendation of 

the Merger to the stockholders. 

*11 TMH and Rosenkranz responded by providing the 

Special Committee with a letter agreement denying that any 

“Gentlemen's Agreement” existed and stating that, if there 

had been such an agreement regarding the RAM Contracts, 

TMH and Rosenkranz “expressly and irrevocably repudiate, 

and waive any and all rights that [they] may have pursuant to, 

any such Contract or understanding.” 53 After receiving the 

letter, the Sub–Committee met again to decide on a course 

of action. The Sub–Committee determined that, despite the 

denial in the letter agreement, a non-binding understanding 

had existed between TMH and Rosenkranz, but that TMH and 

Rosenkranz had repudiated the Gentlemen's Agreement with 

their letter. The Sub–Committee's conclusions were disclosed 

in Delphi's February 21, 2012, Definitive Proxy. 54 

The Special Committee and Sub–Committee then reviewed 

anew whether they considered the proposed Merger and 

the differential consideration to be fair to the Class A 

stockholders. They determined that the Merger was fair 

on both counts and thus decided against changing their 

recommendation to the stockholders, obviating the need to 

determine whether Delphi had the right to terminate the 

Merger Agreement on the basis of TMH's alleged breach. 



II. THE PLAINTIFFS' CLAIMS 

The wrongdoing alleged by the Plaintiff essentially falls 

under two areas. The Plaintiffs first challenge the negotiation 

process used with TMH, arguing that the Executive and 

Director Defendants breached their fiduciary duties in 

their efforts to obtain the best price reasonably available 

to the stockholders, in violation of their fiduciary duties 

under the Revlon 55 doctrine. Second, the Plaintiffs attack 

the negotiations between the Director Defendants (through 

the Sub–Committee) and Rosenkranz with respect to 

differential consideration. The Plaintiffs allege that the 

Director Defendants and Rosenkranz breached their fiduciary 

duties to the Class A stockholders in approving the 

consideration differential. Additionally, the Plaintiffs assert 

that Rosenkranz breached his fiduciary and contractual 

obligations in seeking such a differential in the first instance 

because the Delphi Charter prohibits the unequal distribution 

of merger consideration. Finally, the Plaintiffs contend— 

without, however, much enthusiasm—that Delphi's February 

2012 Proxy Statement omits or misrepresents material 

information in violation of the Board's disclosure obligations. 

With respect to the negotiations with TMH, the Plaintiffs 

point to several instances of wrongdoing on the part of 

Rosenkranz, the Executive and Director Defendants, and 

TMH. 56 They contend that Rosenkranz, who holds a 

fiduciary position as Board member, CEO, and controlling 

stockholder, dominated the negotiation process with TMH 

against the interests of the Class A stockholders. The 

Plaintiffs assert that Rosenkranz's interests were not aligned 

with the stockholders' when he negotiated with TMH because 

he knew that he would collect a higher price per share than the 

Class A stockholders. The Plaintiffs contend that Rosenkranz 

intended from the outset to receive a premium on his Class B 

shares at the expense of the Class A shares, and is attempting, 

by tying the vote on the Charter Amendment with the vote on 

the Merger, to coerce the Class A stockholders into amending 

the provisions of Delphi's Charter that prohibit such disparate 

consideration, in violation of his fiduciary and contractual 

obligations. The Plaintiffs allege that the Board went along 

with this plan by allowing Rosenkranz to remain the face 

of Delphi in negotiations with TMH even after Rosenkranz 

disclosed his intent to procure disparate consideration and by 

allowing the Merger to be predicated on a coercive vote on 

the Charter Amendment. 

*12 Related to Rosenkranz's and the Director Defendants' 

failure to secure the best price available, the Plaintiffs 

present several allegations concerning Acorn and the RAM 

Contracts. The Plaintiffs contend that Rosenkranz has 

funneled money to himself through the RAM Contracts, 

thereby depressing Delphi's share price, which caused Lazard 

to value Delphi at too low a price in its Fairness Opinion. 

Additionally, the Plaintiffs accuse Rosenkranz of usurping a 

corporate opportunity belonging to Delphi by using Delphi 

employees and resources to provide lucrative investment 

consulting services through Acorn to third parties, diverting 

a revenue stream that should have flowed to Delphi and that 

would have increased Delphi's value to potential bidders. 

The Plaintiffs also allege that Rosenkranz has obtained, or 

attempted to obtain, through negotiations with and aided and 

abetted by TMH, disparate consideration by preserving the 

income stream flowing from the RAM Contracts. 

In addition to attacking the negotiation process with TMH, 

the Plaintiffs assert that the Sub–Committee did not achieve 

a fair result with respect to the differential consideration. 

The Plaintiffs argue that Rosenkranz breached his fiduciary 

and contractual obligations to the stockholders by seeking 

disparate consideration in the first place, as the Delphi Charter 

requires equal treatment of Class A and Class B shares in the 

distribution of merger consideration. For the same reasons, 

argue the Plaintiffs, the Director and Executive Defendants 

breached their fiduciary duties in facilitating and approving 

the consideration differential. The Plaintiffs also contend that, 

even assuming that some level of disparate consideration is 

permissible, the Sub–Committee members, in breach of their 

fiduciary duties, failed to negotiate a fair price for the Class 

A stockholders. 57 

III. ANALYSIS 

I may issue a preliminary injunction only where I find that 

the moving party has demonstrated a reasonable likelihood 

of success on the merits, that failure to enjoin will result in 

irreparable harm to the moving party, and that a balancing 

of the equities discloses that any harm likely to result 

from the injunctive relief is outweighed by the benefit 

conferred thereby. 58 Although I find that the Plaintiffs 

have demonstrated a reasonable probability of success on 

the merits of some of their claims, I nonetheless find that 

injunctive relief here is inappropriate. The threatened harm 

here is largely, if not completely, remediable by damages, and 

because the value of injunctive relief to the stockholder class 



seems likely to be overwhelmed by the concomitant loss, I 

must deny the Plaintiffs' request for a preliminary injunction. 

A. Reasonable Probability of Success 

As discussed above, the Plaintiffs' allegations essentially 

fall under two categories: those attacking the negotiation 

of the Merger price, and those attacking the differential 

consideration. Under the former category, the Plaintiffs 

challenge the negotiations with TMH and Rosenkranz's 

involvement therein, as well as the effect of the Acorn 

business and RAM Contracts on Delphi's value to potential 

bidders. Under the latter category, the Plaintiffs challenge 

Rosenkranz's entitlement to disparate consideration, the 

effectiveness of the Sub–Committee's negotiations with 

Rosenkranz, and Rosenkranz's potential receipt of additional 

consideration not shared with the Class A stockholders 

through an alleged agreement with TMH to maintain the 

RAM Contracts. I address below the Plaintiffs' likelihood of 

success on these arguments and their allegations regarding 

disclosure violations. 

1. Challenges to the Negotiations with TMH and the Price 

Approved by the Special Committee 

*13 Once the Director Defendants decided to sell the 

Company for cash, they assumed a duty under the Revlon 

doctrine to undertake reasonable efforts to obtain the highest 

price reasonably available in the sale of the Company. 59 The 

so-called Revlon duty requires a board to “act reasonably, 

by undertaking a logically sound process to get the best 

deal that is realistically attainable.” 60 Thus, in evaluating 

the sale process of a company, rather than deferring to 

the board's informed, disinterested, and good faith actions 

under the business judgment rule, this Court instead 

examines the board's conduct with enhanced scrutiny using a 

reasonableness standard. 61 Specifically, the Court examines 

“the adequacy of the decision-making process” and “the 

reasonableness of the directors' actions in light of the 

circumstances then existing.” 62 

The Plaintiffs argue that the Special Committee faltered when 

it allowed Rosenkranz to take the lead in negotiations despite 

his conflict of interest with the Class A stockholders. The 

Plaintiffs contend that Rosenkranz was content to eschew 

the highest price per share because his personal interest 

was to ensure that the Merger was realized; he could then 

turn and negotiate for disparate consideration for his shares. 

The Plaintiffs point out that the Board used Rosenkranz to 

negotiate the deal with TMH even after he disclosed his 

intention to demand additional compensation for his Class 

B shares as a condition of his supporting the Merger. The 

Director Defendants explain that they kept Rosenkranz as 

lead negotiator because, as CEO, he was the natural choice, 

and because replacing Rosenkranz with another negotiator 

might have tipped TMH to the internal conflict or otherwise 

alarmed TMH, potentially spawning negotiation difficulties 

or even jeopardizing the entire deal. 

As a negotiator, however, Rosenkranz's interests may not 

have been entirely aligned with those of the Class A 

stockholders. Rosenkranz was a fiduciary for Delphi, seeking 

to extract as much value for the Company as possible for the 

public shareholders. Nevertheless, though he was the holder 

of a class of stock relegated by the Charter to receiving, upon 

the merger, the same price per share as the publicly held 

stock, he firmly believed he was entitled to a control premium. 

Throughout the negotiations, he knew he was negotiating 

a price which he, as controlling stockholder, would not 

accept for his stock. Finally, Rosenkranz was the owner of 

a business, Acorn, which had a contractual relationship with 

Delphi. Thus, throughout the negotiations, Rosenkranz knew 

that he would also be negotiating the futures of those contracts 

with TMH. 

In addition to his conflicted roles, Rosenkranz's actions, 

and those of the other Executive Defendants, are troubling. 

Upon being approached by TMH, Rosenkranz did not 

immediately inform the Board that he would insist on 

differential consideration for his Class B stock. Instead, 

Rosenkranz consulted with Coulter, Sherman, and Kiratsous 

to formulate a plan, not to maximize, via the Merger, return 

to the stockholders, for whom they are fiduciaries, but to 

maximize return to Rosenkranz himself. 

*14 I am not persuaded, however, by the Plaintiffs' theory 

that because Rosenkranz knew he was going to receive 

disparate consideration, he lacked an incentive to extract 

the highest price from TMH. Regardless of whether he was 

able to achieve a premium for his shares, to the extent that 

Rosenkranz secured a higher overall price, there would be a 

bigger pie from which Rosenkranz could cut an outsized slice. 

The Plaintiffs make the argument that Rosenkranz perhaps 

had an incentive to accept a smaller merger price so that 

TMH would have more funds available for the renegotiation 

of the RAM Contracts, in which only Rosenkranz holds 

an interest. The Special Committee made an attempt to 

achieve a higher price from TMH after it learned of the 



side negotiations between Rosenkranz and TMH regarding 

the RAM Contracts, but was unsuccessful. On the current 

record, it seems unlikely that money was left on the table by 

Rosenkranz in anticipation of a lucrative renegotiation of the 

RAM Contracts. 

The Plaintiffs also allege that the existence of Acorn and 

the RAM Contracts poisoned the sale process. As discussed 

earlier, after Rosenkranz formed Delphi, Delphi entered into 

contracts to purchase investment advising services from 

Acorn through RAM, both of which are Rosenkranz-affiliated 

entities. These contracts continued after Delphi went public 

and have been disclosed continuously. Under the Expense 

Allocation Agreement, Acorn would reimburse Delphi for 

Acorn's use of Delphi's employees, facilities, and other 

resources to provide services to third parties as well as Delphi. 

When providing services to Delphi, Acorn would bill the 

Company through RAM, pursuant to the RAM Contracts. 

These contracts were terminable at thirty days' notice by 

either party. 

The Plaintiffs contend that the RAM Contracts were a sham 

device through which Rosenkranz used Delphi employees 

and Delphi resources in order to charge Delphi for services 

that the Company could have provided in house, and to 

usurp an opportunity which Delphi could have seized to 

provide similar services to third parties. The Plaintiffs allege 

that Delphi's stock price was depressed as a result of this 

diverted income stream and that the stockholders will be 

misled by Lazard's Fairness Opinion, which does not take 

this into account. The Director Defendants and Rosenkranz 

argue that the RAM Contracts provided value for Delphi. 

The record regarding the RAM Contracts remains largely 

undeveloped at this stage; such evidence as exists warrants 

further consideration, but it is insufficient to convince me 

that the Plaintiffs are likely to be able to demonstrate at trial 

that the existence of Acorn and the RAM Contracts depressed 

Delphi's stock price. 

2. Challenges to the Negotiations with Rosenkranz and the 

Sub–Committee's Approval of Disparate Consideration 

The Plaintiffs' most persuasive argument, based on the 

preliminary record before me, is that despite a contrary 

provision in the Delphi Charter, Rosenkranz, in breach of 

his contractual and fiduciary duties, sought and obtained a 

control premium for his shares, an effort that was facilitated 

by the Executive and Director Defendants. As discussed 

above, Delphi's Charter contains two classes of stock: Class 

A, entitled to one vote per share, and Class B, entitled to ten 

votes per share. Rosenkranz holds all of the Class B shares; 

thus, even though he only owns 12.9% of Delphi's equity, 

he controls 49.9% of the stockholders' voting power. As a 

result, Rosenkranz can effectively block any merger or similar 

transaction that is not to his liking. 

*15 Nevertheless, the Delphi Charter contains certain 

restrictions on Rosenkranz's power. Though Rosenkranz 

can act as a controlling stockholder, the Charter provides 

that, in a merger, the Class A stockholders and the Class 

B stockholders must be treated equally. Additionally, if 

Rosenkranz attempts to transfer his Class B stock to anyone 

besides an affiliate of his, the Class B stock converts 

into Class A stock. The Merger here is conditioned, at 

Rosenkranz's insistence, on a Charter Amendment removing 

the requirement of equal distribution of merger consideration. 

Once the Charter is amended, Rosenkranz can receive a 

higher payment for his shares than the Class A stockholders. 

At the same time the disinterested Sub–Committee negotiated 

these provisions with Rosenkranz, Rosenkranz took the lead 

in the negotiations with TMH, despite this apparent conflict 

with Delphi's public stockholders. 

Rosenkranz, in taking Delphi public, created, via the 

Charter, a mechanism whereby he retained voting control 

of Delphi as the holder of the high-vote Class B stock. As 

Rosenkranz points out, a controlling stockholder is, with 

limited exceptions, entitled under Delaware law to negotiate 

a control premium for its shares. 63 Moreover, a controlling 

stockholder is free to consider its interests alone in weighing 

the decision to sell its shares or, having made such a decision, 

evaluating the adequacy of a given price. 64 Rosenkranz 

contends that as a stockholder he has the right to control and 

vote his shares in his best interest, which generally includes 

the right to sell a controlling share for a premium at the 

expense of the minority stockholders. 

The Plaintiffs argue that by including a provision in Delphi's 

Charter providing that Class B stockholders would accept the 

same consideration as Class A stockholders in the case of 

a sale, Rosenkranz gave up his right to a control premium. 

They argue that by approving a merger conditioned on 

the Charter Amendment, which restores Rosenkranz's right 

to obtain disparate consideration for his shares, the Board 

and Rosenkranz are coercing the stockholders into choosing 

between approving the Merger at the cost of a substantial 

premium to Rosenkranz or voting against the Merger and 

forgoing an otherwise attractive deal (that could nevertheless 



be more attractive sans the Rosenkranz premium). The 

Plaintiffs allege that the Charter Amendment is coercive 

because in order to realize the benefits of the merger, the 

stockholders must induce Rosenkranz's consent by repealing 

a Charter provision that exists to protect them from exactly 

this situation. In other words, the Plaintiffs contend that 

although Rosenkranz may sell his stock generally free of 

fiduciary concerns for the minority stockholders, he may not 

do so in a way that coerces the stockholders' concession of a 

right guaranteed under the Charter. 

Rosenkranz and the Board counter that the Charter 

specifically provides for amendment. The Director 

Defendants also argue that, notwithstanding the Charter 

provision requiring the equal distribution of consideration to 

Class A and Class B stockholders in the event of a sale, the 

sale to TMH involves a substantial premium over market 

and is a compelling transaction—one which the stockholders 

ought to have the opportunity to accept, even if they must 

also approve the Charter Amendment to consummate the 

Merger. 65 The Director Defendants state: 

*16 [I]f stockholders like the transaction, they will 

support the Certificate Amendment, and if they don't 

like the transaction, they won't. Amazingly, the supposed 

source of “coercion” is that the price being offered 

by [TMH] is so high that stockholders might actually 

want to accept it. By this definition, every good deal is 

“coercive.” 66 

The argument of the Director Defendants and Rosenkranz 

reduces to this syllogism: Rosenkranz, in taking Delphi public 

in 1990, retained control. Notwithstanding his retention of 

control, he gave up, through Section 7 of the Delphi Charter, 

the right to receive a control premium. Consistent with 

Delaware law, 67 however, the Charter provided for its own 

amendment by majority vote of the stockholders. Thus, 

since Rosenkranz is, as a controlling stockholder, generally 

unconstrained by fiduciary duties when deciding whether to 

sell his stock, he is permitted to condition his approval of 

a sale on both a restoration of his right to receive a control 

premium and on actually receiving such a premium. I find this 

argument unpersuasive. 

Section 7 of the Charter gives the stockholders the right to 

receive the same consideration, in a merger, as received by 

Rosenkranz. I assume that the stockholders, in return for the 

protection against differential merger consideration found in 

the Charter, paid a higher price for their shares. 68 In other 

words, though Rosenkranz retained voting control, he sold 

his right to a control premium to the Class A stockholders 

via the Charter. The Charter provision, which prevents 

disparate consideration, exists so that if a merger is proposed, 

Rosenkranz cannot extract a second control premium for 

himself at the expense of the Class A stockholders. 

Of course, the Charter provided for its own amendment. 

Presumably, Rosenkranz, clear of any impending sale, could 

have purchased the right to a control premium back from 

the stockholders through a negotiated vote in favor of a 

charter amendment. But to accept Rosenkranz's argument 

and to allow him to coerce such an amendment here would 

be to render the Charter rights illusory and would permit 

Rosenkranz, who benefited by selling his control premium 

to the Class A stockholders at Delphi's IPO, to sell the same 

control premium again in connection with this Merger. That 

would amount to a wrongful transfer of merger consideration 

from the Class A stockholders to Rosenkranz. 

What would have happened if Rosenkranz had respected the 

Charter provision? He would still have had voting control. He 

may have insisted that no merger occur without consideration 

for all shares of at least $53.875, which likely would have 

killed the deal and restored the status quo. 69 Or, without 

his steadfast belief that he was entitled to a differential, 

Rosenkranz may have agreed to a deal for all shares at 

$46, representing as it does a substantial premium over 

market. Because Rosenkranz sought instead to exact a control 

premium he had already bargained away, the answer to the 

question posed above is unknowable. 

*17 Our Supreme Court has stated that a corporate charter, 

along with its accompanying bylaws, is a contract between 

the corporation's stockholders. 70 Inherent in any contractual 

relationship is the implied covenant of good faith and 

fair dealing. 71 This implied covenant “embodies the law's 

expectation that each party to a contract will act with good 

faith toward the other with respect to the subject matter of 

the contract.” 72 A party breaches the covenant “by taking 

advantage of [its] position to control implementation of the 

agreement's terms,” such that “[its] conduct frustrates the 

‘overarching purpose’ of the contract.” 73 

The Plaintiffs argue that Rosenkranz has breached the implied 

covenant of good faith and fair dealing. They assert that the 

stockholders, therefore, have a remedy for breach of contract 

as well as fiduciary duty. They point out that, following the 



Defendants' logic, the existence of the amendment procedure 

rendered the provision mandating equal price on sale for the 

Class A and B shares a sham, since Rosenkranz retained the 

ability to coerce a charter amendment, and thus a control 

premium, in connection with any favorable merger offer. 

Implicit in the Plaintiffs' argument is that, had the purchasers 

of Delphi's public stock realized this, they may not have 

purchased the stock, at least at the price paid. 

I need not decide at this preliminary stage whether the rights 

of the stockholder class here sound in breach of contract 

as well as breach of fiduciary duty. It suffices that I find 

on the present record that the Plaintiffs bought Delphi's 

stock with the understanding that the Charter structured 

the corporation in such a way that denied Rosenkranz a 

control premium, and that as a result, Rosenkranz effectively 

extracted a control premium from the initial sale of the Class 

A shares, while at the same time retaining his voting majority. 

I therefore find that the Plaintiffs are reasonably likely to be 

able to demonstrate at trial that in negotiating for disparate 

consideration and only agreeing to support the merger if he 

received it, Rosenkranz violated duties to the stockholders. 

Next, the Plaintiffs argue that Rosenkranz's attempts to 

preserve the RAM Contracts after the Merger will result in 

a form of disparate consideration that would contravene the 

Charter, to the detriment of the Class A stockholders. As 

described below, the process by which Rosenkranz negotiated 

both as a fiduciary for Delphi and, at the same time, for 

himself as a controlling stockholder, is troubling. I note, 

however, that these contracts can be canceled at thirty days' 

notice. Despite the Plaintiffs' arguments to the contrary, 

TMH has little incentive to pay more to Rosenkranz than 

the actual value of Acorn's services to TMH: Rosenkranz 

is contractually obligated to vote in favor of the Merger 

per a voting agreement, thus obviating any reason for TMH 

to induce Rosenkranz's support through overpayment for 

Acorn's services. Therefore, despite Rosenkranz's potential 

conflict in negotiating both for Delphi and for Acorn, I do 

not find that the Plaintiffs have demonstrated a reasonable 

probability that a post-Merger contract involving RAM or 

Acorn will net Rosenkranz any disparate consideration in 

violation of Delphi's Charter. 

information relating to RAM and Rosenkranz's consulting 

agreements, Macquarie's advisory relationship with Delphi, 

the sales process generally, Lazard's Fairness Opinion, and 

cash bonuses reserved for the Executive Defendants. This 

information is of the “tell me more” variety, and given 

the quantity and quality of the disclosure provided in the 

Definitive February 2012 Proxy, I find that the Plaintiffs are 

unlikely to succeed on the merits of their claims alleging 

disclosure violations. 

When a board seeks stockholder action, such as a vote on a 

proposed merger, the board has a “fiduciary duty to disclose 

fully and fairly all material information within the board's 

control.” 74 For an alleged omission or misrepresentation to 

constitute a breach of fiduciary duty, it must be substantially 

likely that “a reasonable shareholder would consider it 

important in deciding how to vote.” 75 This standard 

contemplates a showing by the plaintiff that, “under all the 

circumstances, the omitted [or misrepresented] fact would 

have assumed actual significance in the deliberations of 

a reasonable shareholder.” 76 Such is the case when the 

information, if properly disclosed, “would have been viewed 

by a reasonable investor as having significantly altered the 

total mix of information made available.” 77 In limiting 

the disclosure requirement to all “material” information, 

Delaware law recognizes that too much disclosure can be 

a bad thing. As this Court has repeatedly recognized, “a 

reasonable line has to be drawn or else disclosures in proxy 

solicitations will become so detailed and voluminous that they 

will no longer serve their purpose.” 78 If anything, Delphi's 

Proxy is guilty of such informational bloatedness, and not, as 

the Plaintiffs contend, insufficient disclosure. 

The Plaintiffs, in any event, did not raise any disclosure issues 

at oral argument on their Motion for Preliminary Injunction, 

perhaps because the violations the Plaintiffs allege are, at 

best, marginal. The February 2012 Proxy discloses in prolix 

fashion details of the Merger negotiations and the process 

executed by the Board, the Special Committee, and the Sub– 

Committee, warts and all. If disclosure is the best disinfectant, 

the Proxy is Clorox. As a result, I find little merit in the 

allegations of disclosure violations. 

3. Alleged Disclosure Violations 

*18 The Plaintiffs allege that the Board has breached its 

fiduciary duty of disclosure through a series of material 

omissions in Delphi's February 2012 Proxy (the “Proxy”). 

The Plaintiffs contend that the Proxy fails to disclose 

B. Irreparable Harm and the Balance of the Equities 

A preliminary injunction is an “extraordinary remedy ... [and] 

is granted sparingly and only upon a persuasive showing that 

it is urgently necessary, that it will result in comparatively 



less harm to the adverse party, and that, in the end, it is 

unlikely to be shown to have been issued improvidently.” 79 

To demonstrate irreparable harm, a plaintiff must show harm 

“of such a nature that no fair and reasonable redress may 

be had in a court of law and must show that to refuse the 

injunction would be a denial of justice.” 80 A harm that can 

be remedied by money damages is not irreparable. 81 

*19 Additionally, in the context of a single-bidder merger, 

the Court when balancing the equities must be cognizant that 

if the merger is enjoined, the deal may be lost forever, a 

concern of particular gravity where, as here, the proposed deal 

offers a substantial premium over market price. In evaluating 

the appropriateness of enjoining a given merger, this Court 

has noted the difference between a single bidder situation 

and a situation where there exists a competing, potentially 

superior, rival bid. 82 

This Court recently addressed a situation similar to the present 

action in In re El Paso Corp. Shareholder Litigation. 83 

In that case, the Chancellor identified numerous “debatable 

negotiating and tactical choices made by El Paso fiduciaries 

and advisors,” which were compounded by a lead negotiator 

and financial advisor with interests in conflict with those of 

the El Paso stockholders. 84 The proposed transaction offered 

a premium of 37% over El Paso's stock price, however, 

and was the only bid on the table. 85 The Chancellor, 

though troubled by the conduct of the El Paso fiduciaries 

and advisors, declined to enjoin the merger, finding that 

the stockholders were “well positioned to turn down the 

[offeror's] price if they [did] not like it,” noting that while 

damages were not a perfect remedy, the “stockholders should 

not be deprived of the chance to decide for themselves about 

the Merger.” 86 

Here, the 76% premium offered by TMH dwarfs the premium 

percentage in El Paso. Moreover, although I have found it 

reasonably likely that Rosenkranz violated a duty in his role 

as lead negotiator, his interests were at least in some respects 

aligned with those of the Class A stockholders. 87 Given 

these considerations, and the fact that, as explained below, 

money damages can largely remedy the threatened harm, the 

stockholders' potential loss of a substantial premium on their 

shares outweighs the value of an injunction; therefore, I must 

deny the Plaintiffs' request for injunctive relief. 

Much of the alleged misconduct of which the Plaintiffs 

complain is remediable by readily ascertainable damages. 

The Plaintiffs argue that the differential consideration 

negotiated between Rosenkranz and the Sub–Committee is 

improper. If so, I may order disgorgement of the improper 

consideration. 88 The Plaintiffs allege that any post-Merger 

contract between RAM/Acorn and TMH would constitute 

additional merger consideration flowing to Rosenkranz, when 

such consideration rightly belongs to all of the stockholders. 

If so, such an amount would be recoverable in damages as 

well. In other words, if these factors constitute harm to the 

Class A stockholders, it is not irreparable harm. 

The Plaintiffs' allegations regarding past losses to the 

Company arising from Rosenkranz's operation of Acorn 

are more problematic. As described above, the Plaintiffs 

argue that Acorn, operated with borrowed Delphi employees, 

facilities, and resources, was a sham; that the investment 

advice it sold to Delphi under the RAM Contracts could 

have been produced “in house” for a fraction of what Delphi 

paid for it; and that its third-party business was a corporate 

opportunity belonging to Delphi and usurped by Rosenkranz. 

According to the Plaintiffs, this activity depressed Delphi's 

stock price, causing the Lazard Fairness Opinion to be of 

limited value, since Delphi was worth more than the analysis 

assumed. Stockholders, under this theory, may be misled by 

the fairness opinion, and the recommendation of the Board 

based on that opinion, when choosing whether to vote for the 

Merger. Moreover, the Plaintiffs argue, TMH may have been 

willing to pay more for a Delphi unencumbered by the RAM 

Contracts, in an amount unknowable and thus irremediable 

by damages, and Rosenkranz may have been willing to forgo 

the highest merger price in favor of maximizing the value 

available in the negotiations of the RAM Contracts. 

*20 While the concerns above appear irreparable absent an 

injunction, I give the possibility of such harm little weight. 

First, it seems unlikely that TMH will feel itself significantly 

encumbered, let alone bound, by contracts terminable upon 

thirty days' notice with a sham entity returning no actual value 

to Delphi or TMH. 89 It is clear from the record that TMH 

has no legal obligation to keep such contracts in place, and 

thus it is unlikely that the existence of the RAM Contracts has 

depressed the price TMH is willing to pay for Delphi. 

Similarly, the risk that the stockholders will be misled by 

Lazard's Fairness Opinion because Delphi's stock price was 

depressed due to the RAM Contracts is only speculative. 

The record is insufficient to demonstrate that those contracts, 



in place since Delphi's IPO and disclosed continuously 

thereafter, were wrongful, and if so, to what extent they may 

have affected Delphi's stock price, if at all. To the extent they 

have, they have similarly decreased the price each stockholder 

paid for his shares. Moreover, the existence of the RAM 

Contracts, the Board's concern that negotiations over those 

contracts between Rosenkranz and TMH might have involved 

hidden additional compensation for Rosenkranz, as well as 

the other circumstances I have set out above, are all disclosed 

in the February 2012 Proxy available to each stockholder. 

In that vein, I also find that the alleged disclosure violations 

provide no basis for injunctive relief. The February 2012 

Proxy fully informs the stockholders about the concerns 

detailed above. With respect to the differential consideration, 

which I view as the issue raised by Plaintiffs most likely 

to be successful, any recovery in damages will be on top 

of the amount at which the stockholders are being asked to 

tender their shares. In light of all the issues raised above, the 

stockholders have a fair if not perfect ability to decide whether 

to tender their shares or seek appraisal rights under 8 Del. C. 

§ 262. 

I find the opportunity to exercise that franchise particularly 

important here. The price offered by TMH for the Class A 

shares, even though less than what Rosenkranz will receive 

in the Merger, is 76% above Delphi's stock price on the 

day before the Merger was announced. 90 No party has 

suggested that another suitor is in the wings or is likely 

to be developed at a greater, or even equal, price. Nothing 

beyond the Plaintiffs' speculation about the effects of the 

Acorn business and RAM Contracts indicates that injunctive 

relief would lead to negotiation of a significant increase in 

price. In fact, it seems at least as likely that a renegotiated 

deal may yield a lower price, or a loss of the Merger entirely 

and a return to the status quo ante, including regarding stock 

price. Having determined that a judicial intervention at this 

point is unlikely to prove a net benefit to the plaintiff class, 

and may cause substantial harm, it is preferable to allow the 

stockholders to decide whether they wish to go forward with 

the Merger despite the imperfections of the process leading 

to its formulation. 

*21 The Plaintiffs make a final argument that injunctive 

relief must be afforded here, based upon the deterrent effect 

of an injunction: they argue that if I decide that the proffered 

deal is “good enough” to cause this Court to deny injunctive 

relief despite the wrongful differential they see Rosenkranz 

as extorting from the stockholders, I will be, to paraphrase 

Chairman Mao, letting a thousand little Rosenkranzes bloom. 

It is obvious to me, however, that the available damages 

remedies, particularly in this case where damages may be 

easily calculated, will serve as a sufficient deterrent for the 

behavior the Plaintiffs allege here. 

CONCLUSION 

Robert Rosenkranz founded Delphi, built its value, and 

took the Company public. The complaints about the RAM 

Contracts notwithstanding, the Plaintiffs concede that, as a 

public company, Delphi has been well-run by Rosenkranz 

and the Board. Having built Delphi, and having retained 

control of the Company throughout, Rosenkranz clearly feels 

morally entitled to a premium for his stock. The Plaintiffs 

have demonstrated a reasonable likelihood that they will be 

able to prove at trial that Rosenkranz is not so entitled, 

however. 

Nonetheless, given that the meritorious allegations discussed 

above are remediable by damages, I find it in the best interests 

of the stockholders that they be given the opportunity to 

decide for themselves whether the Merger negotiated by 

Rosenkranz and the Director Defendants offers an acceptable 

price for their shares. For the foregoing reasons, the Motion 

for Preliminary Injunction is denied. 

IT IS SO ORDERED. 

Footnotes 

1 The latter amount includes a $1 special dividend agreed to by TMH to be paid around the closing of the merger. 

2 I lay out below an abstraction of the events surrounding the negotiation and signing of the Delphi/TMH merger with the knowledge 

that the evidentiary record is at this point limited. Though the parties contest many of the facts, particularly those surrounding the 

negotiation of Rosenkranz's differential consideration, those factual disputes do not affect my decision on the Plaintiffs' request for 

injunctive relief. 



3 Aside from comments made in passing in their Opening Brief, the Plaintiffs have not challenged the independence of these directors. 

Moreover, it appears unlikely to me that the Plaintiffs' will be able to successfully challenge these directors' independence upon a full 

evidentiary record. In any event, this issue is immaterial to my basis for denying the Plaintiffs' motion. See infra note 57. I recognize, 

however, that the issue remains open for trial. 

4 For clarity, references to the “Director Defendants” do not include Rosenkranz (who is a director), unless otherwise stated. 

5 I note that both Sherman and Rosenkranz are directors as well as officers; however, I include them only under the label “Executive 

Defendants” to differentiate their roles in this action from those of the non-officer directors. 

6 Pl.'s Opening Br. Supp. Mot. Prelim. Inj. (“POB”) app. Ex. 1, Restated Certificate of Incorporation of Delphi Financial Group, Inc. 

[hereinafter “Delphi Charter”]. 

7 Delphi Charter §§ A(3), A(4)(b). 

8 Delphi Charter § 7. Section 7 excludes from this equal distribution requirement certain dividend and liquidation payments that are 

not relevant here. 

9 Robert Rosenkranz Dep. 18:19–19:8 (Feb. 10, 2012). 

10 Id. at 20:22–24, 31:22–24. 

11 Id. at 24:11–17. 

12 See Delphi Defs.' Answering Br. (“DDAB”) Ex. 11, Delphi Fin. Group, Inc., Definitive Proxy Statement (Schedule 14A), at 111 

(Feb. 21, 2012) (“Pursuant to an expense allocation agreement, a subsidiary of the Company received periodic payments from RAM, 

Acorn and various other entities in which Mr. Rosenkranz has personal financial interests in respect of expenses associated with 

certain shared office space, facilities and personnel.”). 

13 Rosenkranz Dep. 35:1–36:19. 

14 In the Plaintiffs' version of these events, Rosenkranz scheduled the meeting with TMH during the initial phone call with MacQuarie, 

rather than sometime thereafter, thus setting up the Plaintiffs' argument that Rosenkranz waited weeks before informing Delphi's 

Board of the meeting and implying that Rosenkranz intended to keep the Board in the dark until it was too late for it to have any 

input. See POB at 13. Although Plaintiffs' counsel's recounting of these initial phone calls certainly fits their preferred narrative of 

a merger negotiation dominated from the outset by an autarchic controller, it is not supported by the current record. See Rosenkranz 

Dep. 212:9–15 (“I don't think the meeting was set up on July 20th, but somewhere in the interim [between Anderson's initial phone 

call and the August 3rd board meeting] it was set up.”); James M. Anderson Dep. 72:17–23 (Feb. 9, 2012) (“[Rosenkranz's] initial 

reaction was that Delphi was not for sale, but he would think about it and call me back.”). 

15 The Plaintiffs contend that while the Board authorized preliminary negotiations at its August 3, 2011, meeting, it did not in fact 

authorize the Executive Defendants to engage in price negotiations. At this stage of the proceedings, the evidence in the record is 

insufficient to allow me to make such a finding. Regardless, this issue of fact is immaterial to my decision here on the Plaintiffs' 

request for a preliminary injunction. 


17 Id. at 126:11–17; 320:18–321:3. 

18 Ian Brimecome Dep. 38:17–39:21 (Feb. 8, 2012). 


20 DDAB Ex. 15, at DELPHI00000289–90. 

21 Id. at DELPHI00000290. 

22 Id. at DELPHI00000293. 

23 Id. Ex. 3, Delphi Fin. Group, Definitive Proxy Statement (Schedule 14A), at 2 (Apr. 14, 2011). 

24 Id. Ex. 17, at DELPHI0000854. 

25 Id. at DELPHI0000854–88. 

26 See id. Ex. 20, at DELPHI00000295–300. 

27 See id. Ex. 18, at DEL_SCP00000001–09. 



30 See id. Ex. 28, at DEL_SCP00000090. 

31 See, e.g., id. Ex. 22, at DEL_SCP00000092–94 (“[Lazard's representative] ... discussed with the directors that differential 

consideration transactions were highly unusual.... [Lazard and Cravath's representatives] also discussed with members of the Sub– 

Committee the precedent transactions that involved differential consideration, including a detailed discussion of ... the ensuing 

litigation.... The Sub–Committee then determined that Mr. Fox would initially engage with Mr. Rosenkranz and urge Mr. Rosenkranz 

to accept the same consideration as the Class A stockholders.”); see also generally id. Exs. 23, 25–26, 28 (containing the board minutes 



describing further advice rendered to the Sub–Committee and Special Committee by Cravath and Lazard); id. Ex. 31 (discussing 

conversations between Fox and Rosenkranz regarding differential consideration). 

32 See id. at DEL_SCP00000104–05. 


34 See id. Ex. 22, at DEL_SCP00000093; id. Ex. 25, at DEL_ SCP00000139–40. 

35 Like Hamlet, the Special Committee appeared to trust Rosenkranz as it would an adder fanged. See WILLIAM SHAKESPEARE, 

HAMLET act 3, sc. 4., at 76 (Stanley Appelbaum & Shane Weller eds., Dover Publ'ns 1992) (“There's letters seal'd, and my two 

schoolfellows, / Whom I trust as I will adders fang'd, / They bear the mandate. They must sweep my way / And marshal me to 

knavery.”). 

36 See DDAB Ex. 25, at DEL_SCP00000139–40. 



39 See id. at DEL_SCP00000143–44. 

40 These amounts include the $1 special dividend. 

41 See generally ELISABETH KÜBLER–ROSS, ON DEATH AND DYING 51–146 (Scribner 1997) (1969) (discussing the Kübler– 

Ross Model, or as it is commonly known, the Five Stages of Grief). 

42 See DDAB Ex. 38, at DEL_SCP00000165 (“Mr. Rosenkranz then became extremely upset and angry and had stated that he could 

not understand the legal basis for the Sub–Committee's demand that the Class A stockholders receive $45.25 per share.”). 

43 See id. Ex. 37, at DEL_SCP00000155 (“Mr. Rosenkranz then proposed to Mr. Fox that the Class A stockholders receive approximately 

$44.75 per share and the Class B stockholders receive approximately $54.81 per share.”). 

44 See id. Ex. 40, at DEL_SCP00000182 (“Mr. Rosenkranz sounded depressed” and told Fox that he “could not believe that the Sub– 

Committee was willing to threaten the deal and that the negotiation process had to be this financially painful for him.” Rosenkranz 

also told Fox that “he felt beaten up and that the Sub–Committee had handled him harshly.”). 

45 See id. at DEL_SCP00000182 (discussing a phone call between Fox and Rosenkranz where Fox reduced his initial demand of $45 

to $44.875, to which Rosenkranz responded “that he could live with such a transaction”). 





50 See id. Ex. 49, Delphi Fin. Group, Inc., Current Report (Form 8–K), Ex. 2.1 at 32 (Dec. 21, 2011). 

51 See id. Ex. 61. 

52 The unadjusted closing price of Delphi's publicly traded stock on December 20, 2011, the day before the merger was announced, was 

$25.43. See Yahoo! Finance, Delphi Financial Group Inc. Co. Historical Prices, http://finance.yahoo.com/q/hp?s=DFG (last visited 

Mar. 5, 2012). The consideration of $44.875 per Class A share offered by the Merger thus represents a 76% premium over market 

price. 

53 DDAB Ex. 67. 

54 See id. Ex. 11, Delphi Fin. Group, Inc., Definitive Proxy Statement (Schedule 14A), at 72–74 (Feb. 21, 2012). 

55 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 179 (Del.1986). 

56 I need not at this stage of the proceedings address whether THM aided and abetted the other Defendants' alleged misconduct. 

57 For the purposes of this Motion only, I assume, as the Director Defendants did, see DDAB at 47, that the entire fairness standard 

of review applies to the approval of the disparate Merger consideration. Under In re John Q. Hammons Hotels, Inc. Shareholder 

Litigation, 2009 WL 3165613 (Del. Ch. Oct. 2, 2009), this Court reviews transactions where a controlling stockholder stands on one 

side under entire fairness unless (1) a disinterested, independent, and sufficiently empowered special committee recommends the 

transaction to the board and (2) the majority of the minority stockholders approve the transaction in a non-waivable vote. Id. at *12. 

“Threats, coercion, or fraud” on the part of the controlling stockholder, however, may nullify either procedural protection. Id. at *12 

n. 38. With the Hammons rule thusly framed, I nevertheless make no finding on the satisfaction of the relevant procedural protections, 

as I find that the Plaintiffs are reasonably likely to prove at trial that, per the obligations created by the Delphi Charter and the Director 

and Executive Defendants' duties to uphold them, Rosenkranz was not entitled to differential consideration in any amount. Such a 

finding at trial would, of course, eliminate the need to determine whether the disparity in Merger consideration was “fair.” 

58 See Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1371 (Del.1995); Revlon, 506 A.2d at 179. 

59 In re Netsmart Techs., Inc. S'holders Litig., 924 A.2d 171, 192 (Del. Ch.2007) (citing Revlon, 506 A.2d at 184); see also Paramount 

Commc'ns, Inc. v. QVC Network, Inc., 637 A.2d 34, 44 (Del.1994) (“In the sale of control context, the directors must focus on 



one primary objective—to secure the transaction offering the best value reasonably available for the stockholders—and they must 

exercise their fiduciary duties to further that end.”). 

60 Netsmart, 924 A.2d at 192. 

61 See id. at 192 (“Unlike the bare rationality standard applicable to garden-variety decisions subject to the business judgment rule, 

the Revlon standard contemplates a judicial examination of the reasonableness of the board's decision-making process.”); In re Toys 

“R” Us, Inc. S'holder Litig., 877 A.2d 975, 1000 (Del. Ch.2005) (“[In Revlon,] the Supreme Court held that courts would subject 

directors subject to ... a heightened standard of reasonableness review, rather than the laxer standard of rationality review applicable 

under the business judgment rule.”). 

62 QVC, 637 A.2d at 45. 

63 See Abraham v. Emerson Radio Corp., 901 A.2d 751, 753 (Del. Ch.2006) (“Under Delaware law, a controller remains free to sell its 

stock for a premium not shared with the other stockholders except in very narrow circumstances.”); In re Sea–Land Corp. S'holders 

Litig., 1987 WL 11283, at *5 (Del. Ch. May 22, 1987) (“A controlling stockholder is generally under no duty to refrain from receiving 

a premium upon the sale of his controlling stock.”). 

64 See Hammons, 2009 WL 3165613, at *14 (“In the first instance, there is no requirement that [a controller] sell his shares. Nor is 

there a requirement that [a controller] sell his shares to any particular buyer or for any particular consideration, should he decide in 

the first instance to sell them.”). 

65 In other words, the Director Defendants argue that they faced the same issue this Court faces here in balancing the equities concerning 

injunctive relief: whether the proposed deal, despite its flaws, should be put before the stockholders for a vote on the grounds that 

it offers an attractive premium over the market price of the Class A stock. 

66 DDAB at 74–75. 

67 See 8 Del. C. § 242. 

68 At oral argument, neither Rosenkranz nor the Director Defendants provided a convincing explanation as to why a prohibition on 

disparate consideration would have been included other than to improve the marketability of Delphi's public shares. In his deposition, 

Rosenkranz claimed that the primary reason for having two stock classes was “to avoid the risk that Delphi would be sold at an 

inadequate price at an inopportune time, once it was publicly traded” and that he wanted to exit Delphi “at a time and on terms that 

were acceptable to [him].” Rosenkranz Dep. 58:10–59:21. With respect to the Charter Amendment, Rosenkranz argued that he was 

simply controlling when the stock was to be sold and that the Charter Amendment was really just an altruistic act that would give the 

Class A stockholders “an opportunity to accept a proposal which [Rosenkranz would] otherwise ... reject.” Id. at 80:8–16. 

69 See DDAB Ex. 13, at DEL_SCP00000141 (“[TMH] said that if the Company had asked for a price starting with a ‘5,’ [TMH] would 

have ended its discussions with the Company entirely.”). 

70 See Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182, 1188 (Del.2010) (“Corporate charters and bylaws are contracts among 

a corporation's shareholders; therefore, our rules of contract interpretation apply.”). 

71 See Dunlap v. State Farm Fire & Cas. Co., 878 A.2d 434, 441–43 (Del.2005) (“Recognized in many areas of the law, the implied 

covenant attaches to every contract ....“ (footnote omitted)). 

72 Allied Capital Corp. v. GC–Sun Holdings, L.P., 910 A.2d 1020, 1032 (Del. Ch.2006) (internal quotation marks omitted). 

73 Dunlap, 878 A.2d at 442. 

74 In re Cogent, Inc. S'holder Litig., 7 A.3d 487, 509 (Del.2010) (emphasis added). 

75 Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del.1985) (quoting TSC Indus. v. Northway, Inc., 426 U.S. 438, 449 (1976)). 

76 Getty Oil, 493 A.2d at 944 (quoting TSC Indus., 426 U.S. at 449) (emphasis added). 

77 Id. (emphasis added). 

78 TCG Sec., Inc. v. S. Union Co., 1990 WL 7525, at *7 (Del. Ch. Jan. 31, 1990). 

79 Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 579 (Del. Ch.1998) (quoting DONALD J. WOLFE, JR. & MICHAEL A. 

PITTENGER, CORPORATE AND COMMERCIAL PRACTICE IN THE DELAWARE COURT OF CHANCERY § 10–2(a)). 

80 Aquila, Inc. v. Quanta Servs., Inc., 805 A.2d 196, 208 (Del. Ch.2002) (internal quotation marks removed). 

81 See Gradient OC Master, Ltd. v. NBC Universal, Inc., 930 A .2d 104, 131 (Del. Ch.2007) (“There is no irreparable harm if money 

damages are adequate to compensate Plaintiffs....”). 

82 See Netsmart, 924 A.2d at 208 (contrasting “cases where the refusal to grant an injunction presents the possibility that a higher, 

pending, rival offer might go away forever,” in which injunctive relief is often appropriate, with “cases [where] a potential Revlon 

violation occurred but no rival bid is on the table,” in which “the denial of injunctive relief is often premised on the imprudence of 

having the court enjoin the only deal on the table, when the stockholders can make that decision for themselves”). 

83 2012 WL 653845 (Del. Ch. Feb. 29, 2012). 

84 Id. at *1. 



85 Id. at *1, *3 n. 9. 

86 Id. at * 13. 

87 Compare Rosenkranz to Doug Foshee, the CEO of El Paso, who, despite being the lead negotiator in the sale of the company, failed 

to disclose to El Paso's board his interest in pursuing a management buyout of a significant component of the company's business. 

See id. at *7 (“At a time when Foshee's and the Board's duty was to squeeze the last drop of the lemon out for El Paso's stockholders, 

Foshee had a motive to keep juice in the lemon that he could use to make a financial Collins for himself and his fellow managers 

interested in pursuing an MBO of the E & P business.”). 

88 See generally Thorpe v. CERBCO, Inc., 676 A.2d 436, 437 (Del.1996) (“[T]he [defendants'] conceded breach of their fiduciary 

duty renders them liable to disgorge any benefits emanating from, and providing compensation for any damages attributable to, that 

breach.”). 

89 The Defendants hotly contest the value of the RAM Contracts to Delphi, and the record is not at a stage where I can determine the 

issue with confidence. 

90 See supra note 52. 




El Paso Corporation Shareholder Litigation

In re El Paso Corp. Shareholder Litigation, 41 A.3d 432 (2012) 

41 A.3d 432 


In re EL PASO CORPORATION 

SHAREHOLDER LITIGATION. 

Civil Action No. 6949–CS. | Submitted: 

Feb. 9, 2012. | Decided: Feb. 29, 2012. 

Synopsis 

Background: Stockholders brought breach of fiduciary 

duties action in regard to proposed merger, and moved for a 

preliminary injunction to delay the merger. 



So long as a board of directors made reasonable 

decisions for a proper purpose in a change 

of control context, they meet their duty under 

Revlon and a court must defer when shareholders 

challenge the transaction; by contrast, when 

there is a reason to conclude that debatable 

tactical decisions were motivated not by a 

principled evaluation of the risks and benefits to 

the company's stockholders, but by a fiduciary's 

consideration of his own financial or other 

personal self-interests, then the core animating 

principle of Revlon is implicated. 

Holdings: The Court of Chancery of Delaware, Strine, 

Chancellor, held that: 

[1] stockholders had a reasonable probability of success 

on the merits, as required in order to obtain a preliminary 

injunction; 

[2] stockholders would likely suffer irreparable injury if the 

merger proceeded; but 

[3] the balance of the equities did not favor the issuance of 

an injunction. 

Motion for preliminary injunction denied. 



Grounds in general; multiple factors 

In order to obtain a preliminary injunction, 

plaintiffs must demonstrate: (1) a reasonable 

probability of success on the merits; (2) that they 

will suffer irreparable harm if an injunction does 

not issue; and (3) that the balance of the equities 

favors the issuance of an injunction. 





measures 

Stockholders alleging that proposed merger was 

tainted by breaches of fiduciary duty had a 

reasonable probability of success on the merits, 

as required in order to obtain a preliminary 

injunction to delay merger, where lead banker 

in bank which was advising corporation on a 

proposed spin-off of exploration and production 

(E & P) business that triggered the merger 

bid had a concealed ownership interest in the 

acquiring corporation, investment bank owned 

19% of the acquiring corporation but continued 

to advise corporation on proposed spin-off, 

conflict-cleansing bank hired to provide advice 

on the merger would only receive a fee if it 

approved the merger, and corporation's chief 

executive officer (CEO) who negotiated the 

merger did not disclose that he approached the 

acquiring corporation to propose a management 

buy-out (MBO) of corporation's E & P business, 

which acquiring corporation intended to sell to 

finance the merger. 



measures 

Stockholders alleging that proposed merger was 

tainted by breaches of fiduciary duty would 

likely suffer irreparable injury if the merger 



proceeded, as required in order to obtain a 

preliminary injunction to delay the merger, 

as the adequacy of monetary damages to 

them as stockholders was not apparent; the 

independent directors on corporation's board 

were not informed of key conflicts of interest 

and appeared to have acted in good faith, 

corporation's chief executive officer (CEO) who 

did not disclose that he had approached the 

acquiring corporation to propose a management 

buy-out (MBO) of corporation's exploration and 

production (E & P) business was unlikely to be 

good for a verdict of more than half a billion 

dollars, and it was not likely that acquiring 

corporation could be found liable as an aider and 

abettor. 



measures 

The balance of the equities did not favor the 

issuance of an injunction, as required in order 

for stockholders who alleged that proposed 

merger was tainted by breaches of fiduciary 

duty to obtain a preliminary injunction to delay 

the merger in order to allow corporation to 

prospect for a higher bid; though stockholders 

had a reasonable probability of success on 

the merits and it was likely that stockholders 

would suffer irreparably injury if the merger 

proceeded, no rival bid for the corporation 

existed, the injunction would likely relieve 

acquiring corporation of any obligation to 

close, stockholder vote had not occurred and 

stockholders had the right to reject the merger, 

and, though a monetary damages claim was not 

a perfect tool, it had some value as a remedial 

instrument. 


*433 Stuart M. Grant, Esquire, Megan D. McIntyre, 

Esquire, Christine M. Mackintosh, Esquire, Grant & 

Eisenhofer P.A., Wilmington, Delaware; Christine S. Azar, 

Esquire, Charles B. Vincent, Esquire, Labaton Sucharow 

LLP, Wilmington, Delaware; Mark Lebovitch, Esquire, 

Jeremy Friedman, Esquire, Bernstein Litowitz Berger & 

Grossmann LLP, New York, New York, Ira Schochet, 

Esquire, Labaton Sucharow LLP, New York, New York, 

Attorneys for Plaintiffs. 

Donald J. Wolfe, Jr., Esquire, T. Brad Davey, Esquire, 

Samuel L. Closic, Esquire, Potter Anderson & Corroon LLP, 

Wilmington, Delaware; Paul K. Rowe, Esquire, Stephen 

R. DiPrima, Esquire, Bradley R. Wilson, Esquire, Michael 

Gerber, Esquire, Benjamin D. Schireson, Esquire, Wachtell, 

Lipton, Rosen & Katz, New York, New York, Attorneys for 

Defendants Juan Carlos Braniff, David W. Crane, Douglas L. 

Foshee, Robert W. Goldman, Anthony W. Hall, Jr., Thomas 

R. Hix, Ferrell P. McClean, Timothy J. Probert, Steven 

Shapiro, J. Michael Talbert, Robert F. Vagt, and John L. 

Whitmire. 

Collins J. Seitz, Jr., Esquire, Bradley R. Aronstam, Esquire, 

Seitz Ross Aronstam & Moritz LLP, Wilmington, Delaware; 

Joseph S. Allerhand, Esquire, Seth Goodchild, Esquire, 

Michael Bell, Esquire, Weil, Gotshal & Manges LLP, New 

York, New York, Attorneys for Defendants Kinder Morgan, 

Inc., Sherpa Merger Sub, Inc., and Sherpa Acquisition, LLC. 

Gregory V. Varallo, Esquire, Raymond J. DiCamillo, 

Esquire, Kevin M. Gallagher, Esquire, Richards, Layton & 

Finger, P.A., Wilmington, Delaware; John L. Hardiman, 

Esquire, Sullivan & Cromwell, LLP, New York, New York; 

Bruce D. Oakley, Esquire, Hogan Lovells U.S. LLP, Houston, 

Texas, Attorneys for The Goldman Sachs Group, Inc. and 

Goldman, Sachs & Co. 

Opinion 

STRINE, Chancellor. 

OPINION 

I. 

Stockholder plaintiffs seek a preliminary injunction to enjoin 

a merger between El Paso Corporation and Kinder Morgan, 

Inc. (the “Merger”). 

The chief executive officer of El Paso, a public company, 

undertook sole responsibility for negotiating the sale of El 

Paso to Kinder Morgan in the Merger. Kinder *434 Morgan 

intended to keep El Paso's pipeline business and sell off El 

Paso's exploration and production, or “E & P,” business to 



finance the purchase. The CEO did not disclose to the El Paso 

board of directors (the “Board”) his interest in working with 

other El Paso managers in making a bid to buy the E & P 

business from Kinder Morgan. He kept that motive secret, 

negotiated the Merger, and then approached Kinder Morgan's 

CEO on two occasions to try to interest him in the idea. In 

other words, when El Paso's CEO was supposed to be getting 

the maximum price from Kinder Morgan, he actually had an 

interest in not doing that. 

This undisclosed conflict of interest compounded the reality 

that the Board and management of El Paso relied in part 

on advice given by a financial advisor, Goldman, Sachs & 

Co., which owned 19% of Kinder Morgan (a $4 billion 

investment) and controlled two Kinder Morgan board seats. 

Although Goldman's conflict was known, inadequate efforts 

to cabin its role were made. When a second investment bank 

was brought in to address Goldman's economic incentive 

for a deal with, and on terms that favored, Kinder Morgan, 

Goldman continued to intervene and advise El Paso on 

strategic alternatives, and with its friends in El Paso 

management, was able to achieve a remarkable feat: giving 

the new investment bank an incentive to favor the Merger by 

making sure that this bank only got paid if El Paso adopted 

the strategic option of selling to Kinder Morgan. In other 

words, the conflict-cleansing bank only got paid if the option 

Goldman's financial incentives gave it a reason to prefer was 

the one chosen. On top of this, the lead Goldman banker 

advising El Paso did not disclose that he personally owned 

approximately $340,000 of stock in Kinder Morgan. 

The record is filled with debatable negotiating and tactical 

choices made by El Paso fiduciaries and advisors. Absent a 

conflict of interest, these debatable choices could be seen as 

the sort of reasonable, if arguable, ones that must be made 

in a world of uncertainty. After discovery, however, these 

choices now must be viewed more skeptically, as the key 

negotiator on behalf of the Board and a powerfully influential 

financial advisor each had financial motives adverse to the 

best interests of El Paso's stockholders. In the case of the 

CEO, he was the one who made most of the important tactical 

choices, and he never surfaced his own conflict of interest. 

In the case of Goldman, it claimed to step out of the process 

while failing to do so completely and while playing a key 

role in distorting the economic incentives of the bank that 

came in to ensure that Goldman's conflict did not taint the 

Board's deliberations. This behavior makes it difficult to 

conclude that the Board's less than aggressive negotiating 

strategy and its failure to test Kinder Morgan's bid actively in 

the market through even a quiet, soft market check were not 

compromised by the conflicting financial incentives of these 

key players. 

The record thus persuades me that the plaintiffs have a 

reasonable likelihood of success in proving that the Merger 

was tainted by disloyalty. Because, however, there is no 

other bid on the table and the stockholders of El Paso, 

as the seller, have a choice whether to turn down the 

Merger themselves, the balance of harms counsels against a 

preliminary injunction. Although the pursuit of a monetary 

damages award may not be likely to promise full relief, the 

record does not instill in me the confidence to deny, by grant 

of an injunction, El Paso's stockholders from accepting a 

transaction that they may find desirable in current market 

conditions, despite the *435 disturbing behavior that led to 

its final terms. 

II. 

[1] The plaintiffs are stockholders of El Paso and seek to 

enjoin a vote on a proposed Merger with Kinder Morgan that 

offers El Paso a combination of cash, stock, and warrants 

now valued at $30.37 per share, or a 47.8% premium over El 

Paso's stock price thirty days before Kinder Morgan made its 

first bid. 1 At the time of signing, the Merger consideration 

was worth $26.87 per share, and has appreciated since the 

announcement because Kinder Morgan's stock has grown 

in value. In order to obtain a preliminary injunction, the 

plaintiffs must demonstrate: (1) a reasonable probability of 

success on the merits; (2) that they will suffer irreparable 

harm if an injunction does not issue; and (3) that the balance 

of the equities favors the issuance of an injunction. 2 

The Merger resulted from a non-public overture that Kinder 

Morgan made in the wake of El Paso's public announcement 

that it would spin off its E & P business. El Paso is an 

energy company composed of two main business segments: 

a pipeline business, which transports natural gas throughout 

the United States, and the E & P business, which looks for 

and exploits opportunities to drill and produce oil and natural 

gas. The market had reacted favorably to the May 24, 2011 

announcement of the spin-off, and El Paso's stock price had 

risen, although El Paso believed that its stock price would 

rise further when the spin-off was actually effected. El Paso 

understood that Kinder Morgan was trying to preempt any 

competition by other bidders for what would be the separate 

pipeline business, which is the business Kinder Morgan 



wanted to buy, by making a bid before El Paso divided into 

two companies. 3 

The first time after the spin-off announcement that Kinder 

Morgan expressed its interest in acquiring El Paso was on 

August 30, 2011, when Kinder Morgan offered El Paso 

$25.50 per share in cash and stock. 4 The El Paso Board 

fended this off weakly, despite believing that the price was 

not attractive and that Kinder Morgan was hoping to preempt 

any market competition for El Paso's pipeline business by 

acquiring all of El Paso before the spin-off was effected. On 

September 9, 2011, Kinder Morgan threatened to go public 

with its interest in buying El Paso. Rather than seeing this 

as a chance to force Kinder Morgan into an expensive public 

struggle, the Board entered into negotiations with Kinder 

Morgan. The Board looked to its longtime advisor Goldman 

Sachs (which as noted owns 19% of Kinder Morgan, fills two 

seats on the Kinder Morgan board under a voting agreement 

with Kinder Morgan's CEO and controlling stockholder, 

Rich Kinder, and is part of the control group which *436 

collectively holds 78.4% of the voting power of Kinder 

Morgan stock) 5 and a new advisor, Morgan Stanley & Co., 

LLC, for financial and tactical advice in making that decision 

and for developing its negotiating strategy. On September 

16, 2011, El Paso asked Kinder Morgan for a bid of $28 

per share in cash and stock, deploying the company's CEO, 

Doug Foshee, as its sole negotiator. 6 Foshee reached an 

agreement in principle with Rich Kinder two days later on 

a deal at $27.55 per share in cash and stock, subject to 

due diligence by Kinder Morgan. The basic terms of the 

agreement in principle were memorialized in a series of term 

sheets exchanged between the parties between September 20, 

2011 and September 22, 2011. 

Soon thereafter, on September 23, 2011, Kinder said “oops, 

we made a mistake. We relied on a bullish set of analyst 

projections in order to make our bid. Our bad. Although we 

were tough enough to threaten going hostile, we just can't 

stand by our bid.” 

Instead of telling Kinder where to put his drilling equipment, 

Foshee backed down. In a downward spiral, El Paso ended up 

taking a package that was valued at $26.87 as of signing on 

October 16, 2011, comprised of $25.91 in cash and stock, and 

a warrant with a strike price of $40—some $13 above Kinder 

Morgan's then-current stock price of $26.89 per share 7 —and 

no protection against ordinary dividends. 8 

Still, the deal was at a substantial premium to market, 9 and 

the Board was advised by Morgan Stanley (and also by the 

analyses of Goldman—which had, and continued to, advise 

El Paso on the spin-off of the E & P business) that the offer 

was more attractive in the immediate term than doing the spinoff 

and had less execution risk, because Kinder Morgan had 

agreed to a great deal of closing certainty. Thus, the Board 

approved the Merger. 

On October 16, 2011, the parties entered into the “Merger 

Agreement.” The Merger Agreement contains a commitment 

from El Paso to assist Kinder Morgan in the sale of the 

E & P business, which Kinder Morgan hoped could be 

accomplished before the closing of the Merger. 10 The *437 

Merger Agreement also contains a “no-shop” provision 

preventing El Paso from affirmatively soliciting higher bids, 

but gives the Board a fiduciary out in the event it receives 

a “Superior Proposal” from a third party for more than 50% 

of El Paso's equity securities or consolidated assets. 11 These 

measures preclude El Paso from abandoning the Merger in 

order to pursue a sale of the E & P assets because the E & 

P assets make up less than 50% of El Paso's consolidated 

assets. 12 By contrast, El Paso could terminate the Merger 

Agreement to pursue a sale of the pipeline business (which 

makes up more than 50% of the company's consolidated 

assets), but Kinder Morgan has a right to match any such 

Superior Proposal. 13 In the event that the Board accepts 

a Superior Proposal, El Paso must pay a $650 million 

termination fee to Kinder Morgan. 14 In terms of the overall 

deal size, the termination fee represents 3.1% of the equity 

value and 1.69% of the enterprise value of El Paso as implied 

by the Merger Agreement. 15 Thus, to buy just the pipeline 

business, an interloper would have to pay a termination fee 

that was, say, 5.1% of the equity value and 2.5% of the 

enterprise value of El Paso's pipeline business, assuming it 

comprised around 60.3% of El Paso's equity value and 67% 

of El Paso's enterprise value at the time of signing. 16 

Since the signing of the Merger Agreement, the price of 

Kinder Morgan's shares has risen, increasing the value of the 

Merger consideration. 

III. 

Despite the premium to market, the plaintiffs contend that 

the Merger is tainted by the selfish motivations of both Doug 



Foshee and Goldman Sachs. As the plaintiffs point out, there 

were numerous decisions made by the El Paso Board during 

the process that could be seen as questionable. These include: 

• The failure of the Board to shop El Paso as a whole 

or its two key divisions separately to any other bidder 

after Kinder Morgan made its initial overture, despite 

knowing that Kinder Morgan was hoping to preempt 

competition by bidding for the whole company, 17 and 

despite knowing that although there would be a number 

of bidders for the company's two key divisions if 

marketed separately, there was unlikely to be any rival 

to Kinder *438 Morgan willing to purchase El Paso as 

a whole; 18 

• The failure of the Board to reject Kinder Morgan's initial 

overtures and force it to go public and face the market 

pressure to raise its offer to a level where it could prevail 

in a hostile takeover bid; 

• Charging Foshee with handling all negotiations 

with Kinder Morgan without any presence or close 

supervision by an independent director or legal 

advisor; 

• Allowing Kinder Morgan (a supposedly tough, 

potential hostile bidder) to renege on an agreement 

in principle to pay cash and stock equal to $27.55 

entered into on September 18, 2011 (a package 

that would likely be worth $31.76 today assuming 

current market prices 19 ) based on the (arguably 

ludicrous) assertion that it had based its bid on 

the cash flow estimates of the most bullish analyst 

covering El Paso's stock; 

• Signing on to deal protection measures that would 

effectively preclude a post-signing market check for 

bids for the separate divisions because of the limited 

fiduciary out, which precludes the Board from accepting 

a topping bid for the E & P business, and which makes 

the emergence of a topping bid for the pipeline business 

difficult because of the $650 million termination fee and 

Kinder Morgan's matching rights; and 

• Eventually agreeing to a deal that only provided 

El Paso stockholders with cash and stock equal to 

$25.91 in value (excluding the warrant), far less 

than the $27.55 previously agreed to by Kinder 

Morgan. 

The plaintiffs also take issue with the fact that the final 

price of $25.91 in cash and stock was reached when Foshee, 

without Board approval, told Kinder Morgan that he would be 

open to a deal whereby Kinder Morgan would only pay $26 

per share in cash and stock, a full $0.50 per share less than the 

counter-offer that the Board had authorized him to put on the 

table. 20 Even then, Foshee did not get $26 in cash and stock. 

Instead, he got only $25.91 in cash and stock, with Kinder 

Morgan adding in a warrant with a high strike price and weak 

protection against dividends to Kinder Morgan stockholders. 

*439 The Board valued this package at $26.87 on the date of 

signing, $0.68 below the $27.55 per share that Kinder Morgan 

had agreed to after threatening to go hostile just weeks earlier. 

Despite that, the Board decided that the lower price should 

be accepted and was more favorable to El Paso's stockholders 

than the strategic alternative, which involved the previously 

announced spin-off of El Paso's E & P business. 

IV. 

[2] Although a reasonable mind might debate the tactical 

choices made by the El Paso Board, these choices 

would provide little basis for enjoining a third-party 

merger approved by a board overwhelmingly comprised 

of independent directors, many of whom have substantial 

industry experience. The Revlon doctrine, after all, does not 

exist as a license for courts to second-guess reasonable, 

but arguable, questions of business judgment in the change 

of control context, but to ensure that the directors take 

reasonable steps to obtain the highest value reasonably 

attainable and that their actions are not compromised by 

impermissible considerations, such as self-interest. 21 So 

long as the directors made reasonable decisions for a proper 

purpose, they meet their duty under Revlon and this court 

must defer. 22 

By contrast, when there is a reason to conclude that debatable 

tactical decisions were motivated not by a principled 

evaluation of the risks and benefits to the company's 

stockholders, but by a fiduciary's consideration of his own 

financial or other personal self-interests, then the core 

animating principle of Revlon is implicated. 23 As Revlon 

itself made clear, the potential sale of a corporation has 

enormous implications for corporate managers and advisors, 

and a range of human motivations, including but by no means 

limited to greed, can inspire fiduciaries and their advisors to 



be less than faithful to their contextual duty to pursue the best 

value for the company's stockholders. 24 

how to respond to Kinder Morgan from September 15, 2011 

onwards. 30 

Here, the defendants allege that the current case fits neatly 

within that line of cases where this court deferred to boards 

that made reasonable, if questionable, decisions in deciding 

how to consummate a change of control transaction. 25 They 

argue *440 that a well-motivated board, with an excellent, 

well-motivated CEO, used the favorable market reaction to 

the company's announced spin-off to secure an even more 

favorable outcome: a sales transaction securing for El Paso 

a large premium to market with far less execution risk than 

the spin-off entailed. The defendants begrudgingly concede 

that El Paso's long-standing financial advisor, Goldman, had 

a “potential conflict” 26 because: (1) it owned approximately 

19%, or $4 billion worth, of Kinder Morgan stock; (2) it 

controlled two of Kinder Morgan's board seats; (3) it had 

placed two senior Goldman principals on the Kinder Morgan 

board who thus owed Kinder Morgan fiduciary duties; and (4) 

the lead Goldman banker working for El Paso, Steve Daniel, 

personally owned approximately $340,000 of Kinder Morgan 

stock. 27 But, the defendants argue that Goldman was walled 

off from giving strategic advice about the Kinder Morgan 

bid early in the process and another top-tier bank, Morgan 

Stanley, came in and gave unconflicted advice. 

Regrettably for the defendants, the record developed in 

expedited discovery belies their argument that there is no 

reason to question the motives behind the decisions made by 

El Paso in negotiating the Merger Agreement. Although it is 

true that measures were taken to cabin Goldman's conflict (for 

example, Goldman formally set up an internal “Chinese wall” 

between the Goldman advisors to El Paso and the Goldman 

representatives responsible for the firm's Kinder Morgan 

investment) 28 —which was actual and potent, not merely 

potential—those efforts were not effective. Goldman still 

played an important role in advising the Board by suggesting 

that the Board should avoid causing Kinder Morgan to go 

hostile and by presenting information about the value of 

pursuing the spin-off instead of the Kinder Morgan deal. 

Indeed, Goldman's advice to placate Kinder Morgan by 

entering into due diligence “raised [El Paso] management's 

concerns” that the Goldman team was “receiving pressure 

from other parts of Goldman Sachs to avoid a strategy that 

might result in [Kinder Morgan] going public and making 

a hostile approach on [El Paso],” 29 prompting El Paso to 

exclude Goldman from internal tactical discussions about 

*441 Even then, though, Goldman was not out of the 

picture entirely, as El Paso management only thought it 

was necessary to limit Goldman's involvement in the Kinder 

Morgan side of the advisory work. Goldman continued its 

role as primary financial advisor to El Paso for the spin-off, 

and was asked to continue to provide financial updates to the 

Board that would enable the El Paso directors to compare the 

spin-off to the Merger. 

The fact that Goldman continued to have its hands in the 

dough of the spin-off is important, because the Board was 

assessing the attractiveness of the Merger relative to the 

attractiveness of the spin-off. That was critical because the 

Board, at the recommendation of Foshee, Goldman, and 

Morgan Stanley, decided not to risk Kinder Morgan going 

hostile and not to do any test of the market with other possible 

buyers of El Paso as a whole, or of either or both of its 

two key business segments separately. Thus, the Board was 

down to two strategic options: the spin-off or a sale to Kinder 

Morgan. Therefore, because Goldman stayed involved as the 

lead advisor on the spin-off, it was in a position to continue 

to exert influence over the Merger. The record suggests that 

there were questionable aspects to Goldman's valuation of 

the spin-off and its continued revision downward that could 

be seen as suspicious in light of Goldman's huge financial 

interest in Kinder Morgan. 31 

*442 Heightening these suspicions is the fact that Goldman's 

lead banker failed to disclose his own personal ownership 

of approximately $340,000 in Kinder Morgan stock, a very 

troubling failure that tends to undercut the credibility of his 

testimony and of the strategic advice he gave. 32 

Even worse, Goldman tainted the cleansing effect of Morgan 

Stanley. Goldman clung to its previously obtained contract 

to make it the exclusive advisor on the spin-off and which 

promised Goldman $25 million in fees if the spin-off was 

completed. Despite the reality that Morgan Stanley was 

retained to address Goldman's bias toward a suboptimally 

priced deal with Kinder Morgan and thus Morgan Stanley's 

work in evaluating whether the spin-off was a more valuable 

option was critical to its integrity-enforcing role, Goldman 

refused to concede that Morgan Stanley should be paid 

anything if the spin-off, rather than the Merger, was 

consummated. Goldman's friends in El Paso management— 

and that is what they seem to have been—easily gave in to 



Goldman. 33 This resulted in an incentive structure like this 

for Morgan Stanley: 

• Approve a deal with Kinder Morgan (the entity of which 

Goldman owned 19%)—get $35 million; or 

• Counsel the Board to go with the spin-off or to 

pursue another option—get zilch, nada, zero. 34 

This makes more questionable some of the tactical advice 

given by Morgan Stanley and some of its valuation advice, 

which can be viewed as stretching to make Kinder Morgan's 

offers more favorable than other available options. 35 Then, 

despite *443 saying that it did not advise on the Merger— 

a claim that the record does not bear out in large measure 

—Goldman asked for a $20 million fee for its work on 

the Merger. Of course, by the same logic it used to shut 

out Morgan Stanley from receiving any fee for the spinoff, 

Goldman should have been foreclosed from getting fees 

for working on the Merger when it supposedly was walled 

off from advising on that deal. But, Goldman's affectionate 

clients, more wed to Goldman than to logical consistency, 

quickly assented to this demand. 36 

Worst of all was that the supposedly well-motivated and 

expert CEO entrusted with all the key price negotiations 

kept from the Board his interest in pursuing a management 

buy-out of the Company's E & P business. Knowing that 

Kinder Morgan intended to sell the E & P business in order 

to finance its overall purchase of El Paso, Foshee spoke 

with fellow El Paso manager Brent Smolik, the head of the 

E & P business, about approaching Kinder Morgan with a 

management bid for the E & P assets. The record does not 

make clear exactly when the idea of an MBO first occurred 

to Foshee, but an email exchange between Smolik and John 

Sult (the CFO of El Paso) suggests that Smolik and Foshee 

were discussing the MBO opportunity while Foshee was 

negotiating the Merger terms with Rich Kinder. 37 Rather 

than disclose that he was contemplating an MBO to the Board, 

Foshee kept this information to himself, and even told Smolik 

that he wanted to discuss the MBO “as late [in the process] 

as possible.” 38 After the Merger price was finally set and the 

Merger Agreement entered into, Foshee went to Rich Kinder 

not once, but twice, to try to get Kinder interested in letting 

El Paso management bid. Although Kinder did not embrace 

Foshee's idea of an El Paso management led buy-out of the 

E & P business, the reality is that Foshee was interested in 

being a buyer of a key part of El Paso at the same time 

he was charged with getting the highest possible price as a 

seller of that same asset. At no time did *444 Foshee come 

clean to his board about his self-interest, and he never sought 

permission from the Board before twice going to the CEO of 

the company's negotiating adversary. 

At a time when Foshee's and the Board's duty was to squeeze 

the last drop of the lemon out for El Paso's stockholders, 

Foshee had a motive to keep juice in the lemon that he 

could use to make a financial Collins for himself and his 

fellow managers interested in pursuing an MBO of the E & 

P business. The defendants defend this by calling Foshee's 

actions and motivations immaterial and frivolous. 

It may turn out after trial that Foshee is the type of person who 

entertains and then dismisses multi-billion dollar transactions 

at whim. Perhaps his interest in an MBO was really more of a 

passing fancy, a casual thought that he could have mentioned 

to Kinder over canapés and forgotten about the next day. 

It could be. 

Or it could be that Foshee is a very smart man, and very 

financially savvy. He did not tell anyone but his management 

confreres that he was contemplating an MBO because he 

knew that would have posed all kinds of questions about 

the negotiations with Kinder Morgan and how they were to 

be conducted. Thus, he decided to keep quiet about it and 

approach his negotiating counterpart Rich Kinder late in the 

process—after the basic deal terms were set—to maximize 

the chance that Kinder would be receptive. Of course, for an 

MBO to be attractive to management and to Kinder Morgan, 

not forcing Kinder Morgan to pay the highest possible price 

for El Paso was more optimal than exhausting its wallet, 

because that would tend to cause Kinder Morgan to demand 

a higher price for the E & P assets. Not only that, a fist fight 

of a negotiation might leave a bloodied Kinder unreceptive to 

a bid from Foshee and his team. Admittedly, the defendants 

would have me consider incredible the notion that ideas like 

this would have crossed the mind of Foshee while he was 

negotiating. But then again, the idea of an MBO had crossed 

his mind, he purposely decided not to tell the Board about it, 

he purposely decided to keep it quiet from Kinder Morgan 

until the deal was baked, and then had not one, but two 

discussions with his rival CEO in the negotiations seeking to 

pursue it. I do not find at this stage I can conclude it was a lark. 

[3] The concealed motives of Foshee, the concealed 

financial interest of Goldman's lead banker in Kinder Morgan, 



Goldman's continued influence over the Board's assessment 

of the spin-off, and the distortion of Morgan Stanley's 

incentives that arose as a result of El Paso management's 

acquiescence to its Goldman friends' demands leave me 

persuaded that the plaintiffs have a reasonable probability of 

success on a claim that the Merger is tainted by breaches 

of fiduciary duty. The Board, and Foshee as key negotiator 

on behalf of the Board, made many questionable tactical 

decisions. Allowing Kinder to play the tough hostile bidder 

and then back off the $27.55 per share price can certainly be 

seen by a rational mind as oddly timid, especially because 

once El Paso stockholders realized that Kinder Morgan— 

a supposedly mature market player making an unsolicited 

bid—had agreed to pay that price, they would be reluctant 

to accept less. If, as seems to be the case, Kinder Morgan 

wanted El Paso's pipeline business badly, more backbone 

might well have resulted in a better result. Likewise, as 

mentioned, there are odd aspects to some of the financial 

analyses presented, which seem to go some way to making 

the Kinder Morgan bid look more favorable in comparison 

to other options *445 than perhaps a more consistent 

approach to valuation would have done. The failure to use 

the emergence of Kinder Morgan as a bidder to do a soft 

test of the market for El Paso's attractive business units is, 

of course, relevant to any Revlon inquiry, but particularly 

when questions of loyalty exist. 39 And that failure was 

compounded by a deal protection package that (1) precluded 

termination of the Merger Agreement if a favorable bid for 

the E & P business emerged; and (2) made it very expensive 

for a bidder for the pipeline business to make an offer because 

of the $650 million termination fee and Kinder Morgan's 

matching rights. This is important because it was clear that 

the most valuable alternative to the Merger other than the 

announced spin-off was likely a sale of El Paso's two main 

businesses to separate buyers (the kind of break-up that was 

de rigeur in the 1980s), or a sale of one business while 

retaining the other as a standalone public company (a twist 

on the spin-off). 

Perhaps most troubling is that Foshee's velvet glove 

negotiating strategy—which involved proffering counteroffers 

at levels below the level he was authorized by the Board 

to advance—can now be viewed as having been influenced by 

an improper motive. Rather than having only the best interests 

of El Paso's stockholders in mind, Foshee had something else 

important on his mind—his interest in working with some of 

his fellow managers on a bid for the E & P business, which 

had been valued between $6 billion and $10 billion at various 

times by Goldman during 2011. That sort of deal would 

allow him to monetize a large part of his company-specific 

investment in El Paso, while permitting him the chance to 

continue to participate in managing key assets he knew and 

for another equity pop in the future. That goal, however, 

gave him an incentive different from maximizing what Kinder 

Morgan would pay El Paso, because the more Kinder Morgan 

had to pay El Paso, the more it might want for the E & P 

assets. And as mentioned, the bloodier the negotiation, the 

more Foshee risked having Kinder not wish to deal with him. 

When anyone conceals his self-interest—as both Foshee 

and Goldman banker Steve Daniel did—it is far harder to 

credit that person's assertion that that self-interest did not 

influence his actions. 40 That is particularly true when a 

court is reviewing the actions of businessmen and investment 

bankers. People like Foshee and Daniel get paid the big 

money because they are masters of economic incentives, and 

keenly aware of them at all times. 

For similar reasons, the court is not swayed by Goldman's 

assertions that it was not influenced by its own economic 

incentives to maximize its $4 billion investment in Kinder 

Morgan by steering El Paso towards a deal with Kinder 

Morgan at a suboptimal price. Why? Goldman's claim that 

it was capable of putting aside its $4 billion investment 

in Kinder Morgan when advising El Paso on its strategic 

options is hard to square with the record *446 evidence 

demonstrating the lengths to which Goldman would go 

to secure an advisory fee of $20 million from El Paso 

—a fraction of the dollar size of its Kinder Morgan 

investment—in connection with the Merger. 41 For starters, 

Goldman maneuvered in the context of the Morgan Stanley 

fee negotiations to ensure that Goldman would not go 

uncompensated in the event the Board decided to abandon 

the spin-off in favor of the Merger. 42 What's more, earlier 

in the deal process, Goldman had Lloyd Blankfein, its CEO 

and Chairman, give Foshee a personal, obsequious phone call 

to thank him for El Paso's retention of Goldman over the 

years and to try to secure a continuing role in working for El 

Paso during the pendency of the Kinder Morgan bid despite 

what Goldman deemed an “appearance of conflict.” 43 And 

despite now claiming that it was not a key strategic advisor 

in the Kinder Morgan deal, Goldman sought credit as an 

advisor in the press release announcing the Merger, a move 

at self-promotion its rival Morgan Stanley called Goldman 

“at its most shameless.” 44 At this stage, I am unwilling to 

view Goldman as exemplifying an Emersonian non-foolishly 

inconsistent approach to greed, one that involves seeking 



lucre in a conflicted situation while simultaneously putting 

the chance for greater lucre out of its “collective” mind. At 

this stage, I cannot readily accept the notion that Goldman 

would not seek to maximize the value of its multi-billion 

dollar investment in Kinder Morgan at the expense of El Paso, 

but, at the same time, be so keen on obtaining an investment 

banking fee in the tens of millions. 

Likewise, Daniel and Foshee each had an incentive to secure 

an undervalued bid for El Paso, and rather than disclose these 

incentives, each chose to conceal them. *447 Daniel knew 

about Goldman's conflict and he knew that his client El Paso 

knew about it. He also knew that he personally owned Kinder 

Morgan stock, but he did not disclose that fact. Foshee knew 

that he was discussing and considering an MBO of the E & 

P business when he was negotiating price terms with Kinder 

Morgan, but he did not disclose that fact. He did not even 

disclose his discussions with Kinder about an MBO after the 

deal was baked to the Board. 

This kind of furtive behavior engenders legitimate concern 

and distrust. 45 Given that there are numerous debatable 

tactical choices that now seem to have been made in 

large measure based on Foshee's advice and with important 

influence from Goldman, I believe that the plaintiffs have a 

probability of showing that more faithful, unconflicted parties 

could have secured a better price from Kinder Morgan. 46 

The question is what to do about it. 

The El Paso stockholders arguably have much to gain by 

seeing this Merger proceed. No one can tell what would have 

happened had unconflicted parties negotiated the Merger. 

That is beyond the capacity of humans. 

The price being offered by Kinder Morgan is one that 

reasonable El Paso stockholders might find very attractive. 

But it nags, of course, that it is not all that it might have 

been had things been done the way they should have been. 

The absence of a pre-signing market check also grates, 

when the decision not to explore the market and instead do 

a safe, friendly deal rather than stretch for value or push 

Kinder Morgan into a public, hostile fight might have been 

influenced by selfish considerations, rather than the desire to 

strike the best risk-reward balance for El Paso's stockholders. 

In terms of the traditional analysis, the question is of course 

this: do the plaintiffs face a threat of irreparable injury, and 

if so does the balance of the hardships tip in favor of an 

injunction? 47 

[4] Here, although the plaintiffs do not have the basis for 

claiming irreparable injury that exists when the plaintiff is a 

bidder, 48 the adequacy of monetary damages as a remedy to 

them as stockholders is not apparent. 49 By way of example, 

the difference in value of Kinder Morgan's original agreement 

in principle bid of $27.55 in cash and stock and the one agreed 

to of $26.87 equaled approximately *448 $534 million in 

value as of the time of signing, even giving full value to 

Morgan Stanley's less than certain estimate of the value of the 

warrant component. 50 

On this record, it appears unlikely that the independent 

directors of El Paso—who are protected by an exculpatory 

charter provision—could be held liable in monetary damages 

for their actions. 51 Although they should have been more 

keen to Goldman's conflict, they were given reason to 

believe that that conflict had been addressed by the hiring 

of Morgan Stanley and by cabining Goldman's role. The 

extent to which the independent directors understood the 

perverse incentives created for Morgan Stanley by Goldman 

and El Paso management by the terms of Morgan Stanley's 

engagement is not spelled out in the record and is the type 

of issue that independent directors tend to look to advisors to 

address. Most important, the independent directors' reliance 

upon Foshee seems to have been made in good faith. From 

the standpoint of the independent directors, Foshee seems to 

have been well positioned as a large holder of El Paso stock 

and as a trusted executive to get the best deal for El Paso's 

stockholders. 52 The independent directors were not trusted 

with the information that Foshee (and El Paso managers like 

Sult and Smolik) were mulling over a bid to Kinder Morgan 

for the E & P assets. 

Although Foshee is a wealthy man, it is unlikely that he would 

be good for a verdict of more than half a billion dollars. And 

although Goldman has been named as an aider and abettor 

and it has substantial, some might say even governmentinsured, 

financial resources, it is difficult to prove an aiding 

and abetting claim. 53 Given that Goldman's largest conflict 

was surfaced fully and addressed, albeit in incomplete and 

inadequate ways, whether the plaintiffs could ultimately 

prove Goldman liable for any shortfall is, at best, doubtful, 

despite Daniel's troubling individual failure of disclosure. 



Nor do I find any basis to conclude that Kinder Morgan 

is likely to be found culpable as an aider and abettor. It 

bargained hard, as it was entitled to do. From its perspective, 

it appeared that steps were taken by El Paso and Goldman 

to address Goldman's conflict of interest. And Foshee's 

concealed interest in an MBO was not expressed by Foshee 

to Kinder until after the deal terms were firmed up and signed 

*449 into agreement, and it is not clear that Rich Kinder had 

any reason to know Foshee was acting without the consent of 

the El Paso Board. 

For present purposes, therefore, I am willing to accept that the 

plaintiffs have shown that there is a likelihood of irreparable 

injury if the Merger is not enjoined. 

[5] That raises the hardest question, which is whether the 

threat of irreparable injury justifies an injunction in light 

of the risks that an injunction itself would present to the 

stockholders of El Paso. Putting aside the expectations of 

Kinder Morgan, which is arguably stuck with the risk of 

having dealt with potentially faithless fiduciaries, 54 the real 

question is whether the court should intervene when the El 

Paso stockholders have a chance to turn down the Merger at 

the ballot box. Unlike a situation when this court will enjoin 

a transaction whose tainted terms are precluding another 

available option that promises higher value, 55 no rival bid 

for El Paso exists. 56 

The plaintiffs' own request for an injunction is oddly telling. 

In their many papers, they do not seek a preliminary 

injunction against the Merger Agreement in its traditional 

form, which is one that lasts until it is overturned on appeal. 

Such an injunction would likely persist beyond June 30, 2012, 

the drop-dead date in the Merger Agreement. That would 

allow Kinder Morgan to walk away on that date. 

Rather, the plaintiffs want an odd mixture of mandatory 

injunctive relief whereby I affirmatively permit El Paso to 

shop itself in parts or in whole during the period between now 

and June 30, 2012, in contravention of the no-shop provision 

of the Merger Agreement, and allow El Paso to terminate the 

Merger Agreement on grounds not permitted by the Merger 

Agreement and without paying the termination fee set forth 

in the Merger Agreement, but then to lift the injunction and 

then force Kinder Morgan to consummate the Merger “if no 

superior transactions emerge.” 57 

That is not a traditional negative injunction that can be 

done without an evidentiary hearing or undisputed facts. 58 

Furthermore, *450 that sort of injunction would pose serious 

inequity to Kinder Morgan, which did not agree to be bound 

by such a bargain. 59 We all wish we could have it all ways. 

But that is not real life, nor is it equitable. 

The injunction the plaintiffs posit would be one that would 

sanction El Paso in breaching many covenants in the Merger 

Agreement and that would bring about facts that would 

mean that El Paso could not satisfy the conditions required 

for Kinder Morgan to have an obligation to close. 60 The 

injunction the plaintiffs posit also illustrates that they share 

the concern I have, which is that an injunction could pose 

more harm than good. 

They seek to keep Kinder Morgan bound but to allow El Paso 

to prospect for more. I understand that, but they are stuck with 

the requirements of equity, which is that they accept the risks 

that come with enjoining the Merger, including the risk that 

Kinder Morgan will walk when the drop-dead date expires. 

At oral argument, however, upon questioning by the court, 

the plaintiffs clarified that they would be willing to accept 

the traditional injunctive relief of preventing the stockholders 

from voting on the Merger. 

But the plaintiffs' understandable reluctance in their papers to 

deny the El Paso stockholders the ultimate chance to take the 

deal with Kinder Morgan despite the troubling behavior in the 

record is one that I share. It is the stockholders' money, not 

mine, and the plaintiffs could not possibly bond the risk fully. 

I share the plaintiffs' frustration that the traditional tools 

of equity may not provide the kind of fine instrument that 

enables optimal protection of stockholders in this context. 

The kind of troubling behavior exemplified here can result 

in substantial wealth shifts from stockholders to insiders that 

are hard for the litigation system to police if stockholders 

continue to display a reluctance to ever turn down a premiumgenerating 

deal when that is presented. The negotiation 

process and deal *451 dance present ample opportunities for 

insiders to forge deals that, while “good” for stockholders, 

are not “as good” as they could have been, and then to put 

the stockholders to a Hobson's choice. Think about some 

of the early management buyouts of the cappuccino market 

of 2006 and 2007 in that regard, where the early actions 

of poorly policed, conflicted CEOs in baking up deals with 

their favorite private equity sponsors before any market 

check (or often even board knowledge) likely dampened 



the competition among private equity firms that could have 

generated the highest price if proper conduct occurred and the 

right process had been used. The resulting deals might have 

been good for investors, but the suspicion that they were not 

on the “best” terms available lingers for rational reasons. 

Be that as it may, that reality cannot justify the sort of 

odd injunction that the plaintiffs desire, which would violate 

accepted standards for the issuance of affirmative injunctions 

and attempt to force Kinder Morgan to consummate a 

different deal than it bargained for. 

Fundamentally, the plaintiffs say that I can issue a preliminary 

injunction that allows El Paso a free option. It can shop any or 

all of itself, terminate the Merger Agreement without paying 

the break fee, and do what it wishes until the injunction 

expires. If something it likes comes along, El Paso should 

be able to take it, cost free. But if nothing does, then the 

injunction will expire and Kinder Morgan would somehow— 

by judicial compulsion, I assume—be forced to close, despite 

the pervasive breach of fundamental provisions of the Merger 

Agreement, including the one requiring El Paso to help 

Kinder Morgan to sell for itself the same assets the plaintiffs 

seek to have El Paso market. If my assumption about judicial 

compulsion is right, the plaintiffs do not seek a traditional 

negative injunction, but rather mandatory relief that can only 

be granted after a trial and a careful evaluation of Kinder 

Morgan's legitimate interests. 61 If the plaintiffs do not view 

the injunction as one involving the court compelling Kinder 

Morgan to close upon the injunction's expiration if the El 

Paso stockholders approve the Merger, then the plaintiffs are 

asking me to enter an injunction that, to my view, would likely 

relieve Kinder Morgan of any obligation to close because its 

contractual rights would have been materially breached. 

Given that the El Paso stockholders are well positioned to turn 

down the Kinder Morgan price if they do not like it, I am not 

persuaded that I should deprive them of the chance to make 

that decision for themselves. 62 Although an after-the-fact 

monetary damages claim against the defendants *452 is not 

a perfect tool, it has some value as a remedial instrument, and 

the likely prospect of a damages trial is no doubt unpleasant 

to Foshee, other El Paso managers who might be added as 

defendants, and to Goldman. And, of course, the defendants 

themselves should be mindful of the reality that in the 

period of truncated, expedited discovery, troubling facts arose 

about the interests of certain key players in this M & A 

drama. After full discovery, it would hardly be unprecedented 

for additional troubling information to emerge, given the 

suspicious instances of non-disclosure that have already been 

surfaced. 

For now, however, I reluctantly deny the plaintiffs' motion 

for a preliminary injunction, concluding that the El Paso 

stockholders should not be deprived of the chance to decide 

for themselves about the Merger, despite the disturbing nature 

of some of the behavior leading to its terms. 

IT IS SO ORDERED. 

Footnotes 

1 Using Kinder Morgan's unadjusted closing stock price of $35.26 on February 28, 2012, and El Paso's unadjusted closing stock price 

of $20.55 on July 29, 2011. See Yahoo Finance, Kinder Morgan, Inc. Historical Stock Prices, http://finance.yahoo.com/q/hp?s=KMI 

+Historical+Prices (last visited Feb. 29, 2012). 

2 See Revlon v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 179 (Del.1986). 

3 Ps. Op. Br. Ex. 40 (handwritten notes) at EP00013940 (“limit competition—pre rather than post spin.”), EP00013942 (“KM—wants 

to limit competition by doing pre-spin.”). 

4 In September 2010, when Kinder Morgan was still a private company, it made its first overture to acquire El Paso at a value of $16.50 

per share. The El Paso Board rejected this proposal, and no merger discussions took place between the two companies until Kinder 

Morgan renewed its interest in acquiring El Paso on August 30, 2011. 

5 See El Paso Corp. Schedule 14A filed on Jan. 31, 2011 (“Proxy Statement”), at 70. The Goldman directors on the Kinder Morgan 

board recused themselves from Kinder Morgan discussions regarding the Merger once Rich Kinder made his intention to bid for El 

Paso known to the Kinder Morgan board before August 30, 2011. 

6 Foshee is the only non-independent director on El Paso's 12–person Board. 

7 See Yahoo Finance, Kinder Morgan, Inc. Historical Stock Prices, http://finance.yahoo.com/q/hp?s=KMI+Historical+Prices (last 

visited Feb. 29, 2012) (Kinder Morgan unadjusted closing stock price on October 14, 2011 of $26.89). 

8 The breakdown of the final per share Merger consideration is as follows: $14.65 in cash, 0.4187 in Kinder Morgan stock (for an 

aggregate cash/stock value of $25.91 reflecting Kinder Morgan's prior closing stock price of $26.89), and 0.640 of a warrant to 



purchase Kinder Morgan stock, which for tax purposes has an indicative value of $0.96. Because the stock component of the deal is 

not fixed in dollar terms, and contains no collar, the Merger consideration will fluctuate depending on Kinder Morgan's stock price, 

subject to a 57%/43% proration between the cash/stock components of the aggregate consideration. See Proxy Statement at 7. 

9 El Paso's unadjusted closing stock price on October 14, 2011 was $19.59, implying a 37% premium. See Yahoo Finance, El Paso 

Corp. Historical Stock Prices, http://finance.yahoo.com/q/hp? s=EP+Historical+Prices (last visited Feb. 29, 2012). 

10 Ps. Op. Br. Ex. 3 (“Merger Agreement”) § 5.16. Recently, El Paso and Kinder Morgan announced that El Paso has agreed to sell the 

E & P assets to a private equity group led by Apollo Global Management LLC for $7.15 billion. See Letter to the Court from Counsel 

for El Paso Defs. (Feb. 27, 2012) at Ex. A (El Paso Corp. Form 8–K) at 2. 

11 Merger Agreement §§ 5.3(a), (d), (f). 

12 El Paso Corp. Form 10–Q filed on Nov. 7, 2011, at 24 (El Paso had $24.078 billion total consolidated assets as of September 30, 

2011, of which $4.724 billion were E & P assets). 

13 See Merger Agreement § 5.3(d). 

14 Id. § 7.3(b). 

15 Assuming $12.8 billion in consolidated net debt as of August 31, 2011, and $4.5 billion in minority interest. See El Paso Defs. Ans. 

Br. Ex. 45 (Morgan Stanley Presentation (October 16, 2011)) at EP00021383. 

16 Using an approximate mid-point pipeline business enterprise valuation of $26 billion, and an approximate mid-point pipeline business 

equity valuation of $12.74 billion. See El Paso Defs. Ans. Br. Ex. 40 (Goldman Sachs Presentation (October 6, 2011)) at EP00000459 

(adjusting for certain planned debt deconsolidation of $1.5 billion in pipeline-related debt). These are rough approximations and I 

have applied my own training as a humanities major to arrive at the results. Rely upon them with this caution in mind. 

17 Ps. Op. Br. Ex. 40 (handwritten notes) at EP00013940 (“limit competition—pre rather than post spin.”), EP00013942 (“KM—wants 

to limit competition by doing pre-spin.”). 

18 See Foshee Tr. 167 (“[T]he collective wisdom of the group was that there wasn't a natural ... other buyer for the whole that would 

compete within a short time window....”); Cox Tr. 196 (“In our view, those parties that would be most interested in either the pipeline 

business or the [E & P] business, and principally the pipeline business, and those parties that were in a position to pay a significant 

price ... were parties that ... not only largely didn't have the financial means to acquire both, but in our judgment would, even if they 

did in some cases have the financial means, would be disinclined to do so.”). 

19 The term sheet reflecting the $27.55 per share Merger price provided for a consideration breakdown of 60% cash and 40% stock. As 

of September 18, 2011, when the agreement in principle was reached, this translated to a cash/stock mix of $16.53 in cash and 0.4322 

shares of Kinder Morgan, reflecting Kinder Morgan's closing stock price of $25.50 as of its last trading day (September 16, 2011). 

Assuming that this cash/stock mix stayed constant, and that the stock value would float with Kinder Morgan's prevailing market 

price, at today's prices this consideration would be worth $31.76. 

20 See El Paso Defs. Ans. Br. Ex. 36 (El Paso Corp. Board Minutes (Sept. 30, 2011)) at EP00000416 (“The Board ... re-iterated [to 

Foshee] that the floor value for the cash and stock consideration was $26.50 ....”); see also Foshee Tr. 293 (“Q. But they said to you, 

they reiterated that the floor value for the cash and stock consideration was 26.50; right? A. Uh-huh. Q. That wasn't expressed as a 

preference; right? A. No, they reiterated that the floor value for the cash and stock was 26.50.”). 

21 See Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 45 (Del.1994) (“[A] court applying enhanced judicial scrutiny 

should be deciding whether the directors made a reasonable decision, not a perfect decision. If a board selected one of several 

reasonable alternatives, a court should not second-guess that choice even though it might have decided otherwise or subsequent events 

may have cast doubt on the board's determination.”). 

22 See In re Answers Corp. S'holders Litig., 2011 WL 1366780, at *3 (Del.Ch. Apr. 11, 2011) (“[D]irectors are generally free to select 

the path to value maximization, so long as they choose a reasonable route to get there.”) (internal quotation omitted). 

23 See In re Toys “R” Us, Inc. S'holder Litig., 877 A.2d 975, 1002 (Del.Ch.2005) (noting that the “paradigmatic context for a good 

Revlon claim ... is when a supine board under the sway of an overweening CEO bent on a certain direction [ ] tilts the sales process 

for reasons inimical to the stockholders' desire for the best price.”). 

24 Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 176 (Del.1986) (where Revlon's CEO, Michel Bergerac, rebuffed 

Pantry Pride's acquisition overtures in part because of the “strong personal antipathy” felt by Bergerac towards Pantry Pride's CEO, 

Ron Perelman, who was an upstart from Philly and not someone whom the Supreme Court believed Bergerac wanted running his 

storied company). 

25 See, e.g., In re OPENLANE, Inc., 2011 WL 4599662, at *6 (Del.Ch. Sept. 30, 2011); In re Dollar Thrifty S'holder Litig., 14 A.3d 

573, 616 (Del.Ch.2010); In re Lear Corp. S'holder Litig., 926 A.2d 94, 116–18 (Del.Ch.2007); Toys “R” Us, 877 A.2d at 975; In re 

Pennaco Energy, Inc., 787 A.2d 691, 705 (Del.Ch.2001); see also Barkan v. Amsted Indus., Inc., 567 A.2d 1279, 1288 (Del.1989). 

26 Indeed, Goldman's answering brief used the phrase “potential conflict” to describe its position fifteen times. 



27 Daniel owns shares issued by a Kinder Morgan affiliate with an estimated market value of at most $300,000 (as of the time of Daniel's 

deposition on December 22, 2011), see Daniel Tr. 15–16, and he holds an investment in a Goldman fund that is itself invested in 

Kinder Morgan shares, an indirect interest in Kinder Morgan worth approximately $39,000, see Schmidt Aff. 3. 

28 See Ps. Op. Br. Ex. 45 (Email from Metz–Dworkin to Sikhtian et. al. (September 6, 2011)). 

29 El Paso Defs. Ans. Br. Ex. 23 (El Paso Corp. Board Minutes (Sept. 15, 2011)) at EP00000392; see also Foshee Tr. 187 (testifying 

that “the thought crossed my mind” that Daniel getting pressured by other parts of Goldman “was a possibility.”). Goldman's advice 

was especially peculiar given that El Paso had a built-in defense to a hostile bid with the spin-off, which did not require a stockholder 

vote and was close to receiving approval by the S.E.C. Foshee Tr. 180–82. Thus, not even Foshee was worried about Kinder's threat 

to go public, because, as Foshee put it, “time was on our side.” Foshee Tr. 179. 

30 Interestingly, the record suggests that it was Goldman's close clients in El Paso management who suspected at times that Goldman 

was not honoring the Chinese wall and who decided that Goldman be walled off from Merger discussions and negotiations. The court 

is aware of the inconsistency that emerges from this evidence. On the one hand, there are many indications in the record that El Paso 

management was very close to Goldman, viewed Goldman as their trusted advisor, and wanted Goldman near the scene at all times. 

But, at the same time there are indications that El Paso management was suspicious that Goldman's advice about how to react to 

Kinder Morgan's overture was tilted by its investment in Kinder Morgan and its desire to avoid Kinder Morgan having to go hostile. 

Because we are at a preliminary injunction stage with a limited factual record, it is not yet necessary or prudent to try to fully resolve 

these inconsistencies in light of the benefit that a more developed factual record would afford. 

31 Goldman primarily used a comparable companies analysis to value the E & P business following the spin-off. Due to declining EV/ 

EBITDA trading multiples of peer companies, Goldman indicated that the E & P business had lost $2 billion in value when valued 

under that method from the time the Board announced the spin-off in May 2011—before Kinder Morgan had come on the scene 

and presented a rival strategic option—and October 2011, when the Board abandoned the spin-off in favor of the Merger. In its final 

presentation to the Board on October 6, 2011, Goldman estimated that the E & P business had an enterprise value worth only $6–8 

billion, as opposed to its mid-September valuation at $7–9 billion, and its May valuation at $8–10 billion. By way of comparison, 

Kinder Morgan's investment banker estimated on September 28, 2011—only a week earlier—that it could sell the E & P assets for 

$7.846 billion. 

Goldman's valuation can be seen as questionable because these market multiples were at depressed levels due to short-term 

volatility in commodity prices, and were not meant to provide a long-term indicator of the E & P business's value. Rather, as 

testified to by lead Goldman banker Steve Daniel, the analysis was only to serve as “a depiction of an estimate of the [enterprise 

value] range based on then-market conditions, and again, assuming that the company was already out freely trading on its own.... 

This is just a current [picture] at that time fixture of what [the value based on trades in minority blocks] looked like.” Daniel Tr. 

157. Furthermore, solely looking to market multiples to generate a hypothetical trading value fails to take into account the control 

premium that could be achieved upon a sale of the E & P business. See Bradford Cornell, Corporate Valuation 49 (1993) (noting 

that valuations calculated using current market trading prices of stock are “based on the prices at which minority positions trade 

in the market,” and therefore “will not take into account a ‘control premium.’ ”). It is unclear from the record whether the Board 

understood the limitations to Goldman's analysis. 

32 See Foshee Tr. 159–61; see also id. at 160 (“Q. Would [the fact that Daniel had a personal financial stake in Kinder Morgan] matter 

to you? A. It might. Q. Why?.... A. It would just be one more piece of information for the potential for conflict. That is not between 

two divisions, but between one person's brain.”). 

33 See Daniel Tr. 195 (“It was more like ... [Morgan Stanley] had asked—so [John Sult, El Paso's CFO] was asking but he was going to 

be okay with wherever we went with it.”); Sult Tr. 243 (“I wasn't going to force Goldman Sachs to [amend its exclusivity agreement]. 

I signed an agreement and I would live by the agreement.”). 

34 In fairness to Morgan Stanley, it is not clear from the record when in the advisory process it was first made aware of this fee 

arrangement. But, it is clear that by at least October 5, 2011, Morgan Stanley was aware that it would only get a lucrative banking 

fee if El Paso did a deal with Kinder Morgan, and that it would get nothing if El Paso decided to move forward with the spinoff. 

Following October 5, 2011, Morgan Stanley met with the Board twice, and each time advised the Board that the final Merger 

consideration offered by Kinder Morgan was fair. 

35 The record includes evidence that supports a plausible argument that Morgan Stanley's analysis undervalued El Paso's stock and 

overvalued Kinder Morgan's stock. For example, the plaintiffs argue that Morgan Stanley used an unreasonably low terminal multiple 

for a portion of its discounted cash flow analysis of the pipeline business. Rather than use a perpetual growth model to calculate the 

pipeline business's terminal value, Morgan Stanley used a mid-point exit EV/EBITDA multiple of 10x, which implied a perpetual 

growth rate of only 0.7%. That is, Morgan Stanley calculated that the pipeline business would grow only 0.7% from 2016 into 

perpetuity—a rate less than half of the estimated rate of inflation (2%)—an implication which is inconsistent with Foshee's testimony 

that the pipeline business had strong growth prospects, see Foshee Tr. 65–66, and with the projections prepared by El Paso's 



management and used by Morgan Stanley, which included both maintenance and growth capital expenditures. See El Paso Defs. 

Ans. Br. Ex. 30 (Morgan Stanley Presentation (Sept. 26, 2011)) at EP00000687. Evidence also suggests that Morgan Stanley used 

values for Kinder Morgan's cost of equity in an internally inconsistent way, using a higher cost of equity (11.8%) when benchmarking 

El Paso's cost of equity, but a lower number (7.5%) when valuing Kinder Morgan directly. In this way, Morgan Stanley's analysis 

arguably skewed in favor of the Merger by using a deflated cost of equity when valuing Kinder Morgan, in turn overvaluing the 

Kinder Morgan stock portion of the Merger consideration. 

36 Indeed, key El Paso executives believed that Goldman deserved this $20 million fee for all of its work on the spin-off that would go 

unrewarded if the Board entered into the Merger with Kinder Morgan, thus depriving Goldman of its $25 million fee contingent on 

the consummation of the spin-off. See Foshee Tr. 198; Sult Tr. 242. Moreover, these executives wanted to reward Goldman for its 

“eight [and a half] years worth of strategic advisory work for El Paso.” Foshee Tr. 199. Never mind that Goldman was paid $150,000 

annually through a retainer agreement it had in place with El Paso, and on top of that had received approximately $9.7 million in fees 

from El Paso between 2008 through May 2011 alone. See Sult Tr. 101. 

37 Although when Foshee and Smolik discussed the idea of an MBO is unclear, the October 11, 2011 email exchange between Sult and 

Smolik, in which Sult expressed his interest in an MBO, and Smolik responded that he had “discussed [the possibility] with Doug 

[Foshee]” and Foshee “wants to hold the discussion as late as possible, but is willing (maybe even desires) to have the discussion 

with [Kinder Morgan],” Ps. Op. Br. Ex. 41 (Email Exchange between Sult and Smolik (October 11, 2011)), suggests that Sult caught 

on to an idea that Foshee and Smolik were already well along in exploring, but that Foshee wished to keep quiet until a deal with 

Kinder Morgan was solidified. 

38 Id.; see also Foshee Tr. at 271 (confirming that when Smolik brought up the idea of an MBO before the Merger Agreement was 

signed, Foshee told Smolik, “now is probably not the time to have that conversation”). 

39 See In re Netsmart Techs., Inc. S'holders Litig., 924 A.2d 171, 199 (Del.Ch.2007); see also Barkan v. Amsted Indus., Inc., 567 A.2d 

1279, 1287 (Del.1989) (“When the board is considering a single offer and has no reliable grounds upon which to judge its adequacy, 

this concern for fairness demands a canvas of the market to determine if higher bids may be elicited.”). 

40 See Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1282 (Del.1989) (stating that corporate officers' “knowing concealment 

of [a] tip at [a] critical board meeting ... utterly destroys their credibility,” and finding that “[g]iven their duty of disclosure under the 

circumstances, this silence [was] an explicit acknowledgment of their culpability.”). 

41 E.g., In re El Paso Corp. S'holder Litig., C.A. No. 6949 at 242 (Del. Ch. Feb. 9, 2012) (TRANSCRIPT) (counsel for Goldman stating 

that “Goldman was asked to advise El Paso [on the Kinder Morgan deal]” and that “Goldman wanted to get in on the [Kinder Morgan] 

deal. I'm not denying that.”). 

42 As illuminated by the testimony of Morgan Stanley's Jonathan Cox: 

And we were interested in having a letter signed with respect to [the spin-off], and we were told that Goldman was being asked as 

to whether they would amend the letter to remove the word “exclusive,” and you will see on October 12, that [El Paso's general 

counsel] says no, they haven't given on the exclusive issue. They were accommodating on other issues, but not on exclusivity, 

to paraphrase. So I said, I see. Does that mean that we are exclusive on [the Merger?] Does that mean that what you are granting 

Goldman Sachs on [the spin-off] is something you would grant us on [the Merger?] And we were told no, it was a rhetorical 

question. I simply said, I understand, we appreciate the business. 

Cox Tr. 190. 

43 According to Blankfein's draft script for the call, which was prepared by Steve Daniel, Blankfein was to tell Foshee the following: 

Hello Doug—it's been a long time since we have had the chance to visit/[I] wanted to reach out and say thank you for everything 

from [Goldman]..../You have been very good to [Goldman] in having us help on all kinds of transactions over the years..../And 

of course I was very pleased you reached out to us on this most recent matter [the Kinder Morgan proposal]—which I understand 

is very serious..../I know you are aware of [Goldman's] investment [in Kinder Morgan] and that we are very sensitive to the 

appearance of conflict/We have asked our board members to recuse themselves and I know you have taken on a second advisor..../ 

Really just wanted to reach out and say thank you..../Please call me any time/I'll be watching this situation very closely.... 

El Paso Defs. Ans. Br. Ex. 16 (Email from Daniel to Blankfein (Sept. 7, 2011)). 

44 El Paso Defs. Ans. Br. Ex 15 (Email Exchange between Cox and Munger (Oct. 16, 2011)). 

45 See Macmillan, 559 A.2d at 1282. 

46 For its part, Kinder Morgan characterizes the negotiations as hard fought, and it says that it was not willing to pay a penny more for 

El Paso. E.g., In re El Paso Corp. S'holder Litig., C.A. No. 6949 at 234 (Del. Ch. Feb. 9, 2012) (TRANSCRIPT) (Kinder Morgan's 

counsel stating that “the negotiations extracted, at least from us, the last pennies that we were prepared to pay.”). But, Kinder Morgan, 

of course, says this at a time when it has a powerful self-interest as a buyer and a defendant to portray the negotiations in that way. 

47 See Macmillan, 559 A.2d at 1278–79; Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 179 (Del.1986); Cantor 

Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 579 (Del.Ch.1998). 



48 Compare Revlon, 506 A.2d at 184–85 (agreeing with the Court of Chancery that “unless the lock-up and other aspects of the agreement 

were enjoined, Pantry Pride's opportunity to bid for Revlon was lost,” and “the need for both bidders to compete in the marketplace 

outweighed any injury to Forstmann.”). 

49 The adequacy of money damages, of course, typically means that the irreparable injury required to grant an injunction is absent. E.g., 

Gradient OC Master, Ltd. v. NBC Universal, Inc., 930 A.2d 104, 132 (Del.Ch.2007). 

50 $0.68 * approximately 786 million shares of El Paso on a diluted basis = $534,480,000. See El Paso Defs. Ans. Br. Ex. 45 (Morgan 

Stanley Presentation (October 16, 2011)) at EP00021383 (assuming 786 million fully diluted El Paso shares). 

51 See 8 Del. C. § 102(b)(7); see also In re Del Monte Foods Co. S'holders Litig., 25 A.3d 813, 838 (Del.Ch.2011) (“Exculpation under 

Section 102(b)(7) can render empty the promise of post-closing damages.”). 

52 Foshee stands to receive approximately $90 million upon consummation of the Merger. Of that $90 million, approximately $55 

million would come from unrestricted stock and vested options, and another approximately $26 million would come from unvested 

stock options, restricted shares and stock units that will vest as a result of the Merger. See Proxy Statement at 171–72; El Paso Defs. 

Ans. Br. Ex. 2 (El Paso Corp. Schedule 14A) at 27, 58–59; El Paso Defs. Ans. Br. Ex. 46 (El Paso Corp. Preliminary Form S–4) 

at 170–71. 

53 See Binks v. DSL.net, Inc., 2010 WL 1713629, at *10 (Del.Ch. Apr.29, 2010) (“The standard for an aiding and abetting claim is 

a stringent one, one that turns on proof of scienter of the alleged abettor.”); Allied Capital Corp. v. GC–Sun Holdings, L.P., 910 

A.2d 1020, 1039 (Del.Ch.2006) (“[T]he test for stating an aiding and abetting claim is a stringent one ...—a plaintiff must prove: 

(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty and (3) knowing participation in that breach by the 

non-fiduciary.”). 

54 See Paramount Commc'ns Inc. v. QVC Network Inc., 637 A.2d 34, 51 (Del.1994) (“To the extent that a contract, or a provision 

thereof, purports to require a board to act or not act in such a fashion as to limit the exercise of fiduciary duties, it is invalid and 

unenforceable.”); Restatement (Second) of Contracts § 193 (1981) (“A promise by a fiduciary to violate his fiduciary duty or a 

promise that tends to induce such a violation is unenforceable on grounds of public policy.”). 

55 See Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173, 184–85 (Del.1986) (granting a preliminary injunction 

against preclusive merger provisions that were impeding the ability of competing potential buyer to have its higher bid accepted); 

QVC Network, Inc. v. Paramount Commc'ns, Inc., 635 A.2d 1245, 1273 n. 50 (Del.Ch.1993), aff'd, 637 A.2d 34 (Del.1994) (“Since 

the opportunity for shareholders to receive a superior control premium would be irrevocably lost if injunctive relief were not granted, 

that alone would be sufficient to constitute irreparable harm.”). 

56 Although it is true that the absence of a pre-signing market check and the presence of strong deal protections may explain the absence 

of a competing bid, the reality is that this is a high-profile transaction, litigation has been pending since early autumn 2011, and no 

bidder has emerged indicating that it would bid for any part of El Paso absent the deal protections. In the era in which Revlon was 

decided, bidders wishing to disrupt transactions actually made their presence known and litigated to achieve their objectives. Even 

in these more genteel times, that happens. 

57 Ps. Op. Br. at 75. 

58 In re Toys “R” Us, Inc. S'holder Litig., 877 A.2d 975, 1022–23 (Del.Ch.2005). 

59 See NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 35 (Del.Ch.2009) (“Delaware upholds the freedom of contract and enforces as 

a matter of fundamental public policy the voluntary agreements of sophisticated parties.”). 

60 The plaintiffs' desire for an injunction to allow El Paso to shop the E & P and pipeline businesses conflicts with several covenants 

and representations and warranties in the Merger Agreement. For example, the Merger Agreement requires El Paso to help Kinder 

Morgan market the E & P assets so that Kinder Morgan can sell them to help finance the purchase. Merger Agreement § 5.16. If 

El Paso sought to sell the E & P assets for itself, that would breach the covenant. El Paso also committed not to shop the company 

under the Merger Agreement. Id. § 5.3(a). See also id. § 5.2(a)(iii) (El Paso covenants not to sell any of its assets with a fair market 

value of more than $75 million); id. § 3.6(c) (El Paso represents and warrants that neither it nor its subsidiaries have taken the action 

described in § 5.2(a)(iii)); id. § 5.4(a) (El Paso agrees to use its reasonable best efforts to cause closing conditions to be “satisfied 

as promptly as practicable.”). El Paso also agreed not to terminate the Merger Agreement except on certain specified conditions, 

including its compliance with the match right and termination fee provisions, all of which the plaintiffs seek me to enjoin. Id. § 

7.1(d)(iii). El Paso's representations, warranties and covenants are brought down to the date of closing under §§ 6.2(a) and (b) of the 

Merger Agreement, and any incurred breach of these provisions would give Kinder Morgan the right to walk. See id. § 7.1(c)(iii) 

(giving Kinder Morgan a termination right “if [El Paso] shall have breached or failed to perform any of its representations, warranties, 

covenants or agreements set forth in this Agreement ... which breach or failure ... would (if it occurred or was continuing as of the 

Closing Date) give rise to the failure of a condition set forth in Section 6.2(a) or (b)” and such failure is not cured by El Paso within 

30 days of Kinder Morgan receiving notice of it.). 



61 See Toys “R” Us, 877 A.2d at 1022–23 (refusing to “blue pencil” provisions in a merger agreement “before a trial has even been 

held,” noting that “[t]o grant that sort of mandatory relief would ... be inappropriate on disputed facts, and plaintiffs who seek such 

relief should move promptly, not for a preliminary injunction hearing, but for an expedited trial.”); Alpha Natural Res., Inc. v. Cliff's 

Natural Res., Inc., 2008 WL 4951060, at *2 (Del.Ch. Nov. 6, 2008) (noting that a mandatory preliminary injunction is “extraordinary 

relief of a sort that the court does not issue lightly” and “requires ... a showing that the petitioner is entitled as a matter of law to 

the relief it seeks based on undisputed facts.”); ID Biomedical Corp. v. TM Techs., Inc., 1995 WL 130743, at *15 (Del.Ch. Mar. 16, 

1995) (“The Court will only award a mandatory injunction in a clear case, free from doubt.”); Si–Lake, Inc. v. Conroy, 1994 WL 

728824, at *4 (Del.Ch. Dec. 16, 1994) (“To succeed on an application for a mandatory injunction, the burden on the moving party 

increases. The moving party must clearly establish it is legally entitled to relief.”). 

62 See, e.g., In re Netsmart Techs., Inc. S'holders Litig., 924 A.2d 171, 208 (Del.Ch.2007) (“In ... cases when a potential Revlon violation 

occurred but no rival bid is on the table, the denial of injunctive relief is often premised on the imprudence of having the court enjoin 

the only deal on the table, when the stockholders can make that decision for themselves.”); Toys “R” Us, 877 A.2d at 1023 (“[T]he 

bottom line is that the public shareholders will have an opportunity ... to reject the merger if they do not think the price is high enough 

in light of the Company's stand-alone value and other options.”). 




Del Monte Foods Company Shareholders Litigation

In re Del Monte Foods Co. Shareholders Litigation, 25 A.3d 813 (2011) 

25 A.3d 813 


In re DEL MONTE FOODS COMPANY 

SHAREHOLDERS LITIGATION. 

C.A. No. 6027–VCL. | Submitted: 

Feb. 11, 2011. | Decided: Feb. 14, 2011. 

Synopsis 

Background: Shareholders brought action seeking 

injunction to delay shareholder vote on sale of corporation to 

high bidder. 

Holdings: The Court of Chancery, Laster, Vice Chancellor, 

held that: 

[1] evidence established a reasonable likelihood of success on 

the merits of shareholders' claim that directors failed to act 

reasonably in connection with process to sell corporation; 

[2] evidence established a reasonable likelihood of success on 

the merits of shareholders' claim that high bidder to purchase 

corporation aided and abetted breaches of fiduciary duty; 

[3] shareholders would suffer irreparable injury absent 

injunction; 

[4] corporation would be enjoined from conducting a 

stockholder vote on the merger for a period of only 20 days. 

So ordered. 



Likelihood of success on merits 

A showing of a reasonable probability of success 

on the merits, as required for issuance of a 

preliminary injunction, falls well short of that 

which would be required to secure final relief 

following trial. 





Business judgment rule in general 


Entire fairness in general 

Delaware has three tiers of review for evaluating 

director decision-making: the business judgment 

rule, enhanced scrutiny, and entire fairness. 


Conflicts of Interest and Self-Dealing in 

General 

Enhanced judicial scrutiny of director decisionmaking 

applies when directors face potentially 

subtle structural or situational conflicts that do 

not rise to a level sufficient to trigger entire 

fairness review, but also do not comfortably 

permit expansive judicial deference. 



Grounds in general; multiple factors 

To obtain a preliminary injunction, the plaintiffs 

must demonstrate (1) a reasonable probability of 

success on the merits; (2) that they will suffer 

irreparable injury if an injunction is not granted; 

and (3) that the balance of the equities favors the 

issuance of an injunction. 


Evidence 

Under enhanced judicial scrutiny of director 

decision-making, the directors bear the burden of 

persuasion to show that their motivations were 

proper and not selfish. 







To show that their motivations were proper and 

not selfish under enhanced judicial scrutiny in 

the mergers and acquisitions context, directors 

must show that they sought to secure the 

transaction offering the best value reasonably 

available for the stockholders. 






Evidence 

To demonstrate that their actions were 

reasonable in relation to their legitimate 

objective under enhanced judicial scrutiny, 

directors bear the burden of proving that they (1) 

followed a reasonable decision-making process 

and based their decisions on a reasonable body 

of information, and (2) acted reasonably in light 

of the circumstances then existing. 




The reasonableness standard of objective 

component of enhanced judicial scrutiny of 

director decision-making permits a reviewing 

court to address inequitable action even when 

directors may have subjectively believed that 

they were acting properly. 




Objective component of enhanced judicial 

scrutiny of director decision-making does not 

permit a reviewing court to freely substitute its 

own judgment for that of the directors. 




Enhanced judicial scrutiny of director decisionmaking 

is not a license for law-trained courts to 

second-guess reasonable, but debatable, tactical 

choices that directors have made in good faith. 





In evaluating the adequacy of the directors' 

decision-making and the information they had 

available in the mergers and acquisitions context, 

a reviewing court necessarily will consider the 

extent to which a board has relied on expert 

advisors. 




Board of directors must take an active and direct 

role in the sale process in a change of control 

transaction. 



measures 

Evidence established a reasonable likelihood of 

success on the merits of shareholders' claim that 

directors failed to act reasonably in connection 

with process to sell corporation, as would 

support issuance of preliminary injunction to 

delay sale for purposes of permitting other 

bidders to come forward; although board was 

misled by self-interested financial advisor, 

board's lack of involvement in sale process 

enabled financial advisor to engage in selfinterested 

dealing that tainted the sale process. 



Aiding and abetting 

The four elements of a claim of aiding and 

abetting a breach of a corporate fiduciary's 

duty are (1) the existence of a fiduciary 



relationship, (2) a breach of the fiduciary's duty, 

(3) knowing participation in that breach by the 

defendants, and (4) damages proximately caused 

by the breach; the critical element is knowing 

participation. 



Aiding and abetting 

A third party's knowing participation in a 

fiduciary breach by board of directors, as is 

required to establish a claim of aiding and 

abetting a breach of a corporate fiduciary's 

duty, requires that the third party act with the 

knowledge that the conduct advocated or assisted 

constitutes such a breach. 





A third-party bidder's attempts to reduce the 

sale price of target corporation through arm'slength 

negotiations cannot give rise to liability 

for aiding and abetting a fiduciary breach by 

corporation's board of directors. 





A third-party bidder may be liable to a 

target corporation's stockholders for aiding and 

abetting a fiduciary breach by corporation's 

board of directors if the bidder attempts to create 

or exploit conflicts of interest in the board and if 

the bidder and the board conspire in or agree to 

the fiduciary breach. 





An acquirer is free to seek the lowest possible 

price through arms' length negotiations with 

the target corporation's board of directors, but 

acquirer may not knowingly participate in the 

target board's breach of fiduciary duty by 

extracting terms which require the opposite party 

to prefer its interests at the expense of its 

shareholders. 




measures 

Evidence established a reasonable likelihood of 

success on the merits of shareholders' claim 

that high bidder to purchase corporation aided 

and abetted breaches of fiduciary duty that 

resulted from misconduct by bank facilitating 

sale of corporation, as would support issuance of 

preliminary injunction to delay sale for purposes 

of permitting other bidders to come forward; 

bidder knowingly participated in bank's selfinterested 

activities, and agreed with bank to 

keep another bidder's involvement from the 

corporation's board. 


Equitable considerations in general 

Injunction 

Irreparable injury 

Injunction 

Adequacy of remedy at law 

Harm is irreparable, as would support issuance of 

a preliminary injunction, unless alternative legal 

redress is clearly available and is as practical and 

efficient to the ends of justice and its prompt 

administration as the remedy in equity. 




measures 

Shareholders of corporation would suffer 

irreparable injury absent preliminary injunction 

to delay sale of corporation to high bidder; 



because corporation had agreed to be purchased 

without directors' knowledge that the bank 

facilitating the transaction was engaging in 

self-interested dealing with the high bidder, 

stockholders would be deprived forever of the 

unique opportunity to receive a pre-vote topping 

bid in a process free of taint from bank's improper 

activities. 


[25] Fraud 

Persons liable 

When a party aids and abets a breach of fiduciary 

duty, the contract rights that the aider and abettor 

secures as a result of the interaction must give 

way to the superior equitable rights and interests 

of the beneficiaries. 


Balancing or weighing hardship or injury 

A court must be cautious that its order for 

preliminary injunction does not threaten more 

harm than good; that is, a court in exercising its 

discretion to issue or deny such a remedy must 

consider all of the foreseeable consequences of 

its order and balance them, and court cannot, 

in equity, risk greater harm to defendants, the 

public, or other identified interests, in granting 

the injunction, than it seeks to prevent. 



measures 

Corporation would be preliminarily enjoined 

from conducting a stockholder vote on the 

merger for a period of 20 days, during which 

time the parties would be enjoined from 

enforcing deal protection measures, in action 

by shareholders alleging that bank facilitating 

sale of corporation engaged in self-interested 

dealing with high bidder; delay would provide 

ample time for a serious and motivated bidder 

to emerge, but would also leave ample time for 

the existing merger agreement to be concluded 

should no other bidders come forward. 

[24] Contracts 

Nature and grounds of contractual 

obligation 

Delaware upholds the freedom of contract and 

enforces as a matter of fundamental public 

policy the voluntary agreements of sophisticated 

parties. 


Wrongful or improper issuance in general 

Injunction 

Effect of bond or lack thereof; exclusivity 

of remedy 

A party that is wrongfully enjoined may recover 

damages resulting from the injunction, but that 

recovery is limited to the amount of the bond. 

Chancery Court Rule 65(c). 


Amount 

Chancery court would set injunction bond 

at $1.2 million, representing one percent of 

the enjoined termination fee that high bidder 

otherwise would have received in the event of 

a topping bid, in connection with court's grant 

of preliminary injunction prohibiting corporation 

from conducting a stockholder vote on merger 

for a period of 20 days in order to provide 

time for a serious and motivated bidder to 

emerge, in shareholders' action alleging that 

bank facilitating sale of corporation engaged in 

self-interested dealing with high bidder; court 

was not enjoining the transaction from closing 

pending the outcome of a trial but rather was 

imposing a delay akin to a disclosure-based 

injunction, and the likelihood of a topping bid 

was low. Chancery Court Rule 65(c). 





*816 Stuart M. Grant, Michael J. Barry, Diane Zilka, 

Christine M. Mackintosh, Grant & Eisenhofer P.A., 

Wilmington, Delaware; Hung G. Ta, Brenda F. Szydlo, 

Michele S. Carino, Grant & Eisenhofer P.A., New York, 

New York; Randall J. Baron, A. Rick Atwood, Jr., 

David T. Wissbroecker, Edward M. Gergosian, David A. 

Knotts, Robbins Geller Rudman & Dowd LLP, San Diego, 

California; Plaintiffs' Co–Lead Counsel. 

Raymond J. DiCamillo, Rudolf Koch, Susan M. Hannigan, 

Richards, Layton & Finger P.A., Wilmington, Delaware; 

Mark A. Kirsch, Diana M. Feinstein, Gibson, Dunn & 

Crutcher LLP, New York, New York; Paul J. Collins, Joseph 

W. Guzzetta, Gibson, Dunn & Crutcher LLP, Palo Alto, 

California; Attorneys for Defendants Samuel H. Armacost, 

Timothy G. Bruer, Mary R. Henderson, Victor L. Lund, 

Terence D. Martin, Sharon L. McCollam, Joe L. Morgan, 

David R. Williams, and Richard G. Wolford. 

Kenneth J. Nachbar, John P. DiTomo, S. Michael Sirkin, 

Morris Nichols Arsht & Tunnell LLP, Wilmington, 

Delaware; Peter E. Kazanoff, Paul C. Gluckow, Simpson 

Thacher & Bartlett LLP, New York, New York; Attorney for 

Defendants Blue Acquisition Group, Inc., Blue Merger Sub 

Inc., Centerview Partners, Kohlberg Kravis *817 Roberts & 

Company LP, and Vestar Capital Partners. 

Opinion 

LASTER, Vice Chancellor. 

OPINION 

On November 24, 2010, Del Monte Foods Company (“Del 

Monte” or the “Company”) entered into an agreement and 

plan of merger with Blue Acquisition Group, Inc. and 

its wholly owned acquisition subsidiary, Blue Merger Sub 

Inc. (the “Merger Agreement” or “MA”). Blue Acquisition 

Group is owned by three private equity firms: Kohlberg, 

Kravis, Roberts & Co. (“KKR”), Centerview Partners 

(“Centerview”), and Vestar Capital Partners (“Vestar”). 

Because KKR is the lead firm, I generally refer to the sponsor 

group as “KKR.” The Merger Agreement contemplates a $5.3 

billion leveraged buyout of Del Monte (the “Merger”). If 

approved by stockholders, each share of Del Monte common 

stock will be converted into the right to receive $19 in cash. 

The consideration represents a premium of approximately 

40% over the average closing price of Del Monte's common 

stock for the three-month period ended on November 8, 2010. 

The $19 price is higher than Del Monte's common stock has 

ever traded. 

The stockholders of Del Monte are scheduled to vote on 

the Merger on February 15, 2011. The plaintiffs seek a 

preliminary injunction postponing the vote. They originally 

asserted that the individual defendants, who comprise the 

Del Monte board of directors (the “Board”), breached their 

fiduciary duties in two separate ways: first by failing to 

act reasonably to pursue the best transaction reasonably 

available, and second by disseminating false and misleading 

information and omitting material facts in connection with 

the stockholder vote. The defendants mooted the disclosure 

claims through an extensive proxy supplement released 

during the afternoon of February 4, 2011 (the “Proxy 

Supplement”). 

This case is difficult because the Board predominantly 

made decisions that ordinarily would be regarded as falling 

within the range of reasonableness for purposes of enhanced 

scrutiny. Until discovery disturbed the patina of normalcy 

surrounding the transaction, there were only two Board 

decisions that invited serious challenge: first, allowing KKR 

to team up with Vestar, the high bidder in a previous 

solicitation of interest, and second, authorizing Barclays 

Capital, the financial advisor to Del Monte, to provide buyside 

financing to KKR. 

Discovery revealed a deeper problem. Barclays secretly 

and selfishly manipulated the sale process to engineer a 

transaction that would permit Barclays to obtain lucrative 

buy-side financing fees. On multiple occasions, Barclays 

protected its own interests by withholding information from 

the Board that could have led Del Monte to retain a different 

bank, pursue a different alternative, or deny Barclays a buyside 

role. Barclays did not disclose the behind-the-scenes 

efforts of its Del Monte coverage officer to put Del Monte into 

play. Barclays did not disclose its explicit goal, harbored from 

the outset, of providing buy-side financing to the acquirer. 

Barclays did not disclose that in September 2010, without 

Del Monte's authorization or approval, Barclays steered 

Vestar into a club bid with KKR, the potential bidder with 

whom Barclays had the strongest relationship, in violation of 

confidentiality agreements that prohibited Vestar and KKR 

from discussing a joint bid without written permission from 

Del Monte. 



Late in the process, at a time when Barclays was ostensibly 

negotiating the deal price with KKR, Barclays asked 

KKR *818 for a third of the buy-side financing. Once 

KKR agreed, Barclays sought and obtained Del Monte's 

permission. Having Barclays as a co-lead bank was not 

necessary to secure sufficient financing for the Merger, nor 

did it generate a higher price for the Company. It simply gave 

Barclays the additional fees it wanted from the outset. In fact, 

Barclays can expect to earn slightly more from providing buyside 

financing to KKR than it will from serving as Del Monte's 

sell-side advisor. Barclays' gain cost Del Monte an additional 

$3 million because Barclays told Del Monte that it now had 

to obtain a last-minute fairness opinion from a second bank. 

On the preliminary record presented in connection with 

the injunction application, the plaintiffs have established 

a reasonable probability of success on the merits of a 

claim for breach of fiduciary duty against the individual 

defendants, aided and abetted by KKR. By failing to 

provide the serious oversight that would have checked 

Barclays' misconduct, the directors breached their fiduciary 

duties in a manner reminiscent of Mills Acquisition Co. v. 

Macmillan, Inc., 559 A.2d 1261 (Del.1989). In that decision, 

the Delaware Supreme Court enjoined a transaction— 

ironically a leveraged buyout sponsored by KKR—when selfinterested 

management and their financial advisor concealed 

information from the board. Like management's deal-specific, 

buy-side conflict in Mills, Barclays' deal-specific, buy-side 

conflict tainted the advice it gave and the actions it took. 

To hold that the Del Monte directors breached their fiduciary 

duties for purposes of granting injunctive relief does not 

suggest, much less pre-ordain, that the directors face a 

meaningful threat of monetary liability. On this preliminary 

record, it appears that the Board sought in good faith to 

fulfill its fiduciary duties, but failed because it was misled 

by Barclays. Unless further discovery reveals different facts, 

the one-two punch of exculpation under Section 102(b)(7) 

and full protection under Section 141(e) makes the chances 

of a judgment for money damages vanishingly small. The 

same cannot be said for the self-interested aiders and abetters. 

But while the directors may face little threat of liability, they 

cannot escape the ramifications of Barclays' misconduct. For 

purposes of equitable relief, the Board is responsible. 

To remedy (at least partially) the taint from Barclays' 

activities, the plaintiffs ask that the vote on the Merger 

be enjoined for a meaningful period (30 to 45 days) and 

that the parties to the Merger Agreement be enjoined from 

enforcing the deal protections during that time. They have 

not sought (nor would I grant) a decree enjoining the Merger 

pending a post-trial adjudication. The plaintiffs argue that this 

limited injunctive relief will restore (albeit incompletely) the 

stockholders' unique opportunity to receive a topping bid free 

of fiduciary misconduct. Such an injunction would deprive 

KKR temporarily of the advantages it obtained by securing 

a deal through collusion with Barclays, while at the same 

time preserving the stockholders' ability to determine for 

themselves whether to accept the $19 per share Merger price. 

The plaintiffs analogize this limited relief to an injunction 

conditioned on the making of corrective disclosures, which 

similarly imposes a temporary transactional delay and then 

allows stockholders to decide for themselves whether to 

accept a deal. 

For the reasons that follow, I grant the relief plaintiffs seek, 

although for a shorter time period that takes into account 

the transaction's exposure to the market. The defendants 

are enjoined preliminarily from proceeding with the vote 

on the Merger *819 for a period of 20 days. Pending the 

vote on the Merger, the parties to the Merger Agreement 

are enjoined from enforcing the no-solicitation and matchright 

provisions in Section 6.5(b), (c) and (h), and the 

termination fee provisions relating to topping bids and 

changes of recommendation in Section 8.5(b). The injunction 

is conditioned on the plaintiffs posting a bond in the amount 

of $1.2 million. 

I. FACTUAL BACKGROUND 

The facts are drawn from the record developed in connection 

with the plaintiffs' application for a preliminary injunction. 

The parties have submitted numerous documentary exhibits 

and the deposition testimony of seven fact witnesses. 

With their answering briefs, the defendants lobbed in four 

affidavits from witnesses who were deposed. Each of these 

lawyer-drafted submissions sought to replace the witnesses' 

sworn deposition testimony with a revised and frequently 

contradictory version. Had the differing averments been 

elicited by defense counsel during deposition, as they readily 

could have been, then plaintiffs' counsel could have tested the 

witnesses' assertions through cross-examination. Except on 

routine or undisputed matters, I have discounted these “nonadversarial 

proffers” 1 and relied on the deposition testimony 

and contemporaneous documents. What follows are the facts 

as they are likely to be found after trial, based on the current 

record. 



A. Moses Works Behind The Scenes To Put Del Monte 

In Play. 

Investment banks generate large fees from doing deals. To 

facilitate transactional activity, investment bankers routinely 

pitch deals to parties they hope might be interested. Coverage 

officers for investment banks regularly visit past, present, and 

potential clients to suggest mergers, acquisitions, and other 

strategic alternatives. Barclays is no exception. 

Barclays has a strong presence in the consumer food and 

pet product sectors where Del Monte operates. Peter J. 

Moses is the Barclays managing director with coverage 

responsibility for Del Monte. Barclays and Del Monte have 

enjoyed a close relationship. In 2009, Barclays acted as joint 

book-runner on Del Monte's $450 million issuance of 7.5% 

senior subordinated notes and as joint dealer-manager and 

solicitation agent on Del Monte's tender offer and consent 

solicitation for its 8 5/8 % senior subordinated notes. During 

late 2009, Barclays advised Del Monte on and arranged 

financing for its unsuccessful acquisition of Waggin' Train 

LLC. In January 2010, Barclays acted as co-lead arranger 

for Del Monte's $1.2 billion senior secured credit facility. 

Barclays understood that it was one of Del Monte's principal 

investment banks. 

Del Monte's stable businesses throw off large amounts of 

cash, a critical attribute for debt-fueled LBOs. In fiscal 

2010, for *820 example, Del Monte generated $3.7 billion 

in net sales and $250 million in cash flow. According 

to the bankers deposed in this case, the debt markets in 

late 2009 were again receptive to leveraged acquisitions, 

having shaken off the cobwebs from the concussive impact 

of Lehman Brothers' bankruptcy. Mergers and acquisitions 

activity in the canned food and pet products sectors had 

picked up. Investment bankers were busy pitching Del Monte 

on potential acquisitions and pitching potential acquirers on 

Del Monte. 

Like many large banks, Barclays has strong relationships with 

various LBO shops. KKR is one of Barclays' more important 

clients. Tarone Tr. 95. Over the past two years, KKR has 

paid Barclays over $66 million in fees. Barclays has worked 

with KKR on half a dozen projects in the consumer and retail 

space, including a large transaction where Barclays acted as 

both sell-side advisor and provided buy-side financing for 

KKR. Tarone Tr. 93–94. 

On December 17, 2009, Moses and other Barclays bankers 

met with KKR to present various opportunities, including an 

acquisition of Del Monte. In early January 2010, Moses met 

with KKR again. KKR said it was ready “to take the next step” 

with Del Monte and planned to partner with Centerview on 

a bid. PX 16. Moses responded by outlining with prophetic 

clarity the process Del Monte would follow: a narrow, private 

solicitation of interest from a small group of approximately 

five sponsors with no strategic bidders. Moses made similar 

pitches during the same time period to other private equity 

firms, including Apollo Management. 

B. Apollo's Expression Of Interest And Del Monte's 

Process 

Before KKR could “take the next step,” Apollo sent Del 

Monte a written expression of interest in an acquisition at $14 

to $15 per share. After receiving the letter, Del Monte reached 

out to Barclays. Moses believed Del Monte was also reaching 

out to other banks, including Goldman Sachs, a firm that ran 

an earlier process for the Company. 

Moses told Del Monte that Barclays was well-positioned 

to advise Del Monte because Barclays “knew many of the 

entities that might be an interested buyer.” Ben. Tr. 59. Moses 

did not mention that he personally had been pitching Apollo, 

KKR, and other private equity firms on acquiring Del Monte. 

The Board did not learn of Moses' efforts to stir up the initial 

LBO bid until discovery in this litigation. 

Moses also did not mention that Barclays planned from the 

outset to seek a role in providing buy-side financing. Barclays' 

internal “Project Hunt [Del Monte] Screening Committee 

Memo” dated January 25, 2010, stated bluntly that “Barclays 

will look to participate in the acquisition financing once 

the Company has reached a definitive agreement with a 

buyer.” PX 54. A March 2010 version of the memo reiterated 

Barclays' intent. The Board did not learn that Barclays 

intended from the outset to have a buy-side role until 

discovery in this litigation. 

Barclays immediately began advising Del Monte on 

responding to Apollo's expression of interest and exploring 

strategic alternatives. Moses recommended that the Board 

pursue a targeted, non-public process that tracked precisely 

what Moses had previewed with KKR and the other private 

equity firms. There are sound and reasonable justifications for 

such an approach, including a desire to avoid market leaks 

that could disrupt company operations and spook employees. 

But a narrow, targeted process involving a few large private 



equity firms also furthered Barclays' goal of providing buyside 

financing. Private equity buyers are generally more 

*821 likely than strategic buyers to require financing, and 

Barclays was one of a limited group of institutions with 

sufficient resources to handle a transaction as large as the Del 

Monte LBO. 

Barclays then identified the five LBO shops that would be 

invited to submit expressions of interest: KKR, Apollo, The 

Carlyle Group, CVC Partners, and the Blackstone Group. The 

Board adopted Barclays' recommendation. 

Despite efforts to keep the process quiet and private, word 

leaked out. Vestar and Campbell's Soup contacted Barclays 

and asked to be included, which they were. Blackstone 

dropped out, and Del Monte entered into confidentiality 

agreements with the six participants. Each of the participants 

agreed not to discuss the confidential information they 

obtained from Del Monte or their bids with anyone, including 

each other. A critical provision stated: 

In addition, you agree that, without the 

prior written consent of the Company, 

you and your Representatives will 

not disclose to any other person 

(other than your Representatives) 

the fact that you are considering 

a possible transaction with the 

Company, that this Agreement exists, 

that the Confidential Information 

has been made available to you, 

that discussions or negotiations are 

taking place concerning a possible 

transaction involving the Company or 

any of the terms, conditions, or other 

facts with respect thereto (including 

the status thereof).... Without limiting 

the generality of the foregoing, 

you further agree that you will 

not, directly or indirectly, share the 

Confidential Information with or enter 

into any agreement, arrangement or 

understanding, or any discussions 

which would reasonably be expected 

to lead to such an agreement, 

arrangement or understanding with 

any other person, including other 

potential bidders and equity or debt 

financing sources (other than your 

Representatives as permitted above) 

regarding a possible transaction 

involving the Company without 

the prior written consent of the 

Company and only upon such person 

executing a confidentiality agreement 

in favor of the Company with terms 

and conditions consistent with this 

Agreement. 

PX 18 at 2 (the “No Teaming Provision”). By securing this 

language, the Board ensured that Del Monte would have the 

contractual right to control the competitive dynamics of the 

process and determine whether any bidders would be allowed 

to work together on a joint bid. The confidentiality agreement 

also contained a two-year standstill. Id. at 4. 

The confidentiality agreements provided a collateral benefit 

to Barclays. Absent Company consent, the signatories could 

not discuss potential financing with any source other than 

Barclays. Id. at 2. As with the decision to engage in a 

targeted, non-public canvass of private equity buyers, there 

are sound and reasonable justifications for such a provision. 

At the same time, the limitation served Barclays' interests in 

obtaining a piece of the buy-side financing. Because of the 

provision, Barclays would have the first crack at discussing 

financing with each bidder, its credit group would be familiar 

with the deal, and its bankers could more persuasively pitch 

for a piece of the action. See Tarone Tr. 129–31. The 

lead banker on Barclays' financing team acknowledged that 

Barclays would express interest in providing financing when 

discussing capital structures with bidders and that this put 

Barclays in the catbird seat for the business. See Id. at 89–93. 

After executing a confidentiality agreement, each potential 

bidder was provided *822 with access to non-public 

information and received presentations from Del Monte 

senior management. All potential bidders were directed to 

submit non-binding indications of interest by March 11, 

2010. Five did; Campbell's Soup did not. Carlyle proposed 

a transaction in a range of $15.50 to $17.00 per share 

and asked for permission to explore debt financing with 

Bank of America, JPMorgan, Deutsche Bank, and Credit 

Suisse. Apollo proposed a transaction in a range of $15.50 

to $17.00 per share and asked for permission to explore 

financing with Bank of America, JPMorgan, Morgan Stanley, 

Deutsche Bank, Credit Suisse, UBS, and BMO Capital 

Markets. CVC proposed a transaction at $15.00 to $16.50 per 

share, expressed interest in taking on an equity partner, and 

proposed to raise financing through its internal debt financing 

team. KKR expressed interest in a transaction at $17 per 



share. KKR did not ask for permission to talk to any banks and 

stated only that their bid contemplated “newly raised debt in 

line with the guidance provided by Barclays.” PX 20 at 3. To a 

Barclays' banker seeking a buy-side role, KKR's letter would 

have been the most reassuring, particularly because KKR had 

worked with Barclays in a dual role before. 

Vestar's bid raised tactical issues. Vestar expressed interest in 

a transaction in a range of $17.00 to $17.50 per share, making 

it the high bidder. Everyone understood that Vestar would 

need to pair up with at least one other sponsor. Vestar had 

made clear from the outset, and confirmed in its expression 

of interest, that “[it] would expect to commit to half of the 

required equity in this transaction and would look to partner 

with another private equity firm to fill out the remaining 

portion.” PX 50 at 2. Vestar thus was not going to bid alone. 

Its advantage was expertise in the food business and its 

strength as an operator. James Ben, who led the Barclays M 

& A team, regarded Vestar as a valuable participant in the 

sale process and expected that the firm would be a valuepromoting 

partner for another bidder, though more for its 

operational expertise than as a source of capital. Ben Tr. 93– 

94. Moses suggested that Vestar consider pairing up with 

Carlyle. Ben considered pairing Vestar with Apollo. CVC had 

expressed interest in a second sponsor and was another logical 

option. Internal KKR documents reflect concern about Vestar 

working with another firm. 

During its regularly scheduled meeting on March 18, 2010, 

the Board considered the five indications of interest. The 

Board decided that the Company's stand-alone growth 

prospects were sufficiently strong that it was not in the 

stockholders' best interests to proceed further with the 

process. The directors also concluded that Barclays had 

pushed too far, too fast, and that Barclays had not been hired 

to actually sell the company. See Martin Tr. 23–24. Moses 

blamed Richard Wolford, Del Monte's Chairman, President, 

and CEO. He believed Wolford turned against the LBO at the 

last minute, spoke privately with the directors, and allowed 

Moses to walk into a hostile meeting unaware. KKR thought 

that “Barclays didn't do such a good job here w/ Wolford and 

the board.” PX 23. When Barclays later kicked off the LBO 

process again, Moses would do a better job setting the table. 

C. KKR Continues To Pursue Del Monte. 

The Board specifically instructed Barclays “to shut [the] 

process down and let buyers know the company is not for 

sale.” PX 57. Over the ensuing months, KKR reached out to 

Del Monte on at least two occasions. In April 2010, KKR 

representatives met with Wolford and David Meyers, Del 

Monte's CFO. KKR said it wanted *823 to keep the lines 

of communication open about future opportunities. In May 

2010, KKR approached Del Monte about jointly pursuing 

acquisitions. Del Monte declined, both because KKR's capital 

was too expensive and because Del Monte had all the capital 

it needed. KKR also continued to meet with Barclays. 

D. Barclays Pairs Up Vestar With KKR. 

In September 2010, Moses sensed that the timing was right to 

put the Del Monte LBO back together. Moses had lunch with 

Brian Ratzan of Vestar. Moses suggested that it might be “an 

interesting time to make another approach to [Del Monte]” 

and that, if Vestar were interested, “the ideal partner would be 

KKR.” Ratzan Tr. 35. Moses said that it was an “opportune 

time” for approaching Del Monte because “[t]he company 

had missed its numbers for a couple of quarters [and] [t]he 

stock price was down.” Id. at 36. On September 14, Moses 

discussed the idea with KKR. After meeting with KKR, 

Moses called Ratzan. Moses then emailed his colleagues that 

Vestar “is going to partner with KKR on [Del Monte]. So 

team wi[ll] be kkr, vestar and hooper (centerview). Obviously 

this is confidential.” PX 60. 

At the time, both Vestar and KKR were bound by their 

confidentiality agreements with Del Monte. The No Teaming 

Provision prohibited Vestar and KKR from entering into 

any “agreement, arrangement or understanding, or any 

discussions which would reasonably be expected to lead to 

such an agreement, arrangement or understanding with any 

other person, including other potential bidders and equity or 

debt financing sources (other than your Representatives as 

permitted above) regarding a possible transaction involving 

the Company without the prior written consent of the 

Company....” Vestar and KKR did not have “prior written 

consent” from Del Monte. Nor did Barclays. In fact, Barclays 

was not authorized at that time to do anything on behalf of 

Del Monte. The Board had instructed Barclays “to shut [the] 

process down and let buyers know the company is not for 

sale.” PX 57. 

By pairing Vestar with KKR, Barclays put together the 

two highest bidders from March 2010, thereby reducing 

the prospect of real competition in any renewed process. 

There were other logical pairings that would have promoted 

competition. Teaming up Vestar and KKR served Barclays' 

interest in furthering a deal with an important client 

(KKR) that previously had used Barclays for buy-side 



financing. After Moses paired Vestar with KKR, Vestar never 

considered working with a different sponsor. 

E. KKR Makes Its Bid. 

On October 11, 2010, representatives of KKR asked to meet 

with Wolford. During the meeting, KKR delivered a written 

indication of interest from KKR and Centerview to acquire 

Del Monte for $17.50 in cash. The price represented a 28.7% 

premium over the closing price of Del Monte's common stock 

on the previous trading day. While nominally higher than the 

$17 offered in March, it was a step back given intervening 

market developments. Del Monte and Barclays calculated 

that an equivalent bid would have been $18.32. See PX 72 (“I 

landed on $18.32/share as the equivalent offer relative to the 

$17 previously”). 

The KKR letter did not mention Vestar, and Vestar 

representatives did not attend the meeting. In preparing for 

the meeting, KKR and Vestar agreed not to disclose Vestar's 

participation because “it's just another thing Rick will have 

to go back to his board and explain. Will be *824 easier to 

bring in Vestar once we have traction with the Company.” PX 

24. 

After the October 11, 2010, meeting, Barclays worked with 

KKR to conceal Vestar's participation. For example, on 

October 31, Brown of KKR emailed his colleagues that 

Vestar would not attend a meeting with Del Monte because 

of the complications it would create. PX 26 (“delicate time 

for Board, don't want to upset matters potentially w[ith] 

a group change at a critical juncture. Vestar ultimately ok 

w[ith] this”). Moses agreed that it was best to keep Vestar's 

involvement hidden. See PX 62 (e-mail from Moses to 

Brown, dated Oct. 31, 2010, “agree at this point that we keep 

meeting to K[KR] and Centerview from your side.”). 

F. The Board Adopts A Single–Bidder Strategy. 

On October 13, 2010, the Board met to consider KKR's 

indication of interest. The Board met again on October 

25. Management discussed the Company's long range 

plan and the challenges and risks associated with its 

execution. Management suggested that a transaction with 

KKR potentially represented a “risk-free alternative” to 

the long range plan. On the question of whether to sell, 

management faced conflicts of its own. Wolford planned 

to retire in 2012 and was being pressed by the Board for 

a succession plan. Wolford was resisting and had said he 

would rather sell the Company than remake his team. From 

an economic standpoint, Wolford would receive an additional 

$24 million if Del Monte was sold before his retirement. Del 

Monte CFO Meyers also planned to retire in 2012 and would 

receive an additional $5 million if the Company was sold 

before then. See Proxy Supp. at 6–11. 

After deciding to pursue discussions with KKR, the Board 

considered whether to conduct a pre-signing market check. 

The Board concluded that none was needed. First, KKR's 

indication of interest at $17.50 per share was at the high end 

of the indications of interest that the Company had received 

in March 2010, although lower on a relative basis after 

adjusting for intervening market trends. Second, the Board 

felt that no other potential bidders were lurking in the wings, 

because only Campbell's Soup came forward when word of 

the private process leaked in early 2010. Third, no one other 

than KKR had communicated with Del Monte in the eight 

months since the Board instructed Barclays to tell bidders that 

Del Monte was not for sale. Fourth, the Board was concerned 

that a renewed process could have detrimental effects on 

employees, customers, and the stock price, particularly if the 

process did not result in a completed transaction. Finally, the 

Board considered that the previous high bid of $17.50 had 

been submitted by Vestar, a firm that needed to partner with 

a larger sponsor to make a bid. At the time, the Board did not 

know that Barclays had teamed Vestar with KKR. 

The Board ultimately decided to adopt a single-bidder 

strategy of negotiating only with KKR. During the meeting, 

the Board formally authorized the Company to “re-engage” 

Barclays as its financial advisor. After the meeting, the 

Chairman of the Strategic Committee, Terence Martin, met 

with Moses and Ben to negotiate Barclays' new engagement 

letter. Martin “personally directed that Barclays was not to 

speak or act on Del Monte's behalf until the terms of the 

engagement letter had been finalized.” Martin Aff. 22. The 

Barclays representatives did not tell Martin that Moses had 

been communicating with Vestar and KKR, put the two firms 

together, and helped spur the KKR bid. Barclays *825 then 

began advising Del Monte on the bid Moses engineered. 

G. The Initial Negotiations With KKR. 

Between October 26 and November 9, 2010, Barclays 

interacted with KKR. Barclays reported frequently to Del 

Monte management and the Strategic Committee, but 

Barclays was the principal point of contact for KKR. 

On October 27, 2010, the Board asked Barclays to tell 

KKR that the $17.50 per share offer was insufficient, but 



that the Company was prepared to give KKR access to due 

diligence information to allow them to submit a higher offer. 

On November 4, KKR attended a meeting with Del Monte 

management. Barclays and KKR agreed that Vestar would 

not attend and to keep Vestar's involvement secret from the 

Company 

On November 8, 2010, news of a potential Del Monte LBO 

leaked when the London Evening Standard reported that KKR 

had offered to acquire the Company for $18.50 per share. 

Later in the day, KKR contacted the Board and raised its offer 

to $18.50 with a request for exclusivity. Vestar's participation 

still went unmentioned. 

On November 9, 2010, the Board met to discuss KKR's 

proposal. The Board declined to grant formal exclusivity, 

but did not reach out to any other bidders. The Board 

also declined to approve a transaction at $18.50 per share. 

At the same time, the Board signaled its receptivity by 

authorizing KKR to begin discussing financing commitments 

with lenders. According to an internal KKR email, “Barclays 

guidance was we should read real significance into their 

authorizing full access with instructions to get us to a point of 

being firm/done based on the price we raised to.” PX 29. 

H. Del Monte Finally Learns About Vestar's 

Involvement And Barclays' Buy–Side Desires. 

With momentum building towards a deal, the time had come 

for the repeat M & A players to hit up the Board with two 

unsavory requests. First, during the week of November 8, 

2010, KKR “formally approached Barclays Capital to request 

that the Company allow KKR/Centerview to include Vestar 

in the deal as an additional member of the sponsor group.” 

Proxy Supp. at 3. Note the artful phrasing. Barclays had 

paired Vestar with KKR in September, and they had been 

de facto partners since at least October. Yet Barclays had 

never been “formally approached,” and technically Vestar 

had never been “included in the deal as an additional member 

of the sponsor group.” 

No one suggested that adding Vestar was necessary for 

KKR to proceed with its bid. There is no evidence that 

including Vestar firmed up a wavering deal. The Board was 

not told that Vestar in fact had been partnered with KKR 

since September, when Barclays put them together. The 

contemporaneous record does not reflect any consideration 

given to the ramifications of permitting KKR to team up with 

the firm who previously submitted the high bid and who could 

readily have teamed with Carlyle, Apollo, CVC, or another 

large buyout shop. The Board did not consider rejecting 

KKR's request, enforcing the confidentiality agreement, and 

inviting Vestar to participate with a different sponsor to 

generate competition. The Board did not seek to trade 

permission for Vestar to pair with KKR for a price increase 

or other concession. 

The second unsavory request was when Barclays finally 

asked Del Monte if it could provide buy-side financing, as 

Barclays had been planning to do since at least January 2010. 

Barclays had long *826 been signaling KKR about its desire 

to participate. On November 8, Moses asked KKR to give 

Barclays one third of the debt. KKR agreed. The next day 

Brown reported by email to the KKR investment committee 

that Barclays had “asked us to use JPM, BofA and Barclays 

themselves as the financing banks; we find that acceptable 

and will ask to add one more.” PX 29. Also on November 

9, Barclays asked Del Monte management for permission to 

provide buy-side financing to KKR. They agreed. See PX 40. 

On November 12, Brown reported to his KKR colleagues that 

“Barclays has been cleared to be a financing bank.” JX 30. 

At the time Barclays asked for and obtained Del Monte's 

permission to provide buy-side financing, Del Monte and 

KKR had not yet agreed on price. Barclays' buy-side 

participation was not used to extract a higher price. Nor was 

it necessary to finance the deal. No one thought that KKR 

needed Barclays, and other banks were already clamoring for 

their shares. Barclays simply wanted to double-dip. Through 

its buy-side role, Barclays will earn $21 to $24 million, as 

much and possibly more than the $23.5 million it will earn as 

the sell-side advisor. 

On November 23, 2010, Del Monte executed a letter 

agreement that formally authorized Barclays to provide 

financing to KKR. In contrast to the Barclays witnesses, 

who reluctantly admitted when pressed that providing buyside 

financing might create the appearance of a potential 

conflict, the November 23 letter acknowledged that Barclays' 

relationship became adverse to Del Monte and that if push 

came to shove, Barclays would look out for itself. In the 

language of the letter, “[i]n the event that Barclays Capital 

is asked to provide acquisition financing to a buyer of the 

Company, the Company should expect Barclays Capital to 

seek to protect its interests as a lender, which may be 

contrary to the interests of the Company.” PX 35 at 1. 

Because of the conflict of interest, Barclays insisted in the 

letter agreement that Del Monte obtain a second fairness 

opinion. Id. (“Barclays Capital believes that it is essential, 



in addressing such conflicts of interest, for the Company to 

receive independent financial advice, including an additional 

fairness opinion, from an independent third party firm who 

is not involved in the acquisition financing....”). Not only 

did Del Monte fail to secure any benefits for itself or its 

stockholders as the price of Barclays' buy-side participation, 

but Del Monte actually incurred an additional $3 million for a 

second financial advisor. Del Monte hired Perella Weinberg 

Partners LP to fulfill this role. Perella Weinberg's fee is not 

contingent on closing. On the plus side, this helps make its 

work independent. On the minus side, Del Monte incurred 

a $3 million expense to help Barclays make another $24 

million, and Del Monte will have to bear this expense even if 

the deal does not close. 

I. Barclays Continues To Negotiate With KKR. 

Between November 19 and 22, 2010, at the same time it 

was working with KKR to provide financing for the deal, 

Barclays ostensibly negotiated with KKR over the price. On 

November 22, Barclays reported that KKR was willing to 

consider paying $18.75 per share. Internally, Barclays already 

had evaluated a $19 price for KKR, and KKR had secured 

authority from its Investment Committee to bid up to $19 per 

share. The Board declined the $18.75 figure and instructed 

Barclays to go back to KKR. 

On November 24, 2010, Barclays reported that KKR had 

made its best and final offer of $19 per share. Later in 

the day, the Board met to consider the offer. Barclays 

*827 and Perella Weinberg delivered their fairness opinions. 

The Board reviewed the provisions of the proposed Merger 

Agreement that had been negotiated between outside counsel 

to the Company and KKR. After discussion and an executive 

session, the Board unanimously approved the Merger 

Agreement. 

J. The Terms Of The Merger Agreement 

Section 6.5(a) of Merger Agreement provided for a 45–day 

post-signing go-shop period during which Del Monte had 

the right to “initiate, solicit and encourage any inquiry or 

the making of any proposal or offers that could constitute 

an Acquisition Proposal.” The Merger Agreement defines 

“Acquisition Proposal” broadly as 

any bona fide inquiry, proposal or 

offer from any person or group of 

persons other than Parent or one of its 

subsidiaries for, in one transaction or 

a series of related transactions, (A) a 

merger, reorganization, consolidation, 

share exchange, business combination, 

recapitalization, liquidation, 

dissolution or similar transaction 

involving an acquisition of the 

Company (or any subsidiary or 

subsidiaries of the Company whose 

business constitutes 15% or more of 

the net revenues, net income or assets 

of the Company and its subsidiaries, 

taken as a whole) or (B) the acquisition 

in any manner, directly or indirectly, 

of over 15% of the equity securities 

or consolidated total assets of the 

Company and its subsidiaries, in each 

case other than the Merger. 

MA § 6.5(d)(i). Once the go-shop period ended, Del 

Monte was bound by a customary no-solicitation clause that 

prohibited Del Monte, among other things, from “initiat[ing], 

solicit[ing], or knowingly encourage[ing] any inquiries or the 

making of any proposal or offer that constitutes or reasonably 

could be expected to lead to an Acquisition Proposal.” Id. 

§ 6.5(b). The no-solicitation clause permits Del Monte to 

respond to a Superior Proposal, defined generally as an 

Acquisition Proposal (but with the references to 15% changed 

to 50%) that the Board determines is “more favorable to the 

Company's stockholders from a financial point of view” than 

the Merger and “is reasonably likely to be consummated.” Id. 

§ 6.5(d)(iii). 

During the go-shop period, Del Monte was authorized to, 

among other things, waive or release any party from any preexisting 

standstill agreements with the Company, and Del 

Monte could do so “at its sole discretion.” Id. § 6.5(a). This 

is a salutary provision that eliminates any argument from the 

acquirer that it has an explicit or implicit contractual veto 

over the decision to grant a waiver or release. Exercising 

this authority, Del Monte released Carlyle, CVC, Apollo, 

and Campbell's Soup from the standstill provisions in the 

confidentiality agreements they executed in February 2010. 

Section 8.3(a) of the Merger Agreement permits Del Monte 

to terminate its deal with KKR to accept a Superior Proposal 

prior to the stockholder vote on the merger if 

(i) the Company Board authorizes 

the Company, subject to complying 

with the terms of this Agreement, 



to enter into one or more 

Alternative Acquisition Agreements 

with respect to a Superior Proposal; (ii) 

immediately prior to or substantially 

concurrently with the termination 

of this Agreement the Company 

enters into one or more Alternative 

Acquisition Agreements with respect 

to a Superior Proposal; and (iii) 

the Company immediately prior to 

or substantially concurrently with 

such termination pays to Parent or 

its designees in immediately *828 

available funds any fees required to be 

paid pursuant to Section 8.5. 

Id. § 8.3(a). Prior to exercising the termination right, Del 

Monte must have given KKR written notice describing the 

material terms and conditions of the Superior Proposal and 

negotiated with KKR in good faith for three business days 

to enable KKR to match the Superior Proposal. Id. § 6.5(h). 

The match right must be complied with for each change in 

the financial terms of or other material amendment to the 

Superior Proposal, except that after the first match the three 

business day period becomes two business days. Id. 

If Del Monte terminates the Merger Agreement to enter into 

a transaction with an Excluded Party—defined generally as a 

person or group who made an Acquisition Proposal during the 

go-shop period—then Del Monte owes KKR a termination 

fee in the amount of $60 million, representing 1.13% of total 

deal value and 1.5% of equity value, or approximately $0.312 

per share. Id. § 8.5(b). If Del Monte terminates the Merger 

Agreement to enter into a transaction with a party other than 

an Excluded Party, then the termination fee increases to $120 

million, representing 2.26% of total deal value, 3.0% of the 

total equity value, and approximately $0.624 per share. Id. 

The Board decided to let Barclays run the go-shop. In carrying 

out this assignment, Barclays had a direct financial conflict. 

In its role as sell-side financial advisor, Barclays had earned 

$2.5 million for its fairness opinion (despite the conflict of 

interest giving rise to the need for a second banker) and would 

earn another $21 million if the deal closed. For its role in the 

buy-side financing for KKR, Barclays stood to earn another 

$21 to $24 million. As Ben acknowledged, Barclays would 

earn substantially more for executing the LBO with KKR 

than it would for any other strategic alternative. If another 

bidder emerged that did not need financing or who chose 

not to use Barclays, then Barclays would lose its buy-side 

financing fees. Martin testified that it “never occurred to us 

that [Barclays] wouldn't do a good job.” Martin Tr. 64. 

Other advisors were available. Perella Weinberg had rendered 

the second fairness opinion necessitated by Barclays' conflict 

and could have handled the process. Goldman Sachs had 

a prior relationship with Del Monte and independently 

approached Del Monte about managing the go-shop. Upon 

learning of Goldman's interest, Barclays told KKR that 

Goldman was trying to “scare up competition.” PX 32 

(“Goldman has been pushing the company to help run their 

go-shop and scare up competition against us (!)....”). Brown 

of KKR told Barclays that he would “manage it” directly 

with Goldman. Id. He solved the problem by letting Goldman 

participate in 5% of the syndication rights for the acquisition 

financing, which “squared things away there.” PX 33. After 

that, Goldman dropped its efforts to conduct the go shop. 

During the go-shop period, Barclays contacted fifty-three 

parties, including thirty strategic buyers. Three requested and 

were provided with confidentiality agreements. Two parties 

from the early 2010 process re-engaged. No one expressed 

interest. 

K. The Proxy Supplement 

On January 12, 2011, Del Monte issued its definitive 

proxy statement on Schedule 14A. Many of the disclosures 

about the background of the transaction were false and 

misleading, in part because Barclays hid its behind-thescenes 

activities from the Board. On February 4, after the 

completion of discovery in connection with the preliminary 

injunction application, Del *829 Monte issued the Proxy 

Supplement to moot the plaintiffs' disclosure claims. The 

Proxy Supplement disclosed that the Company learned 

significant facts about Barclays' role and interactions with 

KKR only as a result of this litigation. 

Among other things, the Proxy Supplement disclosed the 

following: 

• “Since the filing of the Definitive Proxy Statement, the 

Company has learned that as early as January 2010, 

representatives of Barclays Capital had indicated their 

intent to seek to participate as a financing source in 

connection with any future transaction pursued by the 

Company subject to the internal approval of Barclays 

Capital and subject to the approval of the Company if 

Barclays Capital were also acting as financial advisor to 

the Company.” Proxy Supp. at 2. 



• “Since the filing of the Definitive Proxy Statement by 

the Company, the Company has learned that financing 

sources other than Barclays Capital could have provided 

sufficient financing for the transaction at $19.00 per 

share without the participation of Barclays Capital.” Id. 

at 4. 

• “Since the filing of the Definitive Proxy Statement, 

the Company has learned that beginning in August 

2010 and September 2010, after Barclays Capital's 

engagement with the Company had formally concluded, 

Barclays Capital had routine business development 

discussions with, among others, KKR and Vestar, 

concerning potential strategic opportunities, including a 

potential acquisition of the Company. In the course of 

the discussions between Barclays Capital and Vestar, 

Barclays Capital and Vestar discussed that KKR/ 

Centerview would be a good partner with Vestar and 

a good strategic match with Vestar if the potential 

for a transaction involving the Company arose. At the 

time of these discussions, Barclays Capital believed that 

Vestar and KKR/Centerview had prior discussions about 

potential opportunities in the consumer sector, including 

the possibility of an acquisition of the Company if 

the opportunity reemerged. The Company also has 

learned since the filing of the Definitive Proxy Statement 

that, subsequent to the routine business development 

discussions in August and September 2010 discussed 

above, KKR/Centerview and Vestar had discussions 

about working together on an indication of interest 

regarding a transaction with the Company.” Id. at 2–3. 

• “Since the filing of the Definitive Proxy Statement, the 

Company has learned that during the period between 

October 11, 2010 and the week of November 8, 2010 

there were discussions among the sponsors concerning 

the conversations between KKR/Centerview and the 

Company and about potentially adding Vestar as an 

acquisition partner at a later point in time in the event 

negotiations progressed with the Company.” Id. at 3. 

The defendants released this information on the afternoon 

of Friday, February 4, 2011, apparently expecting that 

stockholders could digest it, determine how to vote, and 

either submit proxies or revocations or appear and vote at 

the special meeting on Tuesday, February 15. In light of the 

relief granted, I need not separately consider whether the 

timing and manner of dissemination were adequate under the 

circumstances. 

II. LEGAL ANALYSIS 

[1] To obtain a preliminary injunction, the plaintiffs must 

demonstrate (i) a reasonable probability of success on the 

merits; *830 (ii) that they will suffer irreparable injury if 

an injunction is not granted; and (iii) that the balance of 

the equities favors the issuance of an injunction. Revlon, 

Inc. v. MacAndrews & Forbes Hldgs., Co., 506 A.2d 173, 

179 (Del.1986). The plaintiffs have met the first and second 

elements. After due consideration of the third element, I find 

that the circumstances call for a limited injunction along the 

lines the plaintiffs have requested. 

A. The Probability of Success on the Merits 

[2] The first element of the familiar injunction test requires 

that the plaintiffs establish a reasonable probability of success 

on the merits. This showing “falls well short of that which 

would be required to secure final relief following trial, since it 

explicitly requires only that the record establish a reasonable 

probability that this greater showing will ultimately be 

made.” Cantor Fitzgerald, L.P. v. Cantor, 724 A.2d 571, 579 

(Del.Ch.1998) (internal quotation marks omitted). Because 

the disclosure claims have been mooted, the pertinent claims 

are (i) breach of fiduciary duty against the director defendants 

and (ii) aiding and abetting by KKR. 

1. The Breach of Fiduciary Duty Claim 

[3] [4] “Delaware has three tiers of review for evaluating 

director decision-making: the business judgment rule, 

enhanced scrutiny, and entire fairness.” Reis v. Hazelett 

Strip–Casting Corp., 2011 WL 303207, at *8 (Del.Ch. Feb. 

1, 2011). Delaware applies enhanced scrutiny when directors 

face potentially subtle structural or situational conflicts that 

do not rise to a level sufficient to trigger entire fairness 

review, but also do not comfortably permit expansive judicial 

deference. Id. at *8–10; see Paramount Commc'ns Inc. v. 

QVC Network Inc., 637 A.2d 34, 42 (Del.1994) [hereinafter, 

“QVC ”] (“[T]here are rare situations which mandate that 

a court take a more direct and active role in overseeing 

the decisions made and actions taken by directors. In these 

situations, a court subjects the directors' conduct to enhanced 

scrutiny to ensure that it is reasonable.”). 

[5] [6] Enhanced scrutiny has both subjective and 

objective components. Initially, the directors “bear the burden 

of persuasion to show that their motivations were proper 



and not selfish.” Mercier v. Inter–Tel (Del.), Inc., 929 A.2d 

786, 810 (Del.Ch.2007). Adapted to the M & A context, 

the directors must show that they sought “to secure the 

transaction offering the best value reasonably available for 

the stockholders.” QVC, 637 A.2d at 44. The key verb is 

“sought.” Time-bound mortals cannot foresee the future. The 

test therefore cannot be whether, with hindsight, the directors 

actually achieved the best price. “Rather, the duty can only 

be to try in good faith, in such a setting, to get the best 

available transaction for the shareholders. Directors are not 

insurers.” Citron v. Fairchild Camera and Instrument Corp., 

1988 WL 53322, at *16 n. 17 (Del.Ch. May 19, 1988) (Allen, 

C.); accord In re Dollar Thrifty S'holder Litig., 2010 WL 

3503471, at *32 (Del.Ch. Sept. 8, 2010). 

[7] [8] [9] [10] Having made the necessary subjective 

showing, the directors next must demonstrate that “their 

actions were reasonable in relation to their legitimate 

objective.” Mercier, 929 A.2d at 810. The directors bear 

the burden of proving that they (i) followed a reasonable 

decision-making process and based their decisions on a 

reasonable body of information, and (ii) acted reasonably in 

light of the circumstances then existing. QVC, 637 A.2d at 

45. The reasonableness standard permits a reviewing court 

to address inequitable action even when directors may have 

subjectively *831 believed that they were acting properly. 2 

That said, the objective standard does not permit a reviewing 

court to freely substitute its own judgment for the directors'. 

[A] court applying enhanced judicial scrutiny should 

be deciding whether the directors made a reasonable 

decision, not a perfect decision. If a board selected one of 

several reasonable alternatives, a court should not secondguess 

that choice even though it might have decided 

otherwise or subsequent events may have cast doubt on 

the board's determination. Thus, courts will not substitute 

their business judgment for that of the directors, but will 

determine if the directors' decision was, on balance, within 

a range of reasonableness. 

QVC, 637 A.2d at 45 (emphasis in original). Put differently, 

enhanced scrutiny “is not a license for law-trained courts 

to second-guess reasonable, but debatable, tactical choices 

that directors have made in good faith.” In re Toys “R” 

Us, Inc. S'holder Litig., 877 A.2d 975, 1000 (Del.Ch.2005); 

accord Dollar Thrifty, 2010 WL 3503471, at *17 (“[A]t 

bottom Revlon is a test of reasonableness; directors are 

generally free to select the path to value maximization, so 

long as they choose a reasonable route to get there.”). What 

typically drives a finding of unreasonableness is evidence 

of self-interest, undue favoritism or disdain towards a 

particular bidder, or a similar non-stockholder-motivated 

influence that calls into question the integrity of the 

process. See Dollar Thrifty, 2010 WL 3503471, at *18–19; 

Toys “R” Us, 877 A.2d at 1000–01. 

[11] In evaluating the adequacy of the directors' decisionmaking 

and the information they had available, a reviewing 

court necessarily will consider the extent to which a board has 

relied on expert advisors. When responding to a takeover bid 

or considering a final-stage transaction, the directors' advisors 

play a pivotal role. 

Frequently, the outside directors who 

find themselves in control of a 

corporate sale process have had little 

or no experience in the sale of a public 

company. They are in terra incognito 

[sic]. Naturally, they turn for guidance 

to their specialist advisors who will 

typically have had a great deal of 

relevant experience. 

William T. Allen, Independent Directors In MBO 

Transactions: Are They Fact or Fantasy?, 45 Bus. Law.2055, 

2061 (1990). “It is obvious that no role is more critical 

with respect to protection of shareholder interests in these 

matters than that of the expert lawyers [and here I add 

financial advisors] who guide sometimes inexperienced 

directors through the process.” *832 In re Fort Howard 

Corp. S'holders Litig., 1988 WL 83147, at *12 (Del.Ch. Aug. 

8, 1988) (Allen, C.). 

Because of the central role played by investment banks in 

the evaluation, exploration, selection, and implementation of 

strategic alternatives, this Court has required full disclosure 

of investment banker compensation and potential conflicts. 3 

This Court has not stopped at disclosure, but rather has 

examined banker conflicts closely to determine whether they 

tainted the directors' process. 4 

In Toys “R” Us, Vice Chancellor Strine considered whether 

an investment bankers role in providing stapled financing 

created a conflict of interest that merited injunctive relief. At 

the outset of the sale process challenged in that case, the sellside 

investment banker, First Boston, asked about possibly 

providing buy-side financing for purchasers of a subsidiary. 

“The board promptly nixed that idea.” 877 A.2d at 1005. 

Then, following a lengthy process during which the form 



of the transaction shifted from a sale of the subsidiary to a 

sale of the whole company, and two months after the process 

culminated in an executed merger agreement, First Boston 

again asked to be permitted to provide a portion of the buyside 

financing. This time the board agreed. Vice Chancellor 

Strine described that decision as “unfortunate, in that it tends 

to raise eyebrows by creating the appearance of impropriety, 

playing into already heightened suspicions about the ethics 

of investment banking firms.” Id. at 1006. He suggested it 

would have been “[f]ar better, from the standpoint of instilling 

confidence, if First Boston had never asked for permission, 

and had taken the position that its credibility as a sell-side 

advisor was too important in this case, and in general, for it 

to simultaneously play on the buy-side in a deal when it was 

the seller's financial advisor.” Id. He likewise noted that “it 

might have been better, in view of First Boston's refusal to 

refrain, for the board of the Company *833 to have declined 

the request, even though the request came on May 12, 2005, 

almost two months after the board had signed the merger 

agreement.” Id. Nevertheless, after reviewing in detail the 

public, year-long, multi-phase process that the board and its 

banker conducted, Vice Chancellor Strine concluded “upon 

close scrutiny” that First Boston's appearance of conflict 

did not have “a causal influence” on the boards process. 

Id. He cautioned that “[i]n general, however, it is advisable 

that investment banks representing sellers not create the 

appearance that they desire buy-side work, especially when 

it might be that they are more likely to be selected by some 

buyers for that lucrative role than by others.” Id. at 1006 n. 46. 

Applying these principles to the current case shows that 

Barclays' activities went far beyond what took place in Toys 

“R” Us. Barclays set out to provide acquisition financing, 

as established by the internal screening memos from January 

and March 2010. Barclays' Del Monte coverage officer 

pitched a Del Monte LBO to KKR, Apollo, and other 

private equity firms that would be likely to use Barclays 

for acquisition financing. Once it secured the sell-side role, 

Barclays structured a small, private process that maximized 

the likelihood that it could provide acquisition financing. 

Barclays never disclosed to the Board its interactions with 

the private equity shops or its desire to provide acquisition 

financing. 

After the early 2010 process terminated, Barclays became 

more aggressive. In September, Barclays paired up Vestar and 

KKR in violation of their confidentiality agreements with Del 

Monte. Barclays then assisted Vestar and KKR in preparing 

an indication of interest. After being re-engaged by Del 

Monte, Barclays again did not disclose its interactions with 

the banks or its plan to secure a buy-side role, and it actively 

concealed the fact that Vestar and KKR were working 

together. When KKR “formally requested” permission to 

make a joint bid with Vestar, Barclays did not come clean, 

and Del Monte agreed without seeking to extract any prostockholder 

concession or other advantage. Before the Merger 

Agreement was signed and with price negotiations still ongoing, 

Barclays sought and obtained a buy-side role and 

worked with KKR to develop financing. As a result, at the 

same time Barclays ostensibly was negotiating to get KKR to 

pay more, Barclays had an incentive as a well-compensated 

lender to ensure that a deal was reached and that KKR did not 

overpay. 

But for Barclays' manipulations, the Del Monte process 

would have played out differently. If the directors had 

known at the outset of Barclays' intentions and activities, 

the Board likely would have hired a different banker. Del 

Monte had good relationships with Goldman Sachs and 

Bank of America/Merrill Lynch, and the Board easily could 

have tapped either firm. Even if the directors decided to 

proceed with Barclays, the Board and its experienced counsel 

doubtless would have taken steps to protect the integrity 

of the process. As soon as Barclays disclosed its buy-side 

aspirations, the Board likely would have followed Toys “R” 

Us and “nixed that idea.” The Board and its counsel likely 

also would have limited the role of Barclays lending group, 

chaperoned its discussions with bidders, or used another bank 

to provide confidential feedback to the potential sponsors 

about leverage parameters and market expectations. 

Although Barclays' activities and non-disclosures in early 

2010 are troubling, what indisputably crossed the line was the 

surreptitious and unauthorized pairing of Vestar with KKR. 

In doing so, Barclays materially reduced the prospect of price 

*834 competition for Del Monte. Vestar had been the high 

bidder in the early 2010 process, and although Vestar needed a 

partner, a non-conflicted financial advisor could have teamed 

Vestar with a different sponsor. It was to address precisely 

this risk of competition-limiting behavior that Del Monte 

secured the No Teaming Provision. Barclays' efforts caused 

Vestar and KKR to violate the No Teaming Provision. Most 

egregiously, Barclays actively concealed the pairing from the 

Del Monte Board. It was not until the week of November 

8 that KKR “formally requested” to be allowed to partner 

with Vestar. Barclays continued to hide its involvement and 

recommended that the pairing be permitted. 



The record does not reflect meaningful Board consideration 

or informed decision-making with respect to the Vestar 

pairing. There are no minutes that suggest hard thinking about 

how acceding to KKR's request might affect Del Monte. 

Martin testified about the issue as follows: 

Q. The next paragraph [of the proxy] starts off, it 

says, “Later during the week of November 8, 2010, 

KKR and Centerview approached Barclays Capital 

about the possibility of including Vestar in the 

deal as an additional member of the sponsor group. 

Representatives of KKR indicated that Vestar's prior 

experience in the food industry would make them an 

ideal partner for KKR/Centerview in connection with a 

potential investment in the Company. After discussions 

between KKR, Centerview and the Company, the 

Company permitted KKR and Centerview to approach 

Vestar to become an additional member of the sponsor 

group.” Do you see that? 

A. I do. 

Q. Did that happen at a Board meeting? 

A. I don't recall. 

Q. Do you recall the Board approving the concept of KKR 

contacting Vestar and getting them involved as part of 

the KKR group? 

A. I don't recall that. 

Q. Do you recall how it happened? 

A. I do not. 

Q. When is the first time you heard about it? 

A. I don't remember. 

Q. Do you recall the Board ever authorizing KKR in 

writing at any time prior to the week of November 8, 

2010 to communicate with Vestar about teaming up to 

buy Del Monte? 

A. I do not recall anything of that nature. 

Q. Was there any discussion at the Board level of whether 

it was advisable to allow a company that previously had 

been bidding against KKR in the January, early January 

process, to now instead team up with KKR in the late 

2010 process? 

[DEFENSE COUNSEL]: Objection. 

A. I don't remember any conversations about that. 

Martin Tr. 49–51. It was not reasonable for the Board to 

accede to KKR's request and give up its best prospect for price 

competition without making any effort to obtain a benefit for 

Del Monte and its stockholders. 

Barclays similarly crossed the line with its late-stage request 

for permission to be one of KKR's lead banks. There was 

no deal-related reason for the request, just Barclays' desire 

for more fees. Del Monte did not benefit. The immediate 

consequence was to force Del Monte to spend $3 *835 

million to hire a second bank. The more serious consequence 

was to taint the final negotiations. At the time Barclays 

made its request, the Merger Agreement was not yet signed, 

and Barclays and KKR were still negotiating over price. 

Barclays' internal documents from January and March 2010 

had stated that “Barclays will look to participate in the 

acquisition financing once the Company has reached a 

definitive agreement with a buyer.” But Barclays could not 

wait. 

In considering Barclays' request, the Board again failed to 

act reasonably. The Board did not ask whether KKR could 

fund the deal without Barclays' involvement, and Del Monte 

did not learn until this litigation that Barclays was not 

needed on the buy-side. If the Board had refused Barclays' 

request, then Del Monte could have had a non-conflicted 

(or at least not directly conflicted) negotiator bargain with 

KKR. Without some justification reasonably related to 

advancing stockholder interests, it was unreasonable for 

the Board to permit Barclays to take on a direct conflict 

when still negotiating price. It is impossible to know how 

the negotiations would have turned out if handled by a 

representative that did not have a direct conflict. The burden 

of that uncertainty must rest with the fiduciaries who created 

it. 

Finally, Barclays' conflict tainted the go-shop process. What 

Barclays did looks good on the surface, but the “who” is as 

important as the “what.” As Vice Chancellor Strine explained 

in Netsmart, “body language” can be critical. In re Netsmart 

Techs., Inc. S'holder Litig., 924 A.2d 171, 188 (Del.Ch.2007). 

There, a special committee permitted the company's CEO 

to drive a sale process involving private equity bidders who 

likely would retain management. 



In easily imagined circumstances, 

this approach ... could be highly 

problematic. If management had an 

incentive to favor a particular bidder 

(or type of bidder), it could use the ... 

process to its advantage, by using 

different body language and verbal 

emphasis with different bidders. 

“She's fine” can mean different things 

depending on how it is said. 

Id. at 194. I recognize that the level of interaction in the due 

diligence meetings discussed in Netsmart differs from what 

takes place in a go-shop, particularly in the early outreach 

phase, but an analogous principle applies. 

The Strategic Committee delegated the task of running the goshop 

to Barclays and had no direct insight into how Barclays 

interacted with the parties it contacted. Barclays had a strong 

interest in ensuring that a particular kind of buyer (private 

equity) acquired Del Monte and a keen desire to see the deal 

close with KKR. In the last two years, Barclays has earned 

$66 million from KKR. If another bidder declined or did not 

need Barclays' financing, the bank would lose half of the 

approximately $44.5 to $47.5 million that Barclays stands to 

earn from its dual role. To recoup the lost financing fees, 

Barclays would have had to find a bidder willing to pay 

between $24.25 and $26 per share, or an additional $1.2 and 

$1.4 billion. Not likely. 

[12] Although the blame for what took place appears at this 

preliminary stage to lie with Barclays, the buck stops with the 

Board. Delaware law requires that a board take an “active and 

direct role in the sale process.” Citron v. Fairchild Camera 

& Instrument Corp., 569 A.2d 53, 66 (Del.1989). “[T]he 

role of outside, independent directors becomes particularly 

important because of the magnitude of a sale of control 

transaction and the possibility, in *836 certain cases, that 

management [and here I add other contingently compensated 

professionals like investment banks] may not necessarily be 

impartial.” QVC, 637 A.2d at 44. 

This is a case like Mills Acquisition Co. v. Macmillan, Inc., 

559 A.2d 1261 (Del.1989), in which the Delaware Supreme 

Court held that injunctive relief was required when a board's 

lack of involvement in a sale process enabled management 

and their financial advisor to steer the deal to KKR, their 

preferred bidder. In Mills, management's conflict arose out 

of their buy-side interest in a leveraged buyout sponsored 

by KKR. Id. at 1272. Management tainted the sale process 

by communicating with KKR without board approval and 

clandestinely passing information to KKR about the bidding 

process. Id. at 1275. Despite their independence, the directors 

failed adequately to oversee the process and permitted the 

conflicted management team and their financial advisor to 

exploit the opportunities it presented. Id. at 1280–81, 1284 n. 

32. 

In enjoining the proposed transaction, the Delaware Supreme 

Court spoke directly to the implications of a board being 

misled by conflicted individuals: 

[W]hen corporate directors rely in 

good faith upon opinions or reports 

of officers and other experts “selected 

with reasonable care,” they necessarily 

do so on the presumption that the 

information provided is both accurate 

and complete. Normally, decisions of 

a board based upon such data will 

not be disturbed when made in the 

proper exercise of business judgment. 

However, when a board is deceived 

by those who will gain from such 

misconduct, the protections girding 

the decision itself vanish. Decisions 

made on such a basis are voidable 

at the behest of innocent parties to 

whom a fiduciary duty was owed 

and breached, and whose interests 

were thereby materially and adversely 

affected. 

Id. at 1283–84. The Delaware Supreme Court also addressed 

the role of management's financial advisor, finding that the 

board's reliance on his advice “share[d] the same defects” as 

the board's reliance on conflicted management. Id. at 1284 n. 

33. 

[13] Here, the taint of self-interest came from a conflicted 

financial advisor rather than from management. Like the 

directors in Mills, the Del Monte Board was deceived. At a 

minimum, Barclays withheld information about its buy-side 

intentions, its involvement with KKR, and its pairing of KKR 

and Vestar. As in Mills, “there can be no dispute but that such 

silence was misleading and deceptive. In short, it was a fraud 

upon the board.” Id. at 1283. I therefore conclude that the 

plaintiffs have established a reasonable likelihood of success 

on the merits of their claim that the director defendants failed 



to act reasonably in connection with the sale process. This 

does not mean that any director necessarily will face money 

damages. The question currently before the Court is whether 

there is a sufficient likelihood of success on the merits to 

support injunctive relief, and that is all I address. See id. at 

1284 n. 32. 

2. The Aiding and Abetting Claim 

[14] The plaintiffs claim that KKR aided and abetted the 

directors' breaches of fiduciary duty. “[T]he four elements 

of an aiding and abetting claim [are] (1) the existence 

of a fiduciary relationship, (2) a breach of the fiduciary's 

duty ... (3) knowing participation in that breach by the 

defendants, and (4) damages proximately caused by the 

breach.” Malpiede v. Townson, 780 A.2d 1075, 1096 

(Del.2001) (internal quotation omitted). The critical element 

is “knowing participation.” 

*837 [15] [16] A third-party bidder who negotiates 

at arms' length rarely faces a viable claim for aiding and 

abetting. “Knowing participation in a board's fiduciary breach 

requires that the third party act with the knowledge that 

the conduct advocated or assisted constitutes such a breach. 

Under this standard, a bidder's attempts to reduce the sale 

price through arm's-length negotiations cannot give rise to 

liability for aiding and abetting.” Id. at 1097. The “longstanding 

rule that arm's-length bargaining is privileged and 

does not, absent actual collusion and facilitation of fiduciary 

wrongdoing, constitute aiding and abetting helps to safeguard 

the market for corporate control by facilitating the bargaining 

that is central to the American model of capitalism.” Morgan 

v. Cash, 2010 WL 2803746, at *8 (Del.Ch. July 16, 2010) 

(internal footnotes omitted). See also Tomczak v. Morton 

Thiokol, Inc., 1990 WL 42607, at *16 (Del.Ch. Apr. 5, 1990) 

(granting summary judgment in favor of defendant Dow 

on claim of aiding and abetting breach of fiduciary duty 

because “what Dow essentially did [in the transaction] was to 

simply pursue arm's-length negotiations with Morton Thiokol 

through their respective investment bankers in an effort to 

obtain ... the best price that it could.”). 

[17] [18] Despite the general rule, “a bidder may be liable 

to the target's stockholders if the bidder attempts to create or 

exploit conflicts of interest in the board. Similarly, a bidder 

may be liable to a target's stockholders for aiding and abetting 

a fiduciary breach by the target's board where the bidder 

and the board conspire in or agree to the fiduciary breach.” 

Malpiede, 780 A.2d at 1097–98 (internal footnotes omitted). 

An acquirer is free to seek the lowest possible price through 

arms' length negotiations with the target board, but “it may not 

knowingly participate in the target board's breach of fiduciary 

duty by extracting terms which require the opposite party to 

prefer its interests at the expense of its shareholders.” Gilbert 

v. El Paso Co., 490 A.2d 1050, 1058 (Del.Ch.1984), aff'd 

575 A.2d 1131 (Del.1990). Creating or exploiting a fiduciary 

breach is not part of legitimate arm's-length bargaining; it is 

an impermissible intrusion into the relationship between the 

fiduciary and beneficiary. 

[19] KKR knowingly participated in Barclays' selfinterested 

activities. When Barclays secretly paired Vestar 

with KKR in September 2010, KKR knew it was bound by the 

No Teaming Provision and was barred from discussing a Del 

Monte bid with anyone absent prior written permission from 

Del Monte. KKR nevertheless worked with Barclays and 

Vestar on a joint bid and agreed to keep Vestar's involvement 

hidden from the Board. KKR also knowingly participated in 

the creation of Barclays' buy-side conflict. Before the Board 

had cleared Barclays to provide financing to KKR, Barclays 

and KKR had agreed that Barclays would be one of the 

lead banks. KKR necessarily knew that Barclays would not 

push as hard in the price negotiations when it stood to earn 

substantial fees from both sides of a successful deal. KKR 

later ensured that a conflicted Barclays would run the go-shop 

when KKR “squared things away” with Goldman for 5% of 

the syndication, ending Goldman's interest in running the goshop 

process. On this record, the plaintiffs have established a 

reasonable likelihood of success on the merits of their claim 

that KKR aided and abetted the breaches of fiduciary duty 

that resulted from Barclays' misconduct. 

B. Irreparable Harm 

[20] The second requirement for a preliminary injunction 

is a showing of irreparable *838 injury if the injunction is 

not granted. Revlon, 506 A.2d at 179. Harm is irreparable 

unless “alternative legal redress [is] clearly available and 

[is] as practical and efficient to the ends of justice and its 

prompt administration as the remedy in equity.” T. Rowe 

Price Recovery Fund, L.P. v. Rubin, 770 A.2d 536, 557 

(Del.Ch.2000) (internal quotations and citations omitted). 

[21] Absent an injunction, the Del Monte stockholders will 

be deprived forever of the opportunity to receive a prevote 

topping bid in a process free of taint from Barclays' 

improper activities. The threatened foreclosure of this unique 

opportunity constitutes irreparable injury. See Hollinger 

Intern., Inc. v. Black, 844 A.2d 1022, 1090 (Del.Ch.2004) 

(“[T]here is no doubt International faces irreparable injury. 



Without an injunction, it will be practically impossible 

to rescind the Barclays Transaction, the Strategic Process 

will be undermined, and International will lose the unique 

opportunities the Process may develop.”). 

Absent an injunction, Del Monte's stockholders still could 

seek monetary damages. That inquiry, however, would “have 

to involve imprecise estimates,” such as deriving the price 

Del Monte's stockholders might have received in an untainted 

process and comparing that to what they actually received. 

Id. Because of the obvious difficulties presented by this 

inquiry, stockholders “face a threat of irreparable harm when 

a seller's board breaches its Revlon duties by failing to 

adequately shop the company in advance of recommending 

that stockholders tender their shares to a chosen bidder.” In re 

Cogent, Inc. S'holder Litig., 7 A.3d 487, 515 (Del.Ch.2010). 

“No doubt there is the chance to formulate a rational 

remedy down the line, but that chance involves great cost, 

time, and, unavoidably, a large degree of imprecision and 

speculation. After-the-fact inquiries into what might have 

been had directors tested the market adequately ... necessarily 

involve[s] reasoned guesswork.” Netsmart, 924 A.2d at 207. 

Defenses to monetary damages further weigh in favor of prevote 

relief. Exculpation under Section 102(b)(7) can render 

empty the promise of post-closing damages. See 8 Del. C. 

§ 102(b)(7); Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 

244 (Del.2009). For directors who have relied on qualified 

advisors chosen with reasonable care, Section 141(e) provides 

another powerful defense. See 8 Del. C. § 141(e); In re Walt 

Disney Co. Deriv. Litig., 906 A.2d 27, 59–60 (Del.2006). 

In such cases, “the shareholders' only realistic remedy for 

certain breaches of fiduciary duty in connection with a sale 

of control transaction may be injunctive relief.” Police & 

Fire Ret. Sys. of the City of Detroit v. Bernal, 2009 WL 

1873144, at *3 (Del.Ch. June 26, 2009). In this action, unless 

post-closing discovery reveals additional facts, the plaintiffs 

face a long and steep uphill climb before they could recover 

money damages from the independent, outside directors on 

the Board. Admittedly other prospects for recovery are not so 

remote. By their terms, Sections 102(b)(7) and 141(e) do not 

protect aiders and abetters, and disgorgement of transactionrelated 

profits may be available as an alternative remedy. That 

said, the skilled lawyers who represent KKR and Barclays 

doubtless will have many arguments against liability. 

The unique nature of a sale opportunity and the difficulty 

of crafting an accurate post-closing damages award counsel 

heavily in favor of equitable relief. The plaintiffs have shown 

the necessary threat of irreparable harm. 

*839 C. Balancing of Hardships 

[22] The final element of the injunction standard is the 

balancing of hardships: 

[A] court must be cautious that its 

injunctive order does not threaten 

more harm than good. That is, a court 

in exercising its discretion to issue or 

deny such a ... remedy must consider 

all of the foreseeable consequences of 

its order and balance them. It cannot, in 

equity, risk greater harm to defendants, 

the public or other identified interests, 

in granting the injunction, than it seeks 

to prevent. 

Lennane v. ASK Computer Sys., Inc., 1990 WL 154150, at *6 

(Del.Ch. Oct. 11, 1990) (Allen, C.). This element is by far the 

most difficult. 

On the one hand, without an injunction, Del Monte's 

stockholders will lose forever the chance for a competitive 

process that could lead to a higher sale price for their 

company. On the other hand, granting an injunction 

jeopardizes the stockholders' ability to receive a premium for 

their shares. No one disputes, and the evidence establishes, 

that $19 is an attractive price. Any delay subjects the Merger 

to market risk. All else equal, a longer delay means greater 

risk. There is also the difficult question of the parties' contract 

rights, which Delaware courts strive to respect. 

When there is no competing proposal, this Court rarely 

will enjoin a premium transaction pending trial. See, e.g., 

Kohls v. Duthie, 765 A.2d 1274, 1289 (Del.Ch.2000); In re 

Wheelabrator Techs., Inc. S'holders Litig., 1990 WL 131351, 

at *9 (Del.Ch. Sept. 6, 1990). To issue such an injunction 

requires both “a special conviction about the strength of the 

legal claim asserted” and “a strong sense that the risks in 

granting the preliminary relief of a[n] untoward financial 

result from the stockholders' point of view [are] small.” 

Solash v. Telex Corp., 1988 WL 3587, at *13 (Del.Ch. Jan. 

19, 1988) (Allen, C.). 

At the same time, this Court has issued preliminary 

injunctions designed to cure pre-vote harm. Preliminary 

injunctions against merger votes pending the issuance of 



curative disclosures offer the prime example. Injunctions 

of that sort subject transactions to incremental market risk. 

See Simonetti, 2008 WL 5048692, at *14. They likewise 

interfere, albeit to a minor degree, with the parties' standard 

contract right to have the merger vote as soon as reasonably 

practicable. See, e.g., MA § 6.2. Nevertheless, this Court 

has been willing to issue disclosure-based injunctions that 

delay transactions for as much as twenty days. See La. Mun. 

Police Empls.' Ret. Sys. v. Crawford, 918 A.2d 1172, 1192 

(Del.Ch.2007). 

The plaintiffs ask me to enjoin the vote on the Merger for 

a meaningful period during which a competing bidder may 

come forward. The plaintiffs have proposed a delay of 30 to 

45 days, derived from the 45–day length of the earlier go-shop 

period. To further remove the taint of Barclays' involvement, 

they ask that the parties be enjoined from enforcing the deal 

protections in the Merger Agreement during that period. 

At this stage, it is not possible to remedy fully the effects of 

Barclays' maneuvers without blocking the deal and sending 

the parties back to the drawing board. I cannot, for example, 

split up the Vestar/KKR team and induce a topping bid from 

Vestar and a different partner. An injunction along the lines 

requested by the plaintiffs does not perfectly remedy the harm 

Barclays caused, but it does go part of the way. The core 

injury inflicted on the stockholders was Barclays' steering the 

deal to KKR. Barclays won by doubling up on fees. KKR 

won by getting Del Monte, free of meaningful competition, 

and securing *840 a leg-up on potential competing bidders 

through the defensive measures in the Merger Agreement. 

The injunction sought by the plaintiffs partially cures this 

injury by limiting KKR's leg-up and providing a final window 

during which a topping bid could emerge. 

[23] I do not believe that a 30 to 45 day delay is warranted. 

A postponement of this length might be appropriate if Del 

Monte never had been exposed to the market. The reality 

is that although a conflicted banker conducted the go-shop 

process, the Del Monte transaction was shopped actively for 

45 days. Since the go-shop process ended on January 10, 

2011, the Company has been subject to an additional passive 

market check. A further delay of 30 to 45 days ignores the 

fact that many potential bidders have already evaluated this 

opportunity. I will therefore enjoin the merger vote for a 

period of only 20 days, which should provide ample time for 

a serious and motivated bidder to emerge. The resulting delay 

is comparable to the disclosure injunction in Crawford. 

I agree with the plaintiffs that during the pre-vote period, 

the parties to the Merger Agreement should be enjoined 

from enforcing the deal protection measures. These measures 

are not being enjoined because they coerce stockholders, 

preclude any alternative to the board's chosen transaction, or 

otherwise fall outside the range of reasonableness. The goshop 

lasted 45 days, during which the termination fee was $60 

million, or 1.13% of transaction value ($4 billion of equity 

plus $1.3 billion of debt). After the go-shop, the termination 

fee increases to $120 million, or 2.26% of total deal value. 

If included in an arms' length deal untainted by self-interest, 

the defensive measures would be quite reasonable. See Dollar 

Thrifty, 2010 WL 3503471, at *23–32 (discussing alleged 

preclusiveness of termination fee); Toys “R” Us, 877 A.2d at 

1015–22 (providing guidance on parameters for termination 

fees). 5 

Rather, the provisions are being enjoined because they are the 

product of a fiduciary breach that cannot readily be remedied 

post-closing after a full trial. KKR secured the deal protection 

measures as part of a negotiation that was tainted by Barclays' 

conflict. KKR should not benefit from the misconduct in 

which it participated. 

[24] The traditional deference given to agreements freely 

negotiated between sophisticated parties is limited by 

fiduciary principles. “Delaware upholds the freedom of 

contract and enforces as a matter of fundamental public 

policy the voluntary agreements of sophisticated parties.” 

*841 NACCO Indus., Inc. v. Applica Inc., 997 A.2d 

1, 35 (Del.Ch.2009). Sophisticated businesses can “make 

their own judgments about the risk they should bear,” 

and those contractual expectations should be respected. 

Abry P'rs V, L.P. v. F&W Acq. LLC, 891 A.2d 1032, 

1061 (Del.Ch.2006). In the deal context, “[p]arties bargain 

for provisions in acquisition agreements because those 

provisions mean something.” NACCO, 997 A.2d at 19. It is 

“critical to our law that those bargained-for rights be enforced, 

both through equitable remedies such as injunctive relief and 

specific performance, and, in the appropriate case, through 

monetary remedies including awards of damages.” Id. 

[25] When a party aids and abets a breach of fiduciary duty, 

however, the contract rights that the aider and abetter secures 

as a result of the interaction must give way to the superior 

equitable rights and interests of the beneficiaries. See QVC, 

637 A.2d at 50–51; ACE Ltd. v. Capital Re Corp., 747 A.2d 95 

(Del.Ch.1999); see also Restatement (Second) of Contracts § 

193 (1981) (“A promise by a fiduciary to violate his fiduciary 



duty or a promise that tends to induce such a violation is 

unenforceable on grounds of public policy.”). In QVC, the 

Delaware Supreme Court rejected the argument that vested 

contract rights took precedence over a fiduciary breach. 637 

A.2d at 51. The Supreme Court held that because the buyer 

knew it was participating in a breach of fiduciary duty when 

it negotiated the underlying deal, the buyer could not “be 

now heard to argue that it obtained vested contract rights by 

negotiating and obtaining contractual provisions from a board 

acting in violation of its fiduciary duties.” Id. The Supreme 

Court therefore preliminarily enjoined the no-shop provision 

and the termination fee and affirmed the Court of Chancery's 

preliminary injunction against enforcement of a stock-option 

lockup. Id. at 36–37, 50–51. 

In ACE, Vice Chancellor Strine discussed the tension between 

contract rights and the fiduciary duties owed to stockholders. 

In considering a buyer's attempt to enforce a no-shop 

clause, Vice Chancellor Strine noted that “there are many 

circumstances in which the high priority our society places 

on the enforcement of contracts between private parties gives 

way to even more important concerns.” 747 A.2d at 104. He 

cited four factors that bear on the analysis: 

(1) whether the acquiror knew, or 

should have known, of the target 

board's breach of fiduciary duty; (2) 

whether the ... transaction remains 

pending or is already consummated 

at the time judicial intervention 

is sought; (3) whether the board's 

violation of fiduciary duty relates to 

policy concerns that are especially 

significant; and (4) whether the 

acquiror's reliance interest under 

the challenged agreement merits 

protection in the event the court were 

to declare the agreement enforceable. 

Id. at 105–06 (citing Paul L. Regan, Great Expectations? 

A Contract Law Analysis for Preclusive Corporate Lockups, 

21 Cardozo L.Rev. 1, 116 (1999)). After balancing 

the factors, Vice Chancellor Strine held that the contract 

provision could not be enforced as the buyer advocated 

because the stockholders' interests would take precedence. Id. 

at 106–10. 

Applying the ACE factors to this case indicates that KKR's 

“bargained-for rights” should give way. First, as discussed 

above in the analysis of the aiding and abetting claim, KKR 

knew of and knowingly participated in the breach of duty. 

KKR knew that making Barclays one of its lead banks on 

the deal would give Barclays a direct conflict of interest at 

a time when KKR and Barclays were still *842 negotiating 

over price. KKR knew that Barclays paired it with Vestar 

in violation of both firms' confidentiality agreements with 

Del Monte. KKR knew that the No Teaming Provision only 

be could waived by Del Monte in writing, that consent had 

not been given, and that the purpose of the provision was 

to prevent anticompetitive bidding alliances. KKR knew that 

Barclays subsequently concealed Vestar's involvement from 

Del Monte and agreed with Moses to keep Vestar out of 

meetings with Del Monte where Vestar's involvement would 

be discovered. KKR knew that the Vestar pairing served 

KKR's best interests. During the early 2010 process, Brown of 

KKR worried about Vestar partnering with another firm and 

wrote that KKR needed to be careful about this possibility. 

Second, the Merger is still pending. The stockholder vote 

is currently scheduled for February 15, 2011, and the dropdead 

date is May 22, 2011. As in ACE, “[t]he merger has 

not closed, the eggs have not been ‘scrambled,’ and the 

court would not be in the position of unscrambling them. Put 

another way, the transaction has not gotten to the point where 

[KKR's] investment and settled expectations in the deal are 

so substantial that it is unfair for [its] contract rights to give 

way to the interests of [Del Monte's] shareholders.” 747 A.2d 

at 109. 

Third, “the board's violation of fiduciary duty relates to 

policy concerns that are especially significant.” Id. at 106. 

“[F]iduciary responsibilities are of special importance in 

situations where a board is entering into a transaction as 

significant as a merger affecting stockholder ownership 

rights.” Id. at 109. Delaware has a strong interest in 

policing the behavior of fiduciaries who agree to final-stage 

transactions. See McMullin v. Beran, 765 A.2d 910, 918 

(Del.2000). This is particularly so when the illicit behavior 

is secretive and subversive, yet appears to elicit yawns from 

Wall Street players who regard it as par for the course. 

After Vice Chancellor Strine's comments about buy-side 

participation in Toys “R” Us, investment banks were on 

notice. Delaware's strong interest in policing the behavior of 

fiduciaries and their advisors is the “(sometimes unspoken) 

reason [that] our law has subordinated the contract rights 

of third party suitors to stockholders' interests in not being 

improperly subjected to a fundamental corporate transaction 

as a result of a fiduciary breach by their board.” ACE, 747 

A.2d at 109. 



The fourth factor is “whether the acquiror's reliance interest 

under the challenged agreement merits protection in the event 

the court were to declare the agreement unenforceable.” Id. 

at 106. It is intended to account for the reliance interests of a 

“wholly innocent” acquiror who “was without knowledge or 

constructive notice” of the breach. Regan, supra, at 107–08. 

KKR is not such a party. 

Lastly, in balancing the equities, I have considered whether 

a preliminary injunction of this nature would give KKR 

the right to terminate the Merger Agreement. If the Merger 

Agreement is not consummated by May 22, 2011, then both 

parties can walk. MA § 8.2(a). Prior to the drop-dead date, 

each party is obligated to use its reasonable best efforts to 

consummate the Merger. Id. § 6.8(a). The injunction will lift 

in twenty days, over two months before the drop-dead date. 

The preliminary injunction will not cause the deal to fail 

because a closing condition cannot be met by the dropdead 

date. Section 7.1(c) provides as a condition to closing 

that “[n]o court or other Government Entity of competent 

jurisdiction shall have enacted, issued, promulgated, enforced 

or entered any law (whether temporary, *843 preliminary or 

permanent) that is in effect and restrains, enjoins or otherwise 

prohibits consummation of the Merger.” Id. § 7.1(c). Twenty 

days from now, the preliminary injunction will lift and there 

will be no injunction then “in effect” that would restrain, 

enjoin, or otherwise prohibit consummation of the Merger. 

The preliminary injunction will not, itself, give either party 

the right to terminate. Section 8.2 provides that either 

party may terminate the Merger Agreement if “any Order 

permanently restraining, enjoining or otherwise prohibiting 

consummation of the Merger shall become final and 

non-appealable.” Id. § 8.2 (emphasis added). I have not 

permanently enjoined the Merger. 

The defendants have suggested that a preliminary injunction 

limiting the deal protection provisions might invalidate the 

entire agreement because of the following non-severability 

language in Section 9.4: “[T]he parties intend that the 

remedies and limitations thereon contained in Section 8.5(d) 

be construed as an integral provision of this Agreement and 

that such remedies and limitations shall not be severable in 

any manner that increases a party's liability or obligations 

hereunder or under the Financing Commitments or the 

Guarantees.” The short answer is that I am not enjoining 

Section 8.5(d), which is a sole and exclusive remedy 

provision, but rather Section 8.5(b). A longer answer would 

need to address the question of whether a proven aider and 

abetter (and we are currently at a preliminary stage) could rely 

on such a provision. 

If KKR attempts to terminate the Merger Agreement, then Del 

Monte has remedies. Under certain circumstances, KKR will 

owe Del Monte a reverse termination fee of $249 million. See 

id. § 8.4(c). Del Monte can also seek specific performance of 

KKR's obligations. See id. § 9.10. 

D. The Injunction Bond 

[26] [27] Under Court of Chancery Rule 65(c), “[n]o 

restraining order or preliminary injunction shall issue except 

upon the giving of security by the applicant, in such sum as 

the Court deems proper, for the payment of such costs and 

damages as may be incurred or suffered by any party who is 

found to have been wrongfully enjoined or restrained.” As the 

Delaware Supreme Court recently explained, “[a] party that is 

wrongfully enjoined may recover damages resulting from the 

injunction, but that recovery is limited to the amount of the 

bond.” Guzzetta v. Serv. Corp. of Westover Hills, 7 A.3d 467, 

469 (Del.Supr.2010). Because I am enjoining the defendants, 

Rule 65(c) requires that I focus on the costs and damages that 

may be incurred or suffered by them. 

The parties have not presented evidence on this issue. 

Pointing to the magnitude of the deal premium over the preannouncement 

market price, the defendants seek a bond in 

the amount of $1,076,612,698.80. There is some irony in the 

magnitude of the request, because the parties agreed in the 

Merger Agreement that “[a]ny party seeking an injunction 

or injunctions to prevent breaches of this Agreement and 

to enforce specifically the terms and provisions of this 

Agreement shall not be required to provide any bond or other 

security in connection with any such order or injunction.” 

MA § 9.10. Admittedly that provision addressed a different 

species of claim, but it suggests how seriously the parties took 

the need for a billion-dollar bond. 

The premium over market price might well be one measure of 

damages to the stockholder class if the deal were lost, but that 

is a different question than the harm an improvidently granted 

injunction could inflict on the defendants. KKR necessarily 

*844 believes that Del Monte is or could be made to be 

worth more than $19 per share, otherwise KKR would not 

have entered into the transaction. If the deal were lost, KKR 

would be deprived of that additional value. Although I have 

evidence of the healthy internal rates of return that KKR 



thinks it can achieve, KKR has not quantified its anticipated 

profits for purposes of a bond. The individual defendants 

stand to receive some transaction-related benefits, but they 

have not argued for a bond based on those amounts. 

Importantly, and consistent with Solash and its progeny, I 

am not enjoining the transaction from closing pending the 

outcome of a trial. Rather, I am imposing a delay akin 

to a disclosure-based injunction. When those injunctions 

issue, this Court has required at most a nominal bond. See 

Simonetti, 2008 WL 5048692, at *14 n. 68(noting that a large 

bond for a disclosure injunction would be “unprecedented”). 

Even when transactions have been enjoined on substantive 

grounds, bonds traditionally have been small. See, e.g., Levco 

Alternative Fund, Ltd. v. Reader's Digest Ass'n, 2002 WL 

31835461, at *1 (Del.Ch. Aug. 14, 2002) (conditioning 

injunction against recapitalization on bond of $5,000); 

Solar Cells, Inc. v. True N. P'rs, LLC, 2002 WL 749163, 

at *8 (Del.Ch. Apr. 25, 2002) (conditioning injunction 

against merger on bond of $2,500). In one case, this Court 

conditioned a deal-blocking injunction on a $500,000 bond. 

See Emerald P'rs v. Berlin, 726 A.2d 1215, 1218 & n. 

1 (Del.1999) (describing bond). The outlier is Gimbel v. 

Signal Co., 316 A.2d 599 (Del.Ch.1974), aff'd, 316 A.2d 619 

(Del.1974). The Gimbel Court required a $25 million bond 

as a condition to a preliminary injunction blocking a $480 

million transaction where the transactional premium was $75 

million. Id. at 618. 

Although I have not enjoined the deal, I have enjoined the 

$120 million termination fee that KKR otherwise would 

receive in the event of a topping bid. That figure strikes me 

as the best starting point for pricing the risk of a wrongful 

injunction. The likelihood of a topping bid, however, is low. 6 

With KKR as the buyer and a market check (albeit a tainted 

one) already completed, a topping bid seems all the less likely. 

I will not be surprised if no one emerges. The amount of 

the bond should take into account the low probability of 

actual harm. There is likewise the need to balance the risk of 

chilling the socially-beneficial and wealth-enhancing efforts 

of responsible plaintiffs' counsel to remedy and deter breaches 

of fiduciary duty against the problem of over-incentivizing 

deal litigation by giving entrepreneurial law firms a free 

option to enjoin transactions. Lacking guidance from the 

parties as to an alternative figure that reflects the threatened 

harm to the defendants, and having attempted to balance the 

competing policy considerations in a rough and imperfect 

way, I set bond at $1.2 million, representing 1% of the 

enjoined termination fee. 

III. CONCLUSION 

The defendants are enjoined from proceeding with the 

stockholder vote on the Merger for a period of twenty days. 

To the extent the defendants wish to convene the meeting of 

stockholders on February 15, 2011, and adjourn it to a later 

date *845 without holding the vote, they may freely do so. 

Pending the vote on the Merger, the defendants are enjoined 

from enforcing Section 6.5(b), (c) and (h), and Section 8.5(b) 

of the Merger Agreement. The injunction is conditioned on 

plaintiffs posting bond in the amount of $1.2 million. IT IS 

SO ORDERED. 

Footnotes 

1 In re W. Nat. Corp. S'holders Litig., 2000 WL 710192, at *19 (Del.Ch. May 22, 2000) (describing witness affidavits and explaining 

that the Court of Chancery will “ordinarily attach little if any weight to such inherently self-serving and non-adversarial proffers”); see 

Cont'l Ins. Co. v. Rutledge & Co., 750 A.2d 1219, 1232 (Del.Ch.2000) (“To the extent the affidavits contradict the depositions, this 

Court will exclude the offending affidavit testimony.”); see also Chesapeake Corp. v. Shore, 771 A.2d 293, 302 & n. 7 (Del.Ch.2000) 

(expressing disappointment with the proffering of less-knowledgeable board members rather than the chairman or top managers and 

stating “ ‘[t]he production of weak evidence when strong is, or should have been, available can lead only to the conclusion that the 

strong would have been adverse.’ ” (quoting Kahn v. Lynch Comm. Sys., Inc., 638 A.2d 1110, 1119 n. 7 (Del.1994))). 

2 See, e.g., Hubbard v. Hollywood Park Realty Enters., Inc., 1991 WL 3151, at *10 (Del.Ch. Jan. 14, 1991) (“[O]ccasions do arise 

where board inaction, even where not inequitable in purpose or design, may nonetheless operate inequitably.”); id. at *7 n. 9 (“To 

be ‘inequitable’, such conduct does not necessarily require a dishonest, selfish, or evil motive.”); Stahl v. Apple Bancorp, Inc., 579 

A.2d 1115, 1121 (Del.Ch.1990) (Allen, C.) (“Fiduciaries who are subjectively operating selflessly might be pursuing a purpose that a 

court will rule is inequitable.”); Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 663 (Del.Ch.1988) (Allen, C.) (holding that, where 

board acted with purpose of interfering with shareholder vote, “even finding the action taken was taken in good faith, it constituted 

an unintended violation of the duty of loyalty that the board owed to the shareholders” and noting “parenthetically that the concept of 



an unintended breach of the duty of loyalty is unusual but not novel”). Each of these cases involved the question of injunctive relief; 

none addressed the separate issue of whether defendant directors could be held liable for monetary damages. 

3 See In re John Q. Hammons Hotels Inc. S'holder Litig., 2009 WL 3165613, at *16 (Del.Ch. Oct. 2, 2009) (emphasizing importance of 

disclosure of potential banker conflict of interest and explaining that “[t]here is no rule ... that conflicts of interest must be disclosed 

only where there is evidence that the financial advisor's opinion was actually affected by the conflict”); David P. Simonetti Rollover 

IRA v. Margolis, 2008 WL 5048692, at *8 (Del.Ch. June 27, 2008) (“[I]t is imperative for the stockholders to be able to understand 

what factors might influence the financial advisor's analytical efforts.... For that reason, the ... benefits of the Merger to [the investment 

bankers,] beyond its expected fee, must also be disclosed to ... stockholders.”); see also In re Lear Corp. S'holder Litig., 926 A.2d 

94, 114 (Del.Ch.2007) (requiring disclosure of CEO conflict of interest where CEO acted as negotiator; “Put simply, a reasonable 

stockholder would want to know an important economic motivation of the negotiator singularly employed by a board to obtain the 

best price for the stockholders, when that motivation could rationally lead that negotiator to favor a deal at a less than optimal price, 

because the procession of a deal was more important to him, given his overall economic interest, than only doing a deal at the right 

price.”). 

4 See Ortsman v. Green, 2007 WL 702475, at *1 (Del.Ch. Feb. 28, 2007) (ordering expedited discovery where target's financial advisor 

participated in the buy-side financing even though company retained a separate financial advisor to render a fairness opinion); Khanna 

v. McMinn, 2006 WL 1388744, at *25 (Del.Ch. May 9, 2006) (finding plaintiffs had raised facts sufficient to “create a reasonable 

doubt that the transaction was the product of a valid exercise of business judgment” where investment bank provided a bridge loan to 

the target and thus had an interest in ensuring the closing of the transaction); In re Prime Hospitality, Inc. S'holders Litig., 2005 WL 

1138738, at *12 (Del.Ch. May 4, 2005) (rejecting settlement of Revlon claim and questioning “how can the Court attribute weight 

to the notion that Bear Stearns [the allegedly conflicted banker] was retained by Prime to shop the company?”). 

5 That said, KKR's last two bid increases were 25 cents each. The Board has trumpeted its insistence on those increases as evidence 

of its (and implicitly Barclays') good faith. The go-shop period termination fee would require a competing bidder to top by more 

than a 25 cent increment. The post go-shop fee would require a bidder to top by over 50 cents. A strategic bidder that could generate 

incremental value from synergies might not be deterred. A private equity firm that uses the same models and strategies as KKR might 

view the fee differently. This in turn suggests (i) the importance of the pre-signing phase to developing price competition among 

private equity bidders, and (ii) the value of actual or de facto exclusivity to a private equity buyer. See Guhan Subramanian, Go– 

Shops vs. No–Shops in Private Equity Deals: Evidence and Implications, 63 Bus. Law. 729, 759 (2008) (arguing that exclusivity is 

a valuable benefit “and therefore should be paid for”). When an independent and active board has been assisted by non-conflicted 

advisors, a Delaware court rarely will have cause to second guess this type of tactical decision. See Toys “R” Us, 877 A.2d at 1000. 

6 See Subramanian, Go–Shops vs. No–Shops, supra, 63 Bus. Law. at 747 (finding deal-jump rate in private equity deals of 8% where 

deal lacks a go-shop, 5% where deal involved private pre-signing market canvass plus go-shop, and 17% where single-bidder deal 

was followed by go-shop); John C. Coates IV & Guhan Subramanian, A Buy–Side Model of M & A Lockups: Theory and Evidence, 

53 Stan. L.Rev. 307, 371 (2000) (finding deal-jump rate of 3–7%). 




Southern Peru Copper Corporation 

Shareholder Derivative Litigation

In re Southern Peru Copper Corp. Shareholder Derivative Litigation, 52 A.3d 761 (2011) 

52 A.3d 761 


In re SOUTHERN PERU COPPER CORPORATION 

SHAREHOLDER DERIVATIVE LITIGATION. 

C.A. No. 961–CS. | Submitted: July 15, 2011. | 

Decided: Oct. 14, 2011. | Revised: Dec. 20, 2011. 

Synopsis 

Background: Plaintiff representing minority shareholder 

of corporation brought derivative suit against controlling 

shareholder, affiliated directors, and others, alleging that 

merger with mining company that was owned by subsidiary 

of controlling shareholder was entirely unfair to corporation 

and its minority shareholders. 

Holdings: The Court of Chancery, Strine, Chancellor, held 

that: 

[1] plaintiff was adequate representative of minority 

shareholders; 

[2] burden of persuasion under entire fairness review was on 

defendants; 

Presumptions and burden of proof 

In challenging the adequacy of a derivative 

plaintiff, the defendant bears the burden to show 

a substantial likelihood that the derivative action 

is not being maintained for the benefit of the 

shareholders. 


Ability to represent other shareholders 

That derivative plaintiff became a plaintiff only 

because he inherited the claims as successor 

trustee upon the death of his father, was absent 

from trial, lacked a fully developed knowledge 

about all of the litigation details, and engaged in 

a pattern of delay did not establish that there was 

a substantial likelihood that the derivative action 

was not being maintained for the benefit of the 

shareholders, as required to show that plaintiff 

was not adequate representative in suit arising 

from corporation's purchase of mining company 

owned by controlling shareholder's subsidiary, 

absent evidence of an economic conflict between 

the plaintiff and other shareholders such that he 

would act in furtherance of his own self-interest 

at their expense. 

[3] merger was unfair to corporation; and 

[4] damage award of $1.263 billion was warranted. 

Ordered accordingly. 



Ability to represent other shareholders 

A derivative plaintiff must be qualified to serve 

in a fiduciary capacity as a representative of 

the class of stockholders, whose interest is 

dependent upon the representative's adequate 

and fair prosecution of the action. 



Dealings with corporation 

Under the entire fairness standard of review, 

when a controlling stockholder stands on both 

sides of a corporate transaction, the interested 

defendants are required to demonstrate their 

utmost good faith and the most scrupulous 

inherent fairness of the bargain; that is, the 

defendants with a conflicting self-interest must 

demonstrate that the deal was entirely fair to the 

other stockholders. 


Fairness of transaction 

In considering a corporate merger under the 

entire fairness standard of review, there are 

two basic aspects of fairness: process (fair 

dealing), which embraces questions of when 

the transaction was timed, how it was initiated, 



structured, negotiated, disclosed to the directors, 

and how the approvals of the directors and 

the stockholders were obtained, and price (fair 

price), which relates to the economic and 

financial considerations of the proposed merger, 

including the relevant factors of assets, market 

value, earnings, future prospects, and any other 

elements that affect the intrinsic or inherent value 

of a company's stock. 


Dealings with corporation 

When the entire fairness standard applies to 

review of a corporate transaction, controlling 

stockholders can never escape entire fairness 

review, but they may shift the burden of 

persuasion by one of two means: they may show 

that the transaction was approved either by an 

independent board majority (or in the alternative, 

a special committee of independent directors) or, 

assuming certain conditions, by an informed vote 

of the majority of the minority shareholders. 


Entire fairness of transaction in general 


Evidence 

Under the entire fairness review of a decision 

of a board of directors, in order for the 

defendant to obtain a shift in the burden 

of proof to the plaintiff based on the use 

of an independent special committee under 

circumstances in which the board is controlled 

by a controlling shareholder with an interest 

in the transaction, the special committee must 

function in a manner which indicates that 

the controlling shareholder did not dictate the 

terms of the transaction and that the committee 

exercised real bargaining power at an armslength; 

the inquiry must focus on how the special 

committee actually negotiated the deal—was 

it well functioning—rather than just how the 

committee was set up. 



Burden of persuasion under entire fairness 

review, of decision by corporation's board 

to merge with a mining company owned 

by a controlling shareholder's subsidiary, 

remained on controlling shareholder and 

affiliated directors, and did not shift to plaintiff 

representing minority shareholders, in derivative 

action challenging merger, although merger 

vote was approved by a vote of shareholders, 

where at time of vote it was known that 

majority shareholder held sufficient votes to 

approve merger, so the vote had little meaning, 

and the proxy statement issued prior to the 

vote omitted material information about the 

negotiation process. 



Decision by corporation's board to merge with 

a mining company owned by a controlling 

shareholder was unfair, to extent value given 

by corporation was significantly more than 

mining company was worth; although special 

committee was formed to evaluate merger, 

committee's focus was on finding a way 

to justify terms proposed by controlling 

shareholder, committee reworked their approach 

to meet those terms and rationalize paying 

the asking price, corporation was effectively 

undervalued, controlling shareholder made only 

weak concessions that did not close fairness gap, 

and special committee did not update its analysis 

based on changed conditions. 

[10] Fraud 

Measure in General 

Fraud 

Elements of compensation 

Unlike the more exact process followed in 

an appraisal action, damages resulting from a 

breach of fiduciary duty are liberally calculated; 

as long as there is a basis for an estimate of 

damages, and the plaintiff has suffered harm, 

mathematical certainty is not required. 



[11] Interest 

Prejudgment Interest in General 

Interest 

Interest from date of judgment or decree 

In awarding damages resulting from a breach of 

fiduciary duty, in addition to an actual award 

of monetary relief, the court has the authority 

to grant prejudgment and post-judgment interest, 

and to determine the form of that interest. 


Damages or amount of recovery 

Damages award of $1.263 billion, representing 

difference between what corporation paid for 

controlling shareholder's mining company and 

mining company's actual value at time of merger, 

was warranted in derivative action against 

controlling shareholder and affiliated directors, 

for breach of fiduciary duty of loyalty in agreeing 

to merger with mining company. 


*763 Ronald A. Brown, Jr., Esquire, Marcus E. Montejo, 

Esquire, Prickett, Jones & Elliott, P.A., Wilmington, 

Delaware; Lee D. Rudy, Esquire, Eric L. Zagar, Esquire, 

James H. Miller, Esquire, Kessler Topaz Meltzer & Check, 

LLP, Radnor, Pennsylvania, Attorneys for Plaintiff. 

S. Mark Hurd, Esquire, Kevin M. Coen, Esquire, Morris, 

Nichols, Arsht & Tunnell LLP, Wilmington, Delaware; Alan 

J. Stone, Esquire, Douglas W. Henkin, Esquire, Mia C. Korot, 

Esquire, Milbank, Tweed, Hadley & McCloy LLP, New 

York, New York, Attorneys for Defendants. 

Opinion 

STRINE, Chancellor. 

OPINION 

I. Introduction 

This is the post-trial decision in an entire fairness case. The 

controlling stockholder of an NYSE-listed mining company 

came to the corporation's independent directors with a 

proposition. How about you buy my non-publicly traded 

Mexican mining company for approximately $3.1 billion of 

your NYSE-listed stock? A special committee was set up to 

“evaluate” this proposal and it retained well-respected legal 

and financial advisors. 

The financial advisor did a great deal of preliminary due 

diligence, and generated valuations showing that the Mexican 

mining company, when valued under a discounted cash flow 

and other measures, was not worth anything close to $3.1 

billion. The $3.1 billion was a real number in the crucial 

business sense that everyone believed that the NYSE-listed 

company could in fact get cash equivalent to its stock market 

price for its shares. That is, the cash value of the “give” was 

known. And the financial advisor told the special committee 

that the value of the “get” was more than $1 billion less. 

Rather than tell the controller to go mine himself, the 

special committee and its advisors instead did something 

that is indicative of the mindset that too often afflicts even 

good faith fiduciaries trying to address a controller. Having 

been empowered only to evaluate what the controller put 

on the table and perceiving that other options were off 

the menu because of the controller's own objectives, the 

special committee put itself in a world where there was 

only one strategic option to consider, the one proposed by 

the controller, and thus entered a dynamic where at best it 

had two options, either figure out a way to do the deal the 

controller wanted or say no. Abandoning a focus on whether 

the NYSE-listed mining company would get $3.1 billion in 

value in the exchange, the special committee embarked on 

a “relative valuation” approach. Apparently perceiving that 

its own company was overvalued and had a fundamental 

value less than its stock market trading price, the special 

committee assured itself that a deal could be fair so long 

as the “relative value” of the two companies was measured 

on the same metrics. Thus, its financial advisor *764 

generated complicated scenarios pegging the relative value 

of the companies and obscuring the fundamental fact that 

the NYSE-listed company had a proven cash value. These 

scenarios all suggest that the special committee believed that 

the standalone value of the Mexican company (the “get”) 

was worth far less than the controller's consistent demand 

for $3.1 billion (the “give”). Rather than reacting to these 

realities by suggesting that the controller make an offer 

for the NYSE-listed company at a premium to what the 



special committee apparently viewed as a plush market price, 

or making the controller do a deal based on the Mexican 

company's standalone value, the special committee and its 

financial advisor instead took strenuous efforts to justify a 

transaction at the level originally demanded by the controller. 

Even on that artificial basis, the special committee had trouble 

justifying a deal and thus other measures were taken. The 

cash flows of the Mexican company, but not the NYSElisted 

company, were “optimized.” The facts that the Mexican 

company was having trouble paying its bills, that it could 

not optimize its cash flows with its current capital base, and 

that, by comparison, the NYSE-listed company was thriving 

and nearly debt-free, were slighted. The higher multiple of 

the NYSE-listed company was used as the bottom range of 

an exercise to value the Mexican company, thus topping up 

the target's value by crediting it with the multiple that the 

acquiror had earned for itself, an act of deal beneficence 

not characteristic of Jack Welch, and then another dollop of 

multiple crème fraiche was added to create an even higher top 

range. When even these measures could not close the divide, 

the special committee agreed to pay out a special dividend to 

close the value gap. 

But what remained in real economic terms was a transaction 

where, after a bunch of back and forth, the controller got what 

it originally demanded: $3.1 billion in real value in exchange 

for something worth much, much less—hundreds of millions 

of dollars less. Even worse, the special committee, despite 

perceiving that the NYSE-listed company's stock price would 

go up and knowing that the Mexican company was not 

publicly traded, agreed to a fixed exchange ratio. After falling 

when the deal was announced and when the preliminary 

proxy was announced, the NYSE-listed company's stock 

price rose on its good performance in a rising market 

for commodities. Thus, the final value of its stock to be 

delivered to the controller at the time of the actual vote 

on the transaction was $3.75 billion, much higher than the 

controller's original demand. Despite having the ability to 

rescind its recommendation and despite the NYSE-listed 

company having already exceeded the projections the special 

committee used for the most recent year by 37% and the 

Mexican company not having done so, the special committee 

maintained its recommendation and thus the deal was voted 

through. 

Although the plaintiff in this case engaged in a pattern of 

litigation delay that compromised the reliability of the record 

to some extent and thus I apply a conservative approach to 

shaping a remedy, I am left with the firm conclusion that this 

transaction was unfair however one allocates the burden of 

persuasion under a preponderance of the evidence standard. 

A focused, aggressive controller extracted a deal that was 

far better than market, and got real, market-tested value of 

over $3 billion for something that no member of the special 

committee, none of its advisors, and no trial expert was 

willing to say was worth that amount of actual cash. Although 

directors are free in some situations to act on the belief that 

the market is wrong, they are not free to believe that they can 

in fact get $3.1 billion in cash for their own stock but then 

use that stock to *765 acquire something that they know is 

worth far less than $3.1 billion in cash or in “fundamental” 

or “intrinsic” value terms because they believe the market is 

overvaluing their own stock and that on real “fundamental” 

or “intrinsic” terms the deal is therefore fair. In plain terms, 

the special committee turned the “gold” it was holding in 

trust into “silver” and did an exchange with “silver” on that 

basis, ignoring that in the real world the gold they held had a 

much higher market price in cash than silver. That non-adroit 

act of commercial charity toward the controller resulted in a 

manifestly unfair transaction. 

I remedy that unfairness by ordering the controller to return 

to the NYSE-listed company a number of shares necessary 

to remedy the harm. I apply a conservative metric because 

of the plaintiff's delay, which occasioned some evidentiary 

uncertainties and which subjected the controller to lengthy 

market risk. The resulting award is still large, but the record 

could justify a much larger award. 

II. Factual Background 

An overview of the facts is perhaps useful. 

The controlling stockholder in this case is Grupo México, 

S.A.B. de C.V. The NYSE-listed mining company is 

Southern Peru Copper Corporation. 1 The Mexican mining 

company is Minera México, S.A. de C.V. 2 

In February 2004, Grupo Mexico proposed that Southern Peru 

buy its 99.15% stake in Minera. At the time, Grupo Mexico 

owned 54.17% of Southern Peru's outstanding capital stock 

and could exercise 63.08% of the voting power of Southern 

Peru, making it Southern Peru's majority stockholder. 

Grupo Mexico initially proposed that Southern Peru purchase 

its equity interest in Minera with 72.3 million shares of 



newly-issued Southern Peru stock. This “indicative” number 

assumed that Minera's equity was worth $3.05 billion, 

because that is what 72.3 million shares of Southern Peru 

stock were worth then in cash. 3 By stark contrast with 

Southern Peru, Minera was almost wholly owned by Grupo 

Mexico and therefore had no market-tested value. 

Because of Grupo Mexico's self-interest in the merger 

proposal, Southern Peru formed a “Special Committee” of 

disinterested directors to “evaluate” the transaction with 

Grupo Mexico. 4 The Special Committee spent eight months 

in an awkward back and forth with Grupo Mexico over the 

terms of the deal before approving Southern Peru's acquisition 

of 99.15% of Minera's stock in exchange for 67.2 million 

newly-issued shares of Southern Peru stock (the “Merger”) 

on October 21, 2004. That same day, Southern Peru's board 

of directors (the “Board”) unanimously approved the Merger 

and Southern Peru and Grupo Mexico entered into a definitive 

agreement (the “Merger Agreement”). On October 21, 2004, 

the market *766 value of 67.2 million shares of Southern 

Peru stock was $3.1 billion. When the Merger closed on April 

1, 2005, the value of 67.2 million shares of Southern Peru had 

grown to $3.75 billion. 

price as a measure of the true value of the give, Southern Peru 

substantially overpaid in the Merger. 

The defendants remaining in the case are Grupo Mexico 

and its affiliate directors who were on the Southern Peru 

Board at the time of the Merger. 6 These defendants assert 

that Southern Peru and Minera are similar companies and 

were properly valued on a relative basis. In other words, 

the defendants argue that the appropriate way to determine 

the price to be paid by Southern Peru in the Merger was 

to compare both companies' values using the same set 

of assumptions and methodologies, rather than comparing 

Southern Peru's market capitalization to Minera's DCF value. 

The defendants do not dispute that shares of Southern Peru 

stock could have been sold for their market price at the time 

of the Merger, but they contend that Southern Peru's market 

price did not reflect the fundamental value of Southern Peru 

and thus could not appropriately be compared to the DCF 

value of Minera. 

With this brief overview of the basic events and the parties' 

core arguments in mind, I turn now to a more detailed 

recitation of the facts as I find them after trial. 7 

This derivative suit was then brought against the Grupo 

Mexico subsidiary that owned Minera, the Grupo Mexicoaffiliated 

directors of Southern Peru, and the members of 

the Special Committee, alleging that the Merger was entirely 

unfair to Southern Peru and its minority stockholders. The 

parties agree that the appropriate standard of review is entire 

fairness. 

[1] [2] [3] The crux of the plaintiff's argument is that 

Grupo Mexico received something demonstrably worth more 

than $3 billion (67.2 million shares of Southern Peru stock) 

in exchange for something that was not worth nearly that 

much (99.15% of Minera). 5 The plaintiff points to the fact 

that Goldman Sachs, which served as the Special Committee's 

financial advisor, never derived a value for Minera that 

justified paying Grupo Mexico's asking price, instead relying 

on a “relative” valuation analysis that involved comparing 

the discounted cash flow (“DCF”) values of Southern Peru 

and Minera, and a contribution analysis that improperly 

applied Southern Peru's own market EBITDA multiple (and 

even higher multiples) to Minera's EBITDA projections, to 

determine *767 an appropriate exchange ratio to use in 

the Merger. The plaintiff claims that, because the Special 

Committee and Goldman abandoned the company's market 

*768 A. The Key Players 

Southern Peru operates mining, smelting, and refining 

facilities in Peru, producing copper and molybdenum as 

well as silver and small amounts of other metals. Before 

the Merger, Southern Peru had two classes of stock: 

common shares that were traded on the New York Stock 

Exchange; and “Founders Shares” that were owned by Grupo 

Mexico, Cerro Trading Company, Inc., and Phelps Dodge 

Corporation (the “Founding Stockholders”). Each Founders 

Share had five votes per share versus one vote per share 

for ordinary common stock. Grupo Mexico owned 43.3 

million Founders Shares, which translated to 54.17% of 

Southern Peru's outstanding stock and 63.08% of the voting 

power. Southern Peru's certificate of incorporation and a 

stockholders' agreement also gave Grupo Mexico the right to 

nominate a majority of the Southern Peru Board. The Grupo 

Mexico-affiliated directors who are defendants in this case 

held seven of the thirteen Board seats at the time of the 

Merger. Cerro owned 11.4 million Founders Shares (14.2% 

of the outstanding common stock) and Phelps Dodge owned 

11.2 million Founders Shares (13.95% of the outstanding 

common stock). Among them, therefore, Grupo Mexico, 

Cerro, and Phelps Dodge owned over 82% of Southern Peru. 



Grupo Mexico is a Mexican holding company listed on the 

Mexican stock exchange. Grupo Mexico is controlled by 

the Larrea family, and at the time of the Merger defendant 

Germán Larrea was the Chairman and CEO of Grupo Mexico, 

as well as the Chairman and CEO of Southern Peru. Before 

the Merger, Grupo Mexico owned 99.15% of Minera's 

stock and thus essentially was Minera's sole owner. Minera 

is a company engaged in the mining and processing of 

copper, molybdenum, zinc, silver, gold, and lead through its 

Mexico-based mines. At the time of the Merger, Minera was 

emerging from—if not still mired in—a period of financial 

difficulties, 8 and its ability to exploit its assets had been 

compromised by these financial constraints. 9 By contrast, 

Southern Peru was in good financial condition and virtually 

debt-free. 10 

B. Grupo Mexico Proposes That 

Southern Peru Acquire Minera 

In 2003, Grupo Mexico began considering combining its 

Peruvian mining interests with its Mexican mining interests. 

In *769 September 2003, Grupo Mexico engaged UBS 

Investment Bank to provide advice with respect to a potential 

strategic transaction involving Southern Peru and Minera. 

Grupo Mexico and UBS made a formal presentation to 

Southern Peru's Board on February 3, 2004, proposing that 

Southern Peru acquire Grupo Mexico's interest in Minera 

from AMC in exchange for newly-issued shares of Southern 

Peru stock. In that presentation, Grupo Mexico characterized 

the transaction as “[Southern Peru] to acquire Minera [ ] from 

AMC in a stock for stock deal financed through the issuance 

of common shares; initial proposal to issue 72.3 million 

shares.” 11 A footnote to that presentation explained that the 

72.3 million shares was “an indicative number” of Southern 

Peru shares to be issued, assuming an equity value of Minera 

of $3.05 billion and a Southern Peru share price of $42.20 

as of January 29, 2004. 12 In other words, the consideration 

of 72.3 million shares was indicative in the sense that Grupo 

Mexico wanted $3.05 billion in dollar value of Southern Peru 

stock for its stake in Minera, and the number of shares that 

Southern Peru would have to issue in exchange for Minera 

would be determined based on Southern Peru's market price. 

As a result of the proposed merger, Minera would become 

a virtually wholly-owned subsidiary of Southern Peru. The 

proposal also contemplated the conversion of all Founders 

Shares into a single class of common shares. 

C. Southern Peru Forms A Special Committee 

In response to Grupo Mexico's presentation, the Board met 

on February 12, 2004 and created a Special Committee to 

evaluate the proposal. The resolution creating the Special 

Committee provided that the “duty and sole purpose” of the 

Special Committee was “to evaluate the [Merger] in such 

manner as the Special Committee deems to be desirable 

and in the best interests of the stockholders of [Southern 

Peru],” and authorized the Special Committee to retain legal 

and financial advisors at Southern Peru's expense on such 

terms as the Special Committee deemed appropriate. 13 The 

resolution did not give the Special Committee express power 

to negotiate, nor did it authorize the Special Committee to 

explore other strategic alternatives. 

For the purposes relevant to this decision, the Special 

Committee's makeup as it was finally settled on March 12, 

2004 was as follows: 

• Harold S. Handelsman: Handelsman graduated from 

Columbia Law School and worked at Wachtell, Lipton, 

Rosen & Katz as an M & A lawyer before becoming an 

attorney for the Pritzker family interests in 1978. The 

Pritzker family is a wealthy family based in Chicago 

that owns, through trusts, a myriad of businesses. 

Handelsman was appointed to the Board in 2002 

by Cerro, which was one of those Pritzker-owned 

businesses. 

• Luis Miguel Palomino Bonilla: Palomino has a Ph.D in 

finance from the Wharton School at the University of 

Pennsylvania and worked as an economist, analyst and 

consultant for various banks and financial institutions. 

Palomino was nominated to the Board by Grupo Mexico 

upon the recommendation of certain Peruvian pension 

funds that held a large portion of Southern Peru's 

publicly traded stock. 

*770 • Gilberto Perezalonso Cifuentes: Perezalonso has 

both a law degree and an MBA and has managed multibillion 

dollar companies such as Grupo Televisa and 

AeroMexico Airlines. Perezalonso was nominated to the 

Board by Grupo Mexico. 



• Carlos Ruiz Sacristán: Ruiz, who served as the 

Special Committee's Chairman, worked as a Mexican 

government official for 25 years before co-founding 

an investment bank, where he advises on M & A and 

financing transactions. Ruiz was nominated to the Board 

by Grupo Mexico. 14 

D. The Special Committee Hires Advisors And 

Seeks A Definitive Proposal From Grupo Mexico 

The Special Committee began its work by hiring U.S. counsel 

and a financial advisor. After considering various options, 

the Special Committee chose Latham & Watkins LLP and 

Goldman, Sachs & Co. The Special Committee also hired a 

specialized mining consultant to help Goldman with certain 

technical aspects of mining valuation. Goldman suggested 

consultants that the Special Committee might hire to aid 

in the process; after considering these options, the Special 

Committee retained Anderson & Schwab (“A & S”). 

After hiring its advisors, the Special Committee set out to 

acquire a “proper” term sheet from Grupo Mexico. 15 The 

Special Committee did not view the most recent term sheet 

that Grupo Mexico had sent on March 25, 2004 as containing 

a price term that would allow the Special Committee to 

properly evaluate the proposal. For some reason the Special 

Committee did not get the rather clear message that Grupo 

Mexico thought Minera was worth $3.05 billion. 

Thus, in response to that term sheet, on April 2, 2004, 

Ruiz sent a letter to Grupo Mexico on behalf of the Special 

Committee in which he asked for clarification about, among 

other things, the pricing of the proposed transaction. On May 

7, 2004, Grupo Mexico sent to the Special Committee what 

the Special Committee considered to be the first “proper” 

term sheet, 16 making even more potent its ask. 

E. The May 7 Term Sheet 

Grupo Mexico's May 7 term sheet contained more specific 

details about the proposed consideration to be paid in the 

Merger. It echoed the original proposal, but increased Grupo 

Mexico's ask from $3.05 billion worth of Southern Peru stock 

to $3.147 billion. Specifically, the term sheet provided that: 

The proposed value of Minera [ ] is 

US$4,3 billion, comprised of an equity 

value of US$3,147 million [sic] and 

US$1,153 million [sic] of net debt 

as of April 2004. The number of 

[Southern Peru] shares to be issued in 

respect to the acquisition of Minera 

[ ] would be calculated by dividing 

98.84% of the equity value of Minera 

[ ] by the 20–day average closing 

share price of [Southern *771 Peru] 

beginning 5 days prior to closing of the 

[Merger]. 17 

In other words, Grupo Mexico wanted $3.147 billion in 

market-tested Southern Peru stock in exchange for its stake in 

Minera. The structure of the proposal, like the previous Grupo 

Mexico ask, shows that Grupo Mexico was focused on the 

dollar value of the stock it would receive. 

Throughout May 2004, the Special Committee's advisors 

conducted due diligence to aid their analysis of Grupo 

Mexico's proposal. As part of this process, A & S visited 

Minera's mines and adjusted the financial projections of 

Minera management (i.e., of Grupo Mexico) based on the 

outcome of their due diligence. 

F. Goldman Begins To Analyze Grupo Mexico's Proposal 

On June 11, 2004, Goldman made its first presentation 

to the Special Committee addressing the May 7 term 

sheet. Although Goldman noted that due diligence was still 

ongoing, it had already done a great deal of work and 

was able to provide preliminary valuation analyses of the 

standalone equity value of Minera, including a DCF analysis, 

a contribution analysis, and a look-through analysis. 

Goldman performed a DCF analysis of Minera based on 

long-term copper prices ranging from $0.80 to $1.00 per 

pound and discount rates ranging from 7.5% to 9.5%, utilizing 

both unadjusted Minera management projections and Minera 

management projections as adjusted by A & S. The only 

way that Goldman could derive a value for Minera close 

to Grupo Mexico's asking price was by applying its most 

aggressive assumptions (a modest 7.5% discount rate and its 

high-end $1.00/lb long-term copper price) to the unadjusted 

Minera management projections, which yielded an equity 



value for Minera of $3.05 billion. By applying the same 

aggressive assumptions to the projections as adjusted by A & 

S, Goldman's DCF analysis yielded a lower equity value for 

Minera of $2.41 billion. Goldman's mid-range assumptions 

(an 8.5% discount rate and $0.90/lb long-term copper price) 

only generated a $1.7 billion equity value for Minera when 

applied to the A & S-adjusted projections. That is, the midrange 

of the Goldman analysis generated a value for Minera 

(the “get”) a full $1.4 billion less than Grupo Mexico's ask 

for the give. 

The June 11 presentation clearly demonstrates that Goldman, 

in its evaluation of the May 7 term sheet, could not get the 

get anywhere near the give. Notably, that presentation marked 

the first and last time that a give-get analysis appeared in 

Goldman's presentations to the Special Committee. 

*773 What then happened next is curious. The Special 

Committee began to devalue the “give” in order to make the 

“get” look closer in value. 

It made sense for Goldman to use the $0.90 per pound long 

term copper price as a mid-range assumption, because this 

price was being used at the time by both Southern Peru and 

Minera for purposes of internal planning. The median longterm 

copper price forecast based on Wall Street research at 

the time of the Merger was also $0.90 per pound. 

Goldman's contribution analysis applied Southern Peru's 

market-based sales, EBITDA, and copper sales multiples to 

Minera. This analysis yielded an equity value for Minera 

ranging only between $1.1 and $1.7 billion. Goldman's lookthrough 

analysis, which was a sum-of-the-parts analysis of 

Grupo Mexico's market capitalization, generated a maximum 

equity value for Minera of $1.3 billion and a minimum equity 

value of only $227 million. 

Goldman summed up the import of these various analyses 

in an “Illustrative Give/Get Analysis,” which made patent 

the stark disparity between Grupo Mexico's asking price and 

Goldman's valuation of Minera: Southern Peru would “give” 

stock *772 with a market price of $3.1 billion to Grupo 

Mexico and would “get” in return an asset worth no more than 

$1.7 billion. 18 

The important assumption reflected in Goldman's June 11 

presentation that a bloc of shares of Southern Peru could yield 

a cash value equal to Southern Peru's actual stock market price 

and was thus worth its market value is worth pausing over. 

At trial, the defendants disclaimed any reliance upon a claim 

that Southern Peru's stock market price was not a reliable 

indication of the cash value that a very large bloc of shares— 

such as the 67.2 million paid to Grupo Mexico—could yield 

in the market. 19 Thus, the price of the “give” was always easy 

to discern. The question thus becomes what was the value 

of the “get.” Unlike Southern Peru, Minera's value was not 

the subject of a regular market test. Minera shares were not 

publicly traded and thus the company was embedded in the 

overall value of Grupo Mexico. 

The DCF analysis of the value of Minera that Goldman 

presented initially caused concern. As Handelsman stated at 

trial, “when [the Special Committee] thought that the value of 

Southern Peru was its market value and the value of Minera 

[ ] was its discounted cash flow value ... those were very 

different numbers.” 20 But, the Special Committee's view 

changed when Goldman presented it with a DCF analysis of 

the value of Southern Peru on June 23, 2004. 

In this June 23 presentation, Goldman provided the Special 

Committee with a preliminary DCF analysis for Southern 

Peru analogous to the one that it had provided for Minera 

in the June 11 presentation. But, the discount rates that 

Goldman applied to Southern Peru's cash flows ranged from 

8% to 10% instead of 7.5% to 9.5%. Based on Southern 

Peru management's projections, the DCF value generated for 

Southern Peru using mid-range assumptions (a 9% discount 

rate and $0.90/lb long-term copper price) was $2.06 billion. 

This was about $1.1 billion shy of Southern Peru's market 

capitalization as of June 21, 2004 ($3.19 billion). Those 

values “comforted” the Special Committee. 21 

Again, one must pause over this. “Comfort” is an odd word in 

this context. What Goldman was basically telling the Special 

Committee was that Southern Peru was being overvalued 

by the stock market. That is, Goldman told the Special 

Committee that even though Southern Peru's stock was 

worth an obtainable amount in cash, it really was not worth 

that much in fundamental terms. Thus, although Southern 

Peru had an actual cash value of $3.19 billion, its “real,” 

“intrinsic,” 22 or “fundamental” value was only $2.06 billion, 

and giving $2.06 billion in fundamental value for $1.7 billion 

in fundamental value was something more reasonable to 

consider. 

Of course, the more logical reaction of someone not in the 

confined mindset of directors of a controlled company may 



have been that it was a good time to capitalize on the market 

multiple the company was getting and monetize the asset. 

A third party in the Special Committee's position might 

have sold at the top of the market, or returned cash to the 

Southern Peru stockholders by declaring a special dividend. 

For example, if it made long-term strategic sense for Grupo 

Mexico to consolidate Southern Peru and Minera, there was 

a logical alternative for the Special Committee: ask Grupo 

Mexico to make a premium to market offer for Southern Peru. 

Let Grupo Mexico be the buyer, not the seller. If the Special 

Committee's distinguished bankers believed that Southern 

Peru was trading at a premium to fundamental value, why 

not ask Grupo Mexico to make a bid at a premium to that 

price? By doing so, the Special Committee would have also 

probed Grupo Mexico about its own weaknesses, including 

the fact that Minera seemed to be *774 cash-strapped, 

having trouble paying its regular bills, and thus unable to 

move forward with an acquisition of its own. That is, if Grupo 

Mexico could not buy despite the value it held in Minera, that 

would bespeak weakness and cast doubt on the credibility of 

its ask. And if it turned out that Grupo Mexico would buy at a 

premium, the minority stockholders of Southern Peru would 

benefit. 

In other words, by acting like a third-party negotiator with its 

own money at stake and with the full range of options, the 

Special Committee would have put Grupo Mexico back on its 

heels. Doing so would have been consistent with the financial 

advice it was getting and seemed to accept as correct. The 

Special Committee could have also looked to use its marketproven 

stock to buy a company at a good price (a lower 

multiple to earnings than Southern Peru's) and then have its 

value rolled into Southern Peru's higher market multiple to 

earnings. That could have included buying Minera at a price 

equal to its fundamental value using Southern Peru's marketproven 

currency. 

Instead of doing any of these things, the Special Committee 

was “comforted” by the fact that they could devalue that 

currency and justify paying more for Minera than they 

originally thought they should. 23 

G. The Special Committee Moves 

Toward Relative Valuation 

After the June 23, 2004 presentation, the Special Committee 

and Goldman began to embrace the idea that the companies 

should be valued on a relative basis. In a July 8, 2004 

presentation to the Special Committee, Goldman included 

both a revised standalone DCF analysis of Minera and a 

“Relative Discounted Cash Flow Analysis” in the form of 

matrices presenting the “indicative number” of Southern Peru 

shares that should be issued to acquire Minera based on 

various assumptions. 24 The relative DCF analysis generated 

a vast range of Southern Peru shares to be issued in the Merger 

of 28.9 million to 71.3 million. Based on Southern Peru's July 

8, 2004 market value of $40.30 per share, 28.9 million shares 

of Southern Peru stock had a market value of $1.16 billion, 

and 71.3 million shares were worth $2.87 billion. 25 In other 

words, even the highest equity value yielded for Minera by 

this analysis was short of Grupo Mexico's actual cash value 

asking price. 

The revised standalone DCF analysis applied the same 

discount rate and long-term copper price assumptions that 

Goldman had used in its June 11 presentation to updated 

projections. This time, by applying a 7.5% discount rate 

and $1.00 per pound long-term copper price to Minera 

management's projections, Goldman was only able to yield 

an equity value of $2.8 billion for Minera. Applying the same 

aggressive assumptions to the projections as adjusted by A 

& S generated a standalone equity value for Minera of only 

$2.085 billion. Applying mid-range assumptions (a discount 

rate of 8.5% and $0.90/lb long- *775 term copper price) to 

the A & S-adjusted projections yielded an equity value for 

Minera of only $1.358 billion. 

H. The Special Committee Makes A Counterproposal 

And Suggests A Fixed Exchange Ratio 

After Goldman's July 8 presentation, the Special Committee 

made a counterproposal to Grupo Mexico that was (oddly) 

not mentioned in Southern Peru's proxy statement describing 

the Merger (the “Proxy Statement”). In this counterproposal, 

the Special Committee offered that Southern Peru would 

acquire Minera by issuing 52 million shares of Southern Peru 

stock with a then-current market value of $2.095 billion. 26 

The Special Committee also proposed implementation of a 

fixed, rather than a floating, exchange ratio that would set the 

number of Southern Peru shares issued in the Merger. 27 

From the inception of the Merger, Grupo Mexico had 

contemplated that the dollar value of the price to be paid 

by Southern Peru would be fixed (at a number that was 



always north of $3 billion), while the number of Southern 

Peru shares to be issued as consideration would float up or 

down based on Southern Peru's trading price around the time 

of closing. But, the Special Committee was uncomfortable 

with having to issue a variable amount of shares in the 

Merger. Handelsman testified that, in its evaluation of Grupo 

Mexico's May 7 term sheet, “it was the consensus of the 

[Special Committee] that a floating exchange rate was a 

nonstarter” because “no one could predict the number of 

shares that [Southern Peru] would have to issue in order to 

come up with the consideration requested.” 28 The Special 

Committee wanted a fixed exchange ratio, which would set 

the number of shares that Southern Peru would issue in the 

Merger at the time of signing. The dollar value of the Merger 

consideration at the time of closing would vary with the 

fluctuations of Southern Peru's market price. According to the 

testimony of the Special Committee members, their reasoning 

was that both Southern Peru's stock and the copper market had 

been historically volatile, and a fixed exchange ratio would 

protect Southern Peru's stockholders from a situation in which 

Southern Peru's stock price went down and Southern Peru 

would be forced to issue a greater number of shares for Minera 

in order to meet a fixed dollar value. 29 As I will discuss later, 

that position is hard to square with the Special Committee 

and Southern Peru's purported bullishness about the copper 

market in 2004. 30 

I. Grupo Mexico Sticks To Its Demand 

In late July or early August, Grupo Mexico responded to 

the Special Committee's counterproposal by suggesting that 

Southern Peru should issue in excess of 80 million shares of 

common stock to purchase Minera. It is not clear on the record 

exactly when Grupo Mexico asked for 80 million shares, 

but given Southern Peru's trading history at that time, the 

market value of that consideration would have been close to 

$3.1 billion, basically the same place where Grupo Mexico 

had started. *776 31 The Special Committee viewed Grupo 

Mexico's ask as too high, which is not surprising given that 

the parties were apparently a full billion dollars in value apart, 

and negotiations almost broke down. 

But, on August 21, 2004, after what is described as “an 

extraordinary effort” in Southern Peru's Proxy Statement, 

Grupo Mexico proposed a new asking price of 67 million 

shares. 32 On August 20, 2004, Southern Peru was trading at 

$41.20 per share, so 67 million shares were worth about $2.76 

billion on the market, a drop in Grupo Mexico's ask. 33 Grupo 

Mexico's new offer brought the Special Committee back to 

the negotiating table. 

After receiving two term sheets from Grupo Mexico that 

reflected the 67 million share asking price, the second 

of which was received on September 8, 2004, when 67 

million shares had risen to be worth $3.06 billion on 

the market, 34 Goldman made another presentation to the 

Special Committee on September 15, 2004. In addition 

to updated relative DCF analyses of Southern Peru and 

Minera (presented only in terms of the number of shares 

of Southern Peru stock to be issued in the Merger), this 

presentation contained a “Multiple Approach at Different 

EBITDA Scenarios,” which was essentially a comparison of 

Southern Peru and Minera's market-based equity values, as 

derived from multiples of Southern Peru's 2004 and 2005 

estimated (or “E”) EBITDA. 35 Goldman also presented 

these analyses in terms of the number of Southern Peru 

shares to be issued to Grupo Mexico, rather than generating 

standalone values for Minera. The range of shares to be issued 

at the 2004E EBITDA multiple (5.0x) was 44 to 54 million; 

at the 2005E multiple (6.3x) Goldman's analyses yielded a 

range of 61 to 72 million shares of Southern Peru stock. 36 

Based on Southern Peru's $45.34 share price as of September 

15, 2004, 61 to 72 million shares had a cash value of $2.765 

billion to $3.26 billion. 37 

The Special Committee sent a new proposed term sheet 

to Grupo Mexico on September 23, 2004. That term sheet 

provided for a fixed purchase price of 64 million shares of 

Southern Peru (translating to a $2.95 billion market value 

based on Southern Peru's then-current closing price). 38 The 

Special Committee's proposal contained two terms that would 

protect the minority stockholders of Southern Peru: (1) a 20% 

collar around the purchase price, which gave both the Special 

Committee and Grupo Mexico the right to walk away from 

the Merger if Southern Peru's stock price went outside of the 

collar before the stockholder vote; and (2) a voting provision 

requiring that a majority of the minority *777 stockholders 

of Southern Peru vote in favor of the Merger. Additionally, 

the proposal called for Minera's net debt, which Southern 

Peru was going to absorb in the Merger, to be capped at 

$1.105 billion at closing, and contained various corporate 

governance provisions. 



J. Grupo Mexico Rejects Many Of The 

Special Committee's Proposed Terms 

But The Parties Work Out A Deal 

On September 30, 2004, Grupo Mexico sent a 

counterproposal to the Special Committee, in which Grupo 

Mexico rejected the Special Committee's offer of 64 million 

shares and held firm to its demand for 67 million shares. 

Grupo Mexico's counterproposal also rejected the collar and 

the majority of the minority vote provision, proposing instead 

that the Merger be conditioned on the vote of two-thirds of 

the outstanding stock. Grupo Mexico noted that conditioning 

the Merger on a two-thirds shareholder vote obviated the need 

for the walk-away right requested by the Special Committee, 

because Grupo Mexico would be prevented from approving 

the Merger unilaterally in the event the stock price was 

materially higher at the time of the stockholder vote than at the 

time of Board approval. Grupo Mexico did accept the Special 

Committee's proposed $1.05 billion debt cap at closing, which 

was not much of a concession in light of the fact that Minera 

was already contractually obligated to pay down its debt and 

was in the process of doing so. 39 

After the Special Committee received Grupo Mexico's 

September 30 counterproposal, the parties reached agreement 

on certain corporate governance provisions to be included 

in the Merger Agreement, some of which were originally 

suggested by Grupo Mexico and some of which were first 

suggested by the Special Committee. Without saying these 

provisions were of no benefit at all to Southern Peru and 

its outside investors, let me just say that they do not factor 

more importantly in this decision because they do not provide 

any benefit above the protections of default law that were 

economically meaningful enough to close the material dollar 

value gap that existed. 

On October 5, 2004, members of the Special Committee 

met with Grupo Mexico to iron out a final deal. At that 

meeting, the Special Committee agreed to pay 67 million 

shares, dropped their demand for the collar, and acceded to 

most of Grupo Mexico's demands. The Special Committee 

justified paying a higher price through a series of economic 

contortions. The Special Committee was able to “bridge the 

gap” 40 between the 64 million and the 67 million figures by 

decreasing Minera's debt cap by another $105 million, and 

by getting Grupo Mexico to cause Southern Peru to issue 

a special dividend of $100 million, which had the effect of 

decreasing the value of Southern Peru's stock. According to 

Special Committee member *778 Handelsman, these “bells 

and whistles” 41 made it so that “the value of what was 

being ... acquired in the merger went up, and the value of the 

specie that was being used in the merger went down ...,” 42 

giving the Special Committee reason to accept a higher 

Merger price. 

The closing share price of Southern Peru was $53.16 on 

October 5, 2004, so a purchase price of 67 million shares had 

a market value of $3.56 billion, 43 which was higher than the 

dollar value requested by Grupo Mexico in its February 2004 

proposal or its original May 7 term sheet. 

At that point, the main unresolved issue was the stockholder 

vote that would be required to approve the Merger. After 

further negotiations, on October 8, 2004, the Special 

Committee gave up on its proposed majority of the minority 

vote provision and agreed to Grupo Mexico's suggestion that 

the Merger require only the approval of two-thirds of the 

outstanding common stock of Southern Peru. 44 Given the 

size of the holdings of Cerro and Phelps Dodge, 45 Grupo 

Mexico could achieve a two-thirds vote if either Cerro or 

Phelps Dodge voted in favor of the Merger. 

K. The Multi–Faceted Dimensions Of Controlling 

Power: Large Stockholders Who Want To Get Out 

Support A Strategic, Long–Term Acquisition As 

A Prelude To Their Own Exit As Stockholders 

Human relations and motivations are complex. One of the 

members of the Special Committee, Handelsman, represented 

a large Founding Stockholder, Cerro. This might be seen in 

some ways to have ideally positioned Handelsman to be a 

very aggressive negotiator. But Handelsman had a problem 

to deal with, which did not involve Cerro having any selfdealing 

interest in the sense that Grupo Mexico had. Rather, 

Grupo Mexico had control over Southern Peru and thus over 

whether Southern Peru would take the steps necessary to 

make the Founding Stockholders' shares marketable under 

applicable securities regulations. 46 Cerro and Phelps Dodge, 

consistent with its name, wanted to monetize their investment 

in Southern Peru and get out. 

Thus, while the Special Committee was negotiating the terms 

of the Merger, Handelsman was engaged in negotiations of 

his own with Grupo Mexico. 47 Cerro and *779 Phelps 



Dodge had been seeking registration rights from Grupo 

Mexico (in its capacity as Southern Peru's controller) for their 

shares of Southern Peru stock, which they needed because of 

the volume restrictions imposed on affiliates of an issuer by 

SEC Rule 144. 48 

It is not clear which party first proposed liquidity and 

support for the Founding Stockholders in connection with the 

Merger. But it is plain that the concept appears throughout 

the term sheets exchanged between Grupo Mexico and the 

Special Committee, and it is clear that Handelsman knew 

that registration rights would be part of the deal from the 

beginning of the Merger negotiations and that thus the 

deal would enable Cerro to sell as it desired. The Special 

Committee did not take the lead in negotiating the specific 

terms of the registration rights provisions—rather, it took the 

position that it wanted to leave the back-and-forth over the 

agreement details to Cerro and Grupo Mexico. Handelsman, 

however, played a key role in the negotiations with Grupo 

Mexico on Cerro's behalf. 49 

At trial, Handelsman explained that there were two 

justifications for pursuing registration rights—one offered 

benefits exclusive to the Founding Stockholders, and the 

other offered benefits that would inure to Southern Peru's 

entire stockholder base. The first justification was that Cerro 

needed the registration rights in order to sell its shares 

quickly, and Cerro wanted “to get out” of its investment 

in Southern Peru. 50 The second justification concerned the 

public market for Southern Peru stock. Granting registration 

rights to the Founding Stockholders would allow Cerro and 

Phelps Dodge to sell their shares, increasing the amount of 

stock traded on the market and thus increasing Southern 

Peru's somewhat thin public float. This would in turn improve 

stockholder liquidity, generate more analyst exposure, and 

create a more efficient market for Southern Peru shares, all of 

which would benefit the minority stockholders. Handelsman 

thus characterized the registration rights situation as a “winwin,” 

because “it permitted us to sell our stock” and “it was 

good for [Southern Peru] because they had a better float and 

they had a more organized sale of shares.” 51 

Handelsman's tandem negotiations with Grupo Mexico 

culminated in Southern Peru giving Cerro registration rights 

for its shares on October 21, 2004, the same day that the 

Special Committee approved the Merger. In exchange for 

registration rights, Cerro expressed its intent to vote its shares 

in favor of the Merger if the Special Committee recommended 

it. If the Special Committee made a recommendation against 

the Merger, or withdrew its recommendation in favor of it, 

Cerro was bound by the agreement to vote against the Merger. 

Grupo Mexico's initial proposal, which Handelsman received 

on October 18, 2004—a mere three days before *780 the 

Special Committee was to vote on the Merger—was that 

it would grant Cerro registration rights in exchange for 

Cerro's agreement to vote in favor of the Merger. The Special 

Committee and Handelsman suggested instead that Cerro's 

vote on the Merger be tied to whether or not the Special 

Committee recommended the Merger. After discussing the 

matter with the Special Committee, Grupo Mexico agreed. 

On December 22, 2004, after the Special Committee 

approved the Merger but well before the stockholder vote, 

Phelps Dodge entered into an agreement with Grupo Mexico 

that was similar to Cerro's, but did not contain a provision 

requiring Phelps Dodge to vote against the Merger if 

the Special Committee did. By contrast, Phelps Dodge's 

agreement only provided that, [t]aking into account that the 

Special Committee ... did recommend ... the approval of the 

[Merger], Phelps Dodge “express[es] [its] current intent, to 

[ ] submit its proxies to vote in favor of the [Merger]....” 52 

Thus, in the event that the Special Committee later withdrew 

its recommendation to approve the Merger, Cerro would be 

contractually bound to vote against it, but Grupo Mexico 

could still achieve the two-thirds vote required to approve 

the Merger solely with Phelps Dodge's cooperation. Under 

the terms of the Merger Agreement, the Special Committee 

was free to change its recommendation of the Merger, but 

it was not able to terminate the Merger Agreement on the 

basis of such a change. 53 Rather, a change in the Special 

Committee's recommendation only gave Grupo Mexico the 

power to terminate the Merger Agreement. 54 

This issue again warrants a pause. Although I am not prepared 

on this record to find that Handelsman consciously agreed to a 

suboptimal deal for Southern Peru simply to achieve liquidity 

for Cerro from Grupo Mexico, there is little doubt in my mind 

that Cerro's own predicament as a stockholder dependent on 

Grupo Mexico's whim as a controller for registration rights 

influenced how Handelsman approached the situation. That 

does not mean he consciously gave in, but it does means that 

he was less than ideally situated to press hard. Put simply, 

Cerro was even more subject to the dominion of Grupo 

Mexico than smaller holders because Grupo Mexico had 

additional power over it because of the unregistered nature of 

its shares. 



Perhaps most important, Cerro's desires when considered 

alongside the Special Committee's actions illustrate the 

tendency of control to result in odd behavior. During the 

negotiations of the Merger, Cerro had no interest in the longterm 

benefits to Southern Peru of acquiring Minera, nor did 

Phelps Dodge. Certainly, Cerro did not want any deal so 

disastrous that it would tank the value of Southern Peru 

completely, but nor did it have a rational incentive to say 

no to a suboptimal deal if that risked being locked into its 

investments. Cerro wanted to sell and sell then and there. 

But as a Special Committee member, Handelsman did not act 

consistently *781 with that impulse for all stockholders. He 

did not suggest that Grupo Mexico make an offer for Southern 

Peru, but instead pursued a long-term strategic transaction in 

which Southern Peru was the buyer. A short-term seller of 

a company's shares caused that company to be a long-term 

buyer. 

L. After One Last Price Adjustment, 

Goldman Makes Its Final Presentation 

On October 13, 2004, Grupo Mexico realized that it owned 

99.15% of Minera rather than 98.84%, and the purchase price 

was adjusted to 67.2 million shares instead of 67 million 

shares to reflect the change in size of the interest being sold. 

On October 13, 2004, Southern Peru was trading at $45.90 

per share, which meant that 67.2 million shares had a dollar 

worth of $3.08 billion. 55 

On October 21, 2004, the Special Committee met to consider 

whether to recommend that the Board approve the Merger. 

At that meeting, Goldman made a final presentation to the 

Special Committee. The October 21, 2004 presentation stated 

that Southern Peru's implied equity value was $3.69 billion 

based on its then current market capitalization at a stock price 

of $46.41 and adjusting for debt. Minera's implied equity 

value is stated as $3.146 billion, which was derived entirely 

from multiplying 67.2 million shares by Southern Peru's 

$46.41 stock price and adjusting for the fact that Southern 

Peru was only buying 99.15% of Minera. 

No standalone equity value of Minera was included in 

the October 21 presentation. 56 Instead, the presentation 

included a series of relative DCF analyses and a “Contribution 

Analysis at Different EBITDA Scenarios,” both of which 

were presented in terms of a hypothetical number of Southern 

Peru shares to be issued to Grupo Mexico for Minera. 57 

Goldman's relative DCF analyses provided various matrices 

showing the number of shares of Southern Peru that should 

be issued in exchange for Minera under various assumptions 

regarding the discount rate, the long-term copper price, the 

allocation of tax benefits, and the amount of royalties that 

Southern Peru would need to pay to the Peruvian government. 

As it had in all of its previous presentations, Goldman used 

a range of long-term copper prices from $0.80 to $1.00 per 

pound. The DCF analyses generated a range of the number of 

shares to be issued in the Merger from 47.2 million to 87.8 

million. Based on the then-current stock price of $45.92, this 

translated to $2.17 billion to $4.03 billion in cash value. 58 

Assuming the mid-range figures of a discount rate of 8.5% 

and a long-term copper price of $0.90 per pound, the *782 

analyses yielded a range of shares from 60.7 to 78.7 million. 

Goldman's contribution analysis generated a range of 42 

million to 56 million shares of Southern Peru to be issued 

based on an annualized 2004E EBITDA multiple (4.6x) 

and forecasted 2004E EBITDA multiple (5.0x), and a range 

of 53 million to 73 million shares based on an updated 

range of estimated 2005E EBITDA multiples (5.6x to 6.5x). 

Notably, the 2004E EBITDA multiples did not support the 

issuance of 67.2 million shares of Southern Peru stock in the 

Merger. But, 67.2 million shares falls at the higher end of 

the range of shares calculated using Southern Peru's 2005E 

EBITDA multiples. As notable, these multiples were not 

the product of the median of the 2005E EBITDA multiples 

of comparable companies identified by Goldman (4.8x). 

Instead, the multiples used were even higher than Southern 

Peru's own higher 2005E EBITDA Wall Street consensus 

(5.5x)—an adjusted version of which was used as the bottom 

end of the range. These higher multiples were then attributed 

to Minera, a non-publicly traded company suffering from a 

variety of financial and operational problems. 

Goldman opined that the Merger was fair from a financial 

perspective to the stockholders of Southern Peru, and 

provided a written fairness opinion. 

M. The Special Committee And 

The Board Approve The Merger 

After Goldman made its presentation, the Special Committee 

voted 3–0 to recommend the Merger to the Board. At the 

last-minute suggestion of Goldman, Handelsman decided not 

to vote in order to remove any appearance of conflict based 

on his participation in the negotiation of Cerro's registration 



rights, despite the fact that he had been heavily involved in 

the negotiations from the beginning and his hands had been 

deep in the dough of the now fully baked deal. 59 

The Board then unanimously approved the Merger and 

Southern Peru entered into the Merger Agreement. 

N. The Market Reacts To The Merger 

The market reaction to the Merger was mixed and the parties 

have not presented any reliable evidence about it. That is, 

neither party had an expert perform an event study analyzing 

the market reaction to the Merger. Southern Peru's stock 

price traded down by 4.6% when the Merger was announced. 

When the preliminary proxy statement, which provided more 

financial information regarding the Merger terms, became 

public on November 22, 2004, Southern Peru's stock price 

again declined by 1.45%. But the stock price increased for 

two days after the final Proxy Statement was filed. 

Determining what effect the Merger itself had on this rise is 

difficult because, as the plaintiff points out, this was not, as 

the defendants contend, the first time that Southern Peru and 

Minera's financials were presented together. Rather, the same 

financial statements were in the preliminary Proxy Statement 

and the stock price fell. 

But, as noted, the plaintiff also offers no evidence that 

these stock market fluctuations provide a reliable basis for 

assessing *783 the fairness of the deal because it did not 

conduct a reliable event study. 

In fact, against a backdrop of strong copper prices, the trading 

price of Southern Peru stock increased substantially by the 

time the Merger closed. By April 1, 2005, Southern Peru's 

stock price had a market value of $55.89 per share, an increase 

of approximately 21.7% over the October 21, 2004 closing 

price. But lest this be attributed to the Merger, other factors 

were in play. This includes the general direction of copper 

prices, which lifted the market price of not just Southern Peru, 

but those of its publicly traded competitors. 60 Furthermore, 

Southern Peru's own financial performance was very strong, 

as will soon be discussed. 

O. Goldman Does Not Update Its Fairness Analysis 

Despite rising Southern Peru share prices and performance, 

the Special Committee did not ask Goldman to update its 

fairness analysis at the time of the stockholder vote on the 

Merger and closing—nearly five months after the Special 

Committee had voted to recommend it. At trial, Handelsman 

testified that he called a representative at Goldman to ask 

whether the transaction was still fair, but Handelsman's phone 

call hardly constitutes a request for an updated fairness 

analysis. 61 

The Special Committee's failure to determine whether the 

Merger was still fair at the time of the Merger vote and closing 

is curious for two reasons. 

First, for whatever the reason, Southern Peru's stock price 

had gone up substantially since the Merger was announced 

in October 2004. In March 2005, Southern Peru stock was 

trading at an average price of $58.56 a share. The Special 

Committee had agreed to a collarless fixed exchange ratio and 

did not have a walk-away right. To my mind, an adroit Special 

Committee would have recognized the need to re-evaluate the 

Merger in light of Southern Peru's then-current stock price. 

Second, Southern Peru's actual 2004 EBITDA became 

available before the stockholder vote on the Merger took 

place, and Southern Peru had smashed through the projections 

that the Special Committee had used for it. 62 In the October 

*784 21 presentation, Goldman used a 2004E EBITDA for 

Southern Peru of $733 million and a 2004E EBITDA for 

Minera of $687 million. Southern Peru's actual 2004 EBITDA 

was $1.005 billion, 37% more and almost $300 million more 

than the projections used by Goldman. Minera's actual 2004 

EBITDA, by contrast, was $681 million, 0.8% less than the 

projections used by Goldman. As I mentioned earlier, in its 

contribution analysis Goldman relied on the values (measured 

in Southern Peru shares) generated by applying an aggressive 

range of Southern Peru's 2005E EBITDA multiples to 

Minera's A & S-adjusted and unadjusted projections, not the 

2004E EBITDA multiple, but the inaccuracy of Southern 

Peru's estimated 2004 EBITDA should have given the 

Special Committee serious pause. If the 2004 EBITDA 

projections of Southern Peru—which were not optimized and 

had been prepared by Grupo Mexico-controlled management 

—were so grossly low, it provided reason to suspect that 

the 2005 EBITDA projections, which were even lower 

than the 2004 EBITDA projections, were also materially 

inaccurate, and that the assumptions forming the basis of 

Goldman's contribution analysis should be reconsidered. 

Moreover, Southern Peru made $303.4 million in EBITDA 



in the first quarter of 2005, over 52% of the estimate in 

Goldman's fairness presentation for Southern Peru's 2005 full 

year performance. Although the first-quarter 2005 financial 

statements, which covered the period from January 1, 2005 

to March 31, 2005, would not have been complete by 

the time of the stockholder vote, I can reasonably assume 

that, as directors of Southern Peru, the Special Committee 

had access to non-public information about Southern Peru's 

monthly profit and loss statements. Southern Peru later beat 

its EBITDA projections for 2005 by a very large margin, 

135%, 63 a rate well ahead of Minera's 2005 performance, 

which beat the deal estimates by a much lower 45%. 64 

The Special Committee's failure to get a fairness update 

was even more of a concern because Cerro had agreed 

to vote against the Merger if the Special Committee 

changed its recommendation. The Special Committee failed 

to obtain a majority of the minority vote requirement, but it 

supposedly agreed to a two-thirds vote requirement instead 

because a two-thirds vote still prevented Grupo Mexico 

from unilaterally approving the Merger. This out was only 

meaningful, however, if the Special Committee took the 

recommendation process seriously. If the Special Committee 

maintained its recommendation, Cerro had to vote for the 

Merger, and its vote combined with Grupo Mexico's vote 

would ensure passage. By contrast, if the Special Committee 

changed its recommendation, Cerro was obligated to vote 

against the Merger. 

The tying of Cerro's voting agreement to the Special 

Committee's recommendation was somewhat odd, in another 

respect. In a situation involving a third-party merger sale 

of a company without a controlling stockholder, the third 

party will often want to lock up some votes in support of a 

deal. A large blocholder and the target board might therefore 

negotiate a compromise, whereby the blocholder agrees to 

vote yes if the target board or special committee maintains a 

recommendation in favor of the transaction. In this situation, 

however, there is a factor not present here. In an arm'slength 

deal, the target usually *785 has the flexibility to 

change its recommendation or terminate the original merger 

upon certain conditions, including if a superior proposal 

is available, or an intervening event makes the transaction 

impossible to recommend in compliance with the target's 

fiduciary duties. Here, by contrast, Grupo Mexico faced 

no such risk of a competing superior proposal because it 

controlled Southern Peru. Furthermore, the fiduciary out 

that the Special Committee negotiated for in the Merger 

agreement provided only that the Special Committee could 

change its recommendation in favor of the Merger, not that 

it could terminate the Merger altogether or avoid a vote on 

the Merger. The only utility therefore of the recommendation 

provision was if the Special Committee seriously considered 

the events between the time of signing and the stockholder 

vote and made a renewed determination of whether the deal 

was fair. There is no evidence of such a serious examination, 

despite important emerging evidence that the transaction's 

terms were skewed in favor of Grupo Mexico. 

P. Southern Peru's Stockholders Approve The Merger 

On March 28, 2005, the stockholders of Southern Peru voted 

to approve the Merger. More than 90% of the stockholders 

voted in favor of the Merger. The Merger then closed on 

April 1, 2005. At the time of closing, 67.2 million shares of 

Southern Peru had a market value of $3.75 billion. 65 

Q. Cerro Sells Its Shares 

On June 15, 2005, Cerro, which had a basis in its stock 

of only $1.32 per share, sold its entire interest in Southern 

Peru in an underwritten offering at $40.635 per share. Cerro 

sold its stock at a discount to the then-current market price, 

as the low-high trading prices for one day before the sale 

were $43.08 to $44.10 per share. This illustrates Cerro's 

problematic incentives. 

R. The Plaintiff Sues The Defendants 

And The Special Committee 

This derivative suit challenging the Merger, first filed in late 

2004, moved too slowly, and it was not until June 30, 2010 

that the plaintiff moved for summary judgment. 66 On August 

10, 2010, the defendants filed a cross-motion for summary 

judgment, or in the alternative, to shift the burden of proof 

to the plaintiff under the entire fairness standard. On August 

11, 2010, the individual Special Committee defendants crossmoved 

for summary judgment on all claims under Southern 

Peru's exculpatory provision adopted under 8 Del. C. § 102(b) 

(7). At a hearing held on December 21, 2010, I dismissed 

the Special Committee defendants from the case because the 

plaintiff had failed to present evidence supporting a nonexculpated 

breach of their fiduciary duty of loyalty, and I 

denied all other motions for summary judgment. This, of 



course, did not mean that the Special Committee had acted 

adroitly or that the remaining defendants, Grupo Mexico and 

its affiliates, were immune from liability. 

In contrast to the Special Committee defendants, precisely 

because the remaining directors were employed by Grupo 

Mexico, which had a self-dealing interest directly in conflict 

with Southern Peru, the *786 exculpatory charter provision 

was of no benefit to them at that stage, given the factual 

question regarding their motivations. At trial, these individual 

Grupo Mexico-affiliated director defendants made no effort 

to show that they acted in good faith and were entitled 

to exculpation despite their lack of independence. In other 

words, the Grupo Mexico-affiliated directors did nothing 

to distinguish each other and none of them argued that he 

should not bear liability for breach of the duty of loyalty if 

the transaction was unfairly advantageous to Grupo Mexico, 

which had a direct self-dealing interest in the Merger. Their 

liability therefore rises or falls with the issue of fairness. 67 

In dismissing the Special Committee members on the 

summary judgment record, I necessarily treated the 

predicament faced by Cerro and Handelsman, which 

involved facing additional economic pressures as a minority 

stockholder as a result of Grupo Mexico's control, differently 

than a classic self-dealing interest. I continue, as you will 

see, to hold that view. Although I believe that Cerro, and 

therefore Handelsman, were influenced by Cerro's desire for 

liquidity as a stockholder, it seems to me counterproductive 

to equate a legitimate concern of a stockholder for liquidity 

from a controller into a self-dealing interest. 68 I therefore 

concluded that there had to be a triable issue regarding 

whether Handelsman acted in subjective bad faith to force 

him to trial. I concluded then on that record that no such issue 

of fact existed and even on the fuller trial record (where the 

plaintiff actually made much more of an effort to pursue this 

angle), I still could not find that Handelsman acted in bad faith 

to purposely accept an unfair deal. But Cerro, and therefore 

Handelsman, did have the sort of economic concern that 

ideally should have been addressed upfront and forthrightly 

in terms of whether the stockholder's interest well positioned 

its representative to serve on a special committee. Put simply, 

although I continue to be unpersuaded that one can *787 

label Handelsman as having acted with the state of mind 

required to expose him to liability given the exculpatory 

charter protection to which he is entitled, I am persuaded that 

Cerro's desire to sell influenced how Handelsman approached 

his duties and compromised his effectiveness. 

III. Legal Analysis 

A. The Standard Of Review Is Entire Fairness 

[4] Consistent with the Supreme Court's decision in Kahn 

v. Tremont, both the plaintiff and the defendants agree 

that the appropriate standard of review for the Merger is 

entire fairness, regardless of the existence of the Special 

Committee. 69 Given this agreement, there is no need to 

consider whether room is open under our law for use of 

the business judgment rule standard in a circumstance like 

this, if the transaction were conditioned upon the use of a 

combination of sufficiently protective procedural devices. 70 

Absent some argument by a party to that effect, judicial 

restraint counsels my accepting the parties' framework. 

Where, as here, a controlling stockholder stands on both sides 

of a transaction, the interested defendants are “required to 

demonstrate their utmost good faith and the most scrupulous 

inherent fairness of the bargain.” 71 In other words, the 

defendants with a conflicting self-interest must demonstrate 

that the deal was entirely fair to the other stockholders. 72 

[5] The entire fairness standard is well-known and has “two 

basic aspects” of fairness: process (“fair dealing”) and price 

(“fair price”). 73 As explained by our Supreme Court, fair 

dealing “embraces questions of when the transaction was 

timed, how it was initiated, structured, negotiated, disclosed 

to the directors, and how the *788 approvals of the directors 

and the stockholders were obtained,” and fair price “relates 

to the economic and financial considerations of the proposed 

merger, including all relevant factors: assets, market value, 

earnings, future prospects, and any other elements that affect 

the intrinsic or inherent value of a company's stock.” 74 

Although the concept of entire fairness has two components, 

the entire fairness analysis is not bifurcated. Rather, the court 

“determines entire fairness based on all aspects of the entire 

transaction.” 75 Our Supreme Court has recognized, however, 

that, at least in non-fraudulent transactions, “price may be the 

preponderant consideration....” 76 That is, although evidence 

of fair dealing may help demonstrate the fairness of the price 

obtained, what ultimately matters most is that the price was 

a fair one. 77 



Of course, under our law, the defendants may shift the burden 

of persuasion on entire fairness to the plaintiff in certain 

circumstances. I now turn to the defendants' arguments about 

that issue. 

B. Are The Defendants Entitled To 

Shift The Burden Of Persuasion? 

[6] Having served as a trial judge for many years now, 

it is with some chagrin that I admit that I tried this case 

without determining in advance which side had the burden 

of persuasion. But I did not do so lightly. Under the 

Lynch doctrine, 78 when the entire fairness standard applies, 

controlling stockholders can never escape entire fairness 

review, 79 but they may shift the burden of persuasion by 

one of two means: they may show that the transaction was 

approved either by an independent board majority (or in the 

alternative, a special committee of independent directors) 

or, assuming certain conditions, by an informed vote of the 

majority of the minority shareholders. 80 

1. Is The Burden Shifted Because 

Of The Special Committee Process? 

In this case, the defendants filed a summary judgment motion 

arguing that the *789 Special Committee process was 

entitled to dignity under Lynch and shifted the burden of 

persuasion under the preponderance standard to the plaintiff. I 

found the summary judgment record insufficient to determine 

that question for the following reason. 

Lynch and its progeny leave doubt in my mind about what 

is required of a Special Committee to obtain a burden shift. 

For their part, the defendants argue that what is required 

is a special committee comprised of independent directors 

who selected independent advisors and who had the ability 

to negotiate and reject a transaction. This is, of course, 

consistent with what one would expect in determining a 

standard of review that would actually be used in deciding 

a case. By contrast, the plaintiff stresses that only an 

effective special committee operates to shift the burden of 

persuasion, 81 and that a factual determination must be made 

regarding whether the special committee in fact operated with 

the degree of ardor and skill one would have expected of an 

arms-length negotiator with true bargaining power. 

[7] To my mind, which has pondered the relevant cases for 

many years, there remains confusion. In the most relevant 

case, Tremont, the Supreme Court clearly said that to obtain 

a burden shift, however slight those benefits may be, 82 

the special committee must “function in a manner which 

indicates that the controlling shareholder did not dictate the 

terms of the transaction and that the committee exercised 

real bargaining power ‘at an arms-length.’ ” 83 A close look 

at Tremont suggests that the inquiry must focus on how 

the special committee actually negotiated the deal—was it 

“well functioning” 84 —rather than just how the committee 

was set up. 85 The test, therefore, seems to contemplate 

a look back at the substance, and efficacy, of the special 

committee's negotiations, rather than just a look at the 

composition and mandate of the special committee. 86 That 

interpretation is confirmed by a closer look at the Supreme 

Court's treatment of the factors that the *790 Court found 

indicated that the special committee “did not operate in 

an independent or informed manner....” 87 Although the 

notion of an “independent” and “informed manner” might 

suggest that the only relevant factors to that inquiry are 

those that speak to the special committee's ties with the 

controlling stockholder (i.e., its independence) and its ability 

to retain independent advisors and say no, the majority and 

concurring decisions in Tremont seem to reveal that was not 

the approach taken by the Court. Tremont seems to focus 

both on indicia of independence and indicia of procedural and 

even substantive fairness. For example, the Supreme Court 

found problematic the supposedly outside directors' previous 

business relationships with the controlling stockholder that 

resulted in significant financial compensation or influential 

board positions 88 and their selection of advisors who were in 

some capacity affiliated with the controlling stockholder, 89 

both of which are factors that speak to the special committee's 

facial independence. 

But, the Supreme Court also seems to call into question the 

substance of the special committee's actual efforts, noting 

the special committee directors' heavy reliance on projections 

prepared by the controlling stockholder, 90 their perfunctory 

effort at scheduling and attending committee meetings, 91 

and the limitation on the exchange of ideas that resulted 

from the directors' failure to fully participate in an active 

process. 92 



Judge Quillen's concurring opinion 93 most clearly 

contemplates a focus on both indicia of independence and 

indicia of substantive fairness in the negotiation process. 

In confirming the majority's ruling to deny the defendants 

the benefit of the burden shift, Judge Quillen begins by 

reviewing the special committee's ties to the controlling 

stockholder and its selection of questionable advisors (i.e., 

factors that could be applied early in a case to determine 

the burden allocation), but then he moves into a discussion 

where he points to deficiencies in the substance of the special 

committee's negotiations, which cannot in any easy way be 

separated from an examination of fairness. The concurrence 

questions the special committee's failure to take advantage 

of certain opportunities to exert leverage over the controlling 

stockholder 94 as well as its failure to negotiate the price of 

the stock purchase downward when there was indicia of price 

manipulation, *791 95 when the controlling stockholder's 

chief negotiator knew that the stock was worth less than 

the market, 96 

and when the target's stock price dropped 

precipitously before the date of signing. 97 The concurrence 

also questions the ultimate fairness of the price and other 

terms agreed to by the special committee, noting that the 

substance of the negotiations is “not self-verifying on the 

independence issue.” 98 These references in the concurrence 

echo the majority opinion itself, which uses phrases like “real 

bargaining power” 99 and “well functioning” 100 to describe 

what is required of the special committee to merit a burden 

shift, which seem to get at whether the special committee 

in fact simulated the role that a third-party with negotiating 

power would have played. 101 Thus, to my mind, Tremont 

implies that there is no way to decide whether the defendant 

is entitled to a burden shift without taking into consideration 

the substantive decisions of the special committee, a factintensive 

exercise that overlaps with the examination of 

fairness itself. 

As a trial judge, I note several problems with such 

an approach. Assuming that the purpose of providing a 

burden shift is not only to encourage the use of special 

committees, 102 but also to provide a reliable pre-trial guide 

to the burden of persuasion, 103 the factors that give rise to 

the burden shift must be determinable early in the litigation 

and not so deeply enmeshed in the ultimate fairness analysis. 

Thus, factors like the independence of the committee and 

the adequacy of its mandates (i.e., was it given blocking and 

negotiating power) would be the trigger for the burden shift. 

Because the only effect of the burden shift is to make the 

plaintiff prove unfairness under a preponderance standard, 

the benefits of clarity in terms of trial presentation and for 

the formation of special committees would seem to outweigh 

the costs of such an upfront approach focusing on structural 

independence. To be clear, such an allocation would still 

allow the plaintiff to go to trial so long as there was a triable 

issue regarding fairness. Further, *792 because the burden 

becomes relevant only when a judge is rooted on the fence 

post and thus in equipoise, it is not certain that there is really 

a cost. 104 

By contrast, the alternative approach leads to situations like 

this and Tremont itself, where the burden of proof has 

to be determined during the trial, and where that burden 

determination is enmeshed in the substantive merits. 105 As 

a trial judge, I take very seriously the standard of review 

as a prism through which to determine a case. When a 

standard of review does not function as such, it is not clear 

what utility it has, and it adds costs and complication to 

the already expensive and difficult process of complex civil 

litigation. 106 Subsuming within the burden shift analysis 

questions of whether the special committee was substantively 

effective in its negotiations with the controlling stockholder 

—questions fraught with factual complexity—will, absent 

unique circumstances, guarantee that the burden shift will 

rarely be determinable on the basis of the pre-trial record 

alone. 107 If we take seriously the notion, as I do, that 

a standard of review is meant to serve as the framework 

through which the court evaluates the parties' evidence and 

trial testimony in reaching a decision, and, as important, the 

framework through which the litigants determine how best 

to prepare their cases for trial, 108 it is problematic to *793 

adopt an analytical approach whereby the burden allocation 

can only be determined in a post-trial opinion, after all the 

evidence and all the arguments have been presented to the 

court. 109 

But, I am constrained to adhere faithfully to Tremont as 

written, and I read it and some of its progeny 110 as requiring 

a factual look at the actual effectiveness of the special 

committee before awarding a burden shift. For that reason, 

I will, as you will see, find that the burden of persuasion 

remained with the defendants, because the Special Committee 

was not “well functioning.” 111 And I will also find, however, 

that this determination matters little because I am not stuck in 

equipoise about the issue of fairness. Regardless of who bears 



the burden, I conclude that the Merger was unfair to Southern 

Peru and its stockholders. 

2. Did The Burden Of Persuasion Shift 

Because Of The Stockholder Vote? 

[8] With much less passion, the defendants also seek to 

obtain a burden shift by arguing that the Merger ultimately 

received super-majority support of the stockholders other 

than Grupo Mexico, and a majority support of the 

stockholders excluding all of the Founding Stockholders. 

The defendants have failed to earn a burden shift for the 

following reasons. First, in a situation where the entire 

fairness standard applies because the vote is controlled by an 

interested stockholder, any burden-shifting should not depend 

on the after-the-fact vote result but should instead require that 

the transaction has been conditioned up-front on the approval 

of a majority of the disinterested stockholders. Chancellor 

Chandler, in his Rabkin v. Olin Corp. decision, 112 took that 

view and was affirmed by our Supreme Court, and it remains 

sound to me in this context. 113 It is a very different thing 

for *794 stockholders to know that their vote is in fact 

meaningful and to have a genuine chance to disapprove a 

transaction than it is to be told, as they were in this case, that 

the transaction required a two-thirds vote, which would be 

satisfied certainly because Grupo Mexico, Cerro, and Phelps 

Dodge had the voting power to satisfy that condition and were 

clearly intent on voting yes. 114 In the latter situation, the vote 

has little meaning except as a form of protest, especially in a 

situation like this when there were no appraisal rights because 

Southern Peru was the buyer. 

Second, the defendants have not met their burden to show 

that the vote was fully informed. 115 The Proxy Statement 

left out a material step in the negotiation process, to wit, 

the Special Committee's July counteroffer, offering to give 

Grupo Mexico only $2.095 billion worth of Southern Peru 

stock for Minera in response to Grupo Mexico's ask of 

$3.1 billion in its May 7, 2004 term sheet. What lends 

credibility to this counteroffer is that it was made after the 

Special Committee's July 8, 2004 meeting with Goldman, 

where Goldman had presented to the Special Committee 

Minera's operating projections, metal price forecasts, and 

other valuation metrics. After reviewing this information, 

the Special Committee was still $1 billion short of Grupo 

Mexico's ask with an offer that was at the high end of 

Minera's standalone value but at the low end of its “relative” 

value. 116 This step showed how deep the value gap was 

in real cash terms. The minority stockholders were being 

asked to make an important voting decision 117 about an 

acquisition that would nearly double the size of the Company 

and materially increase the equity stake of the controlling 

*795 stockholder 118 —they should have been informed of 

the value that the Special Committee placed on Minera at 

a point in the negotiations when it had sufficient financial 

information to make a serious offer. 

That omission combines with less than materially clear 

disclosure about the method by which Goldman concluded 

the Merger was fair. In particular, the Proxy Statement did 

not disclose the standalone implied equity values for Minera 

generated by the DCF analyses performed in June 2004 and 

July 2004, which look sound and generated mid-range values 

of Minera that were far less than what Southern Peru was 

paying in the Merger, 119 nor did it disclose the standalone 

implied equity values of either Southern Peru or Minera 

that were implied by the inputs used in Goldman's relative 

DCF analysis underlying the fairness opinion. 120 The Proxy 

Statement thus obscured the fact that the implied equity value 

of Southern Peru that Goldman used to anchor the relative 

valuation of Minera was nearly $2 billion less than Southern 

Peru's actual market equity value at the time of signing. 121 

There were additional obscurities in connection with the 

Southern Peru multiples that Goldman used to support its 

fairness opinion. 

The Proxy Statement did disclose that Minera was valued 

using multiples tied to Southern Peru's own multiples, 

although it was less than clear as to what those multiples 

were. The Proxy Statement listed a Wall Street consensus 

EV/2005E EBITDA multiple for Southern Peru of 5.5x in 

Goldman's comparable companies chart, 122 but it did not 

disclose the full range of EV/2005E EBITDA multiples for 

Southern Peru that Goldman actually used in its contribution 

analysis to justify the fairness of the relative valuation. The 

bottom of the range was 5.6x, or Southern Peru's EV/2005E 

multiple listed in the comparable companies analysis as 

apparently adjusted for the dividend, which itself was much 

higher than the median comparable companies multiple, 

which was listed at 4.8x 123 and critically absent from 

this generous bottom of the contribution analysis. *796 

The range of multiples then proceeded northward, to 6.3x, 

6.4x, and 6.5x, with a median of 6.4x. 124 These inflated 



multiples were based not on real market metrics, but on 

various scenarios using Southern Peru's internal pessimistic 

projections for its 2005E EBITDA. 125 By failing to disclose 

the full range of multiples used in the contribution analysis, 

the Proxy obscured the fact that only these inflated multiples 

would justify an issuance of over 67 million shares in 

exchange for Minera, 126 multiples that were nearly 33% 

higher than the Wall Street consensus median multiple of 

the comparable companies used by Goldman for 2005, 127 

and 16% higher than the Wall Street consensus multiple for 

Southern Peru. 128 

Moreover, Grupo Mexico went on a road show to its 

investors, bankers, and other members of the financial 

community in November 2004 to garner support for the 

Merger, during which Grupo Mexico presented materials 

stating that a “Key Term” of the Merger was that the Merger 

implied a Minera EV/2005E EBITDA of 5.6x. 129 This 5.6x 

multiple was derived from an enterprise value for Minera that 

itself was calculated by multiplying the 67.2 million shares 

to be issued by Southern Peru by the stock price of Southern 

Peru as of October 21, 2004, and then adding Minera's debt. 

This calculation obscures the fact that in order to justify 

the fairness of the 67.2 million share issuance in the first 

place, Goldman's fairness presentation did not rely on a 5.6x 

multiple, but a much higher median multiple of 6.4x. 130 

Also, the assumptions behind the road show's advertised 5.6x 

multiple were not consistent with the assumptions underlying 

Goldman's financial opinion. Namely, Grupo Mexico was 

able to “employ” (to use a non-loaded term) a Wall Street 

consensus multiple only by inflating Minera's estimated 2005 

EBITDA over what had been used in the Goldman fairness 

analysis, 131 a feat *797 accomplished by assuming a higher 

copper production than the production figures provided by 

the A & S adjusted projections as well as Minera's own 

unadjusted projections, both of which Goldman used in its 

final presentation to the Special Committee. 132 Put bluntly, 

Grupo Mexico went out to investors with information that 

made the total mix of information available to stockholders 

materially misleading. 

For these reasons, I do not believe a burden shift because of 

the stockholder vote is appropriate, and in any event, even if 

the vote shifted the burden of persuasion, it would not change 

the outcome I reach. 

C. Was The Merger Entirely Fair? 

[9] Whether the Merger was fair is the question that I now 

answer. 

I find, for the following reasons, that the process by which the 

Merger was negotiated and approved was not fair and did not 

result in the payment of a fair price. Because questions as to 

fair process and fair price are so intertwined in this case, I do 

not break them out separately, but rather treat them together 

in an integrated discussion. 

1. The Special Committee Gets Lost In 

The Perspective–Distorting World Of 

Dealmaking With A Controlling Stockholder 

I start my analysis of fairness with an acknowledgement. 

With one exception, which I will discuss, the independence 

of the members of the Special Committee has not been 

challenged by the plaintiff. The Special Committee members 

were competent, well-qualified individuals with business 

experience. Moreover, the Special Committee was given the 

resources to hire outside advisors, and it hired not only 

respected, top tier of the market financial and legal counsel, 

but also a mining consultant and Mexican counsel. Despite 

having been let down by their advisors in terms of record 

keeping, there is little question but that the members of the 

Special Committee met frequently. Their hands were on the 

oars. So why then did their boat go, if anywhere, backward? 

This is a story that is, I fear, not new. 

From the get-go, the Special Committee extracted a narrow 

mandate, to “evaluate” a transaction suggested by the 

majority stockholder. 133 Although I conclude that the 

Special Committee did in fact go further and engage in 

negotiations, its approach to negotiations was stilted and 

influenced by its uncertainty about whether it was actually 

empowered to negotiate. The testimony on the Special 

Committee members' understanding of their mandate, for 

example, evidenced their lack of certainty about whether 

the Special Committee could do more than just evaluate the 

Merger. 134 

*798 Thus, from inception, the Special Committee fell 

victim to a controlled mindset and allowed Grupo Mexico 



to dictate the terms and structure of the Merger. The Special 

Committee did not insist on the right to look at alternatives; 

rather, it accepted that only one type of transaction was on 

the table, a purchase of Minera by Southern Peru. As we shall 

see, this acceptance influences my ultimate determination of 

fairness, as it took off the table other options that would have 

generated a real market check and also deprived the Special 

Committee of negotiating leverage to extract better terms. 

With this blinkered perspective, the first level of 

rationalization often begins. For Southern Peru, like most 

companies, it is good to have growth options. Was it rational 

to think that combining Southern Peru and Minera might be 

such a growth option, if Southern Peru's stronger balance 

sheet and operating capabilities could be brought to bear on 

Minera? Sure. And if no other opportunities are available 

because we are a controlled company, shouldn't we make 

the best of this chance? Already, the mindset has taken a 

dangerous path. 135 

The predicament of Handelsman helps to illustrate this 

point. Clearly, from the weak mandate it extracted and its 

failure to push for the chance to look at other alternatives, 

the Special Committee viewed itself as dealing with a 

majority stockholder, Grupo Mexico, that would seek its own 

advantage. Handelsman, as a key representative of Cerro, 

was even more susceptible to Grupo Mexico's dominion, 

precisely because Cerro wanted to be free of its position as 

a minority stockholder in Grupo Mexico-controlled Southern 

Peru. Although I am chary to conclude that the desire of a 

stockholder to be able to sell its shares like other holders is 

the kind of self-dealing interest that should deem someone 

like Handelsman interested in the Merger, 136 Handelsman 

was operating under a constraint that was not shared by 

all stockholders, which was his employer's desire to sell 

its holdings in Southern Peru. 137 *799 It follows that 

Handelsman may not have been solely focused on paying the 

best price in the Merger (even though all things being equal, 

Cerro, like any stockholder, would want the best possible 

price) because he had independent reasons for approving the 

Merger. That is, as between a Merger and no Merger at all, 

Handelsman had an interest in favoring the deal because it 

was clear from the outset that Grupo Mexico was using the 

prospect of causing Southern Peru to grant registration rights 

to Cerro (and Phelps Dodge) as an inducement to get them 

to agree to the Merger. 138 Thus, Handelsman was not wellincentivized 

to take a hard-line position on what terms the 

Special Committee would be willing to accept, because as a 

stockholder over whom Grupo Mexico was exerting another 

form of pressure, he faced the temptation to find a way to 

make the deal work at a sub-optimal price if that would 

facilitate liquidity for his stockholding employer. 139 

I thus face the question of whether Cerro's liquidity concern 

and short-term interests—ones not shared with the rest of the 

non-founding minority stockholders—should have disabled 

Handelsman from playing any role in the negotiation process. 

On the one hand, Cerro's sale of a majority of its shares 

at below market price shortly after it obtained registration 

rights suggests that its interest in liquidity likely dampened 

its concern for achieving a fair price for its shares, especially 

given its low tax basis in the shares. On the other hand, as 

a large blocholder representative and experienced M & A 

practitioner, Handelsman had knowledge and an employer 

with an economic investment that in other respects made 

him a valuable Special Committee member. After hearing 

Handelsman's testimony at trial, I cannot conclude that he 

consciously acted in less than good faith. Handelsman was not 

in any way in Grupo Mexico's pocket, and I do not believe that 

he purposely tanked the negotiations. But, Cerro's important 

liquidity concern had the undeniable effect of extinguishing 

much of the appetite that one of the key negotiators of the 

Merger had to say no. Saying no meant no liquidity. 

Likewise, Cerro had no intent of sticking around to benefit 

from the long-term benefits of the Merger, and thus 

Handelsman was in an odd place to recommend to other 

stockholders to make a long-term strategic acquisition. In 

sum, when all these factors are considered, Handelsman 

was not the ideal candidate to serve as the “defender of 

interests of minority shareholders *800 in the dynamics 

of fast moving negotiations.” 140 The fact that the Special 

Committee's investment bankers pointed out the pickle he was 

in late in the game and that Handelsman abstained from voting 

fail to address this concern because the deal was already fully 

negotiated with Handelsman's active involvement. 

To my mind, the more important point that Handelsman's 

predicament makes plain is the narrow prism through which 

the Special Committee viewed their role and their available 

options. For example, consider the misalignment between 

Cerro's interest in selling its equity position in Southern Peru 

as soon as possible and the fact that the Merger was billed 

as a long-term, strategic acquisition for the company. What 

would have been an obvious solution to this mismatch of 

interests—where both Cerro and Phelps Dodge wanted to get 

out of Southern Peru and where Grupo Mexico wanted to 



stay in—would have been for the Special Committee to say 

to Grupo Mexico: “Why don't you buy Southern Peru, since 

you want to increase your equity ownership in this company 

and everyone else wants to get out?” This simple move 

would have immediately aligned the interests and investment 

horizons of Cerro and the rest of the minority shareholders, 

thus positioning Handelsman as the ideal Special Committee 

candidate with a maximized level of negotiating gusto. But, 

the Special Committee did not suggest such a transaction, nor 

did it even appear to cross the directors' mind as a possibility. 

Why was this so? Because the Special Committee was 

trapped in the controlled mindset, where the only options 

to be considered are those proposed by the controlling 

stockholder. 141 When a special committee confines itself 

to this world, it engages in the self-defeating practice 

of negotiating with itself—perhaps without even realizing 

it—through which it nixes certain options before even 

putting them on the table. Even if the practical reality is 

that the controlling stockholder has the power to reject 

any alternate proposal it does not support, the special 

committee still benefits from a full exploration of its 

options. What better way to “kick the tires” of the deal 

proposed by the self-interested controller than to explore 

what would be available to the company if it were not 

constrained by the controller's demands? Moreover, the very 

process of the special committee asking the controlling 

stockholder to consider alternative options can change the 

negotiating dynamic. That is, when the special committee 

engages in a meaningful back-and-forth with the controlling 

stockholder to discuss the feasibility of alternate terms, the 

Special Committee might discover certain weaknesses of 

the controlling stockholder, thus creating an opportunity for 

the committee to use this new-found negotiating leverage to 

extract benefits for the minority. 

Here, for instance, if the Special Committee had proposed to 

Grupo Mexico that it buy out Southern Peru at a premium 

to its rising stock price, it would have opened up the deal 

dynamic in a way that gave the Special Committee leverage 

and that was consistent with the Special Committee's sense 

of the market. Perhaps Grupo Mexico would have been 

open to the prospect and there would have been a valuable 

chance for all of the Southern Peru's stockholders to obtain 

liquidity at a premium to a Southern Peru market price 

that the Special Committee saw as was high in comparison 

to Southern Peru's fundamental value. At the very least, it 

would force *801 Grupo Mexico to explain why it—the 

party that proposed putting these assets together under its 

continued control—could not itself be the buyer and finance 

such a transaction. Was that because it was cash-strapped and 

dealing with serious debt problems, in part because Minera 

was struggling? If you need to be the seller, why? And why 

are you in a position to ask for a high price? If Minera is 

so attractive, why are you seeking to reduce your ownership 

interest in it? Part of the negotiation process involves probing 

and exposing weaknesses, and as a result putting the opponent 

back on his heels. 

In sum, although the Special Committee members were 

competent businessmen and may have had the best of 

intentions, they allowed themselves to be hemmed in 

by the controlling stockholder's demands. Throughout the 

negotiation process, the Special Committee's and Goldman's 

focus was on finding a way to get the terms of the Merger 

structure proposed by Grupo Mexico to make sense, rather 

than aggressively testing the assumption that the Merger was 

a good idea in the first place. 

2. The Special Committee Could Never Justify The 

Merger Based On Standalone Valuations Of Minera 

This mindset problem is illustrated by what happened when 

Goldman could not value the “get”—Minera—anywhere near 

Grupo Mexico's asking price, the “give.” From a negotiating 

perspective, that should have signaled that a strong response 

to Grupo Mexico was necessary and incited some effort to 

broaden, not narrow, the lens. Instead, Goldman and the 

Special Committee went to strenuous lengths to equalize 

the values of Southern Peru and Minera. The onus should 

have been on Grupo Mexico to prove Minera was worth 

$3.1 billion, but instead of pushing back on Grupo Mexico's 

analysis, the Special Committee and Goldman devalued 

Southern Peru and topped up the value of Minera. The 

actions of the Special Committee and Goldman undermine 

the defendants' argument that the process leading up to the 

Merger was fair and lend credence to the plaintiff's contention 

that the process leading up to the Merger was an exercise in 

rationalization. 

The plaintiff argues that, rather than value Minera so as 

to obtain the best deal possible for Southern Peru and its 

minority stockholders, the Special Committee “worked and 

reworked” their approach to the Merger to meet Grupo 

Mexico's demands and rationalize paying Grupo Mexico's 

asking price. 142 The defendants concede that, before settling 

on relative valuation, Goldman performed a number of other 



financial analyses of Minera to determine its value, including 

a standalone DCF analysis, a sum-of-the-parts analysis, a 

contribution analysis, comparable companies analysis and 

an ore reserve analysis, and that the results of all of these 

analyses were substantially lower than Grupo Mexico's 

asking price of $3.1 billion. 

A reasonable special committee would not have taken the 

results of those analyses by Goldman and blithely moved on 

to relative valuation, without any continuing and relentless 

focus on the actual give-get involved in real cash terms. 

But, this Special Committee was in the altered state of 

a controlled mindset. Instead of pushing Grupo Mexico 

into the range suggested by Goldman's analysis of Minera's 

fundamental value, the Special Committee went backwards to 

accommodate Grupo Mexico's asking price—an asking price 

that never really changed. As part of its backwards shuffle, 

the Special Committee compared unstated DCF values of 

Southern Peru and Minera and applied Southern Peru's own 

EBITDA multiples to Minera's *802 projections to justify a 

higher share issuance. 

3. The Relative Valuation Technique Is Not Alchemy 

That Turns A Sub–Optimal Deal Into A Fair One 

The defendants portray relative valuation as the only way 

to perform an “apples-to-apples” comparison of Southern 

Peru and Minera. 143 But, the evidence does not persuade 

me that the Special Committee relied on truly equal inputs 

for its analyses of the two companies. When performing 

the relative valuation analysis, the cash flows for Minera 

were optimized to make Minera an attractive acquisition 

target, but no such dressing up was done for Southern 

Peru. 144 Grupo Mexico hired two mining engineering firms, 

Winters, Dorsey & Company and Mintec, Inc., to update 

Minera's life-of-mine plans and operations. When A & S 

began conducting due diligence on Minera, it tested the 

plans prepared by Winters and Mintec for reasonableness. 145 

After A & S knocked down some of Minera's projections, 

Mintec revised its analyses to produce a new optimization 

plan for Minera's Cananea mine (“Alternative 3”) that added 

material value to Minera's projections. 146 By contrast, no 

outside consultants were hired to update Southern Peru's lifeof-mine 

plans, although A & S did review Southern Peru 

management's projections. 147 Goldman's presentations to 

the Special Committee indicate that any A & S adjustments 

to Southern Peru projections were relatively minor. 148 The 

record does not reveal any comparable effort to update and 

optimize Southern Peru's projections as if it were being sold, 

as was being done for Minera. In fact, there is evidence to the 

contrary: no additional analyses were performed on Southern 

Peru despite A & S informing the Special Committee that 

there was “expansion potential” at Southern Peru's Toquepala 

and Cuajone mines and “the conceptual studies should be 

expanded, similar to Alternative 3 ... There is no *803 doubt 

optimization that can be done to the current thinking that 

will add value at lower capital expenditures.” 149 Also, as 

of the relevant time period, Minera was emerging from—if 

not still in—a period of financial distress. 150 The Minera 

projections used in Goldman's final fairness evaluation were 

further optimized in that they assumed that the deal would 

take place, 151 which meant that the projections took into 

account the benefits that Minera would gain by becoming part 

of Southern Peru. In other words, the process was one where 

an aggressive seller was stretching to show value in what 

it was selling, and where the buyer, the Special Committee, 

was not engaging in a similar exercise regarding its own 

company's value despite using a relative valuation approach, 

where that mattered. 

As is relevant in other respects, too, before the Merger vote, 

the Special Committee had evidence that this approach had 

resulted in estimated cash flows for Southern Peru that were 

too conservative. For 2004, Goldman projected EBITDA for 

Southern Peru that turned out to be almost $300 million lower 

than the EBITDA that Southern Peru actually attained. By 

contrast, Minera's were close to, but somewhat lower than, 

the mark. 

As another technique of narrowing the value gap, Goldman 

shifted from using Southern Peru's 2004E EBITDA multiple 

to a range of its 2005E EBITDA multiples in the contribution 

analyses of the Merger, which also helped to level out the 

“give” and the “get” and thereby rationalize Grupo Mexico's 

asking price. As described previously, applying Southern 

Peru's 2004E EBITDA multiples did not yield a range of 

values encompassing 67.2 million shares. Instead, Goldman 

relied on applying Southern Peru's higher 2005E multiples to 

Minera to justify such a figure. 

Goldman's decision to apply Southern Peru's EBITDA 

multiples to Minera was questionable in the first place. 

Valuing Minera by applying Southern Peru's multiple 

was a charitable move on the part of the Special 

Committee, and reasonable third-party buyers are generally 



not charitable toward their acquisition targets. 152 Unlike 

Southern Peru, a Delaware corporation listed on the New 

York Stock Exchange, Minera was unlisted, subject to 

Mexican accounting standards, and was not being regulated 

and overseen by the Securities and Exchange Commission. 

Moreover, Minera was not in sound financial condition. 

Why did the Special Committee top up Minera's multiple to 

Southern Peru's own, instead of exploiting for Southern Peru 

the market-tested value of its acquisition currency? One of the 

advantages of overvalued stock is that it is cheap acquisition 

currency; if an acquiror is trading at a higher multiple than 

the target, it generally takes advantage of that multiple in 

the acquisition. The Special Committee's charitable multiple 

migration is highly suspicious given the involvement of a 

controlling stockholder on both sides of the deal. 

*804 In these respects, the Special Committee was not 

ideally served by its financial advisors. Goldman dropped 

any focus on the value of what Southern Peru was giving 

from its analyses. Taking into account all the testimony and 

record evidence, both Goldman and the Special Committee 

believed that Southern Peru's market price was higher than its 

fundamental value. But instead of acting on that belief, they 

did something very unusual, in which Goldman shifted its 

client's focus to an increasingly non-real world set of analyses 

that obscured the actual value of what Southern Peru was 

getting and that was inclined toward pushing up, rather than 

down, the value in the negotiations of what Grupo Mexico 

was seeking to sell. In fairness, I cannot attribute Goldman's 

behavior to a fee incentive, because Goldman did not have 

a contingent fee right based on whether or not the Merger 

was consummated. 153 But Goldman appears to have helped 

its client rationalize the one strategic option available within 

the controlled mindset that pervaded the Special Committee's 

process. 

4. The Special Committee Should Not Have 

Discounted Southern Peru's Market Price 

A reasonable third-party buyer free from a controlled mindset 

would not have ignored a fundamental economic fact that is 

not in dispute here—in 2004, Southern Peru stock could have 

been sold for price at which it was trading on the New York 

Stock Exchange. That is, for whatever reasons, the volatile 

market in which public companies trade was generating 

a real-world cash value for Southern Peru's acquisition 

currency. The defendants concede that whatever bloc of stock 

Southern Peru gave to Grupo Mexico could have been sold 

for its market price in American currency, i.e., dollars. Grupo 

Mexico knew that. The record is clear that Grupo Mexico 

itself relied on the market price of Southern Peru all along 

—during the negotiation process, Grupo Mexico kept asking 

again and again to be paid in approximately $3.1 billion worth 

of Southern Peru stock measured at its market price. 

It has, of course, been said that under Delaware law fair 

value can be determined “by any techniques or methods 

which are generally considered acceptable in the financial 

community,” 154 and “[i]t is not a breach of faith for directors 

to determine that the present stock market price of shares is 

not representative of true value or that there may indeed be 

several market values for any corporation's stock.” 155 As 

former Chancellor Allen wrote in his Time–Warner decision, 

which was affirmed by the Delaware Supreme Court, “[J]ust 

as the Constitution does not enshrine Mr. Herbert's social 

statics, neither does the common law of directors' duties 

elevate the theory of a single, efficient capital market to the 

dignity of a sacred text.” 156 But, there are critical differences 

between this case and Time–Warner. In Time–Warner, the 

board of Time, however wrongly, believed that the value 

of the Time–Warner combination would exceed the value 

offered by the $200 per share Paramount tender offer when 

the dust on the Texas deal range ultimately settled. 157 

Here, the Special Committee did not believe that Southern 

Peru was being undervalued *805 by the stock market. 

To the contrary, its financial advisor Goldman, after months 

of study, rendered analyses suggesting that Southern Peru 

was being overvalued by the market. The corresponding 

fundamental analyses of Minera showed that Minera was 

worth nowhere close to the $3.1 billion in real value that 

Grupo Mexico was demanding. This was not a situation 

where Goldman and the Special Committee believed that 

Minera was being undervalued even more than Southern Peru 

and therefore that Southern Peru would be getting more than 

$3.1 billion in value for giving up stock it could sell for $3.1 

billion in real cash. 

In other words, the Special Committee did not respond to 

its intuition that Southern Peru was overvalued in a way 

consistent with its fiduciary duties or the way that a thirdparty 

buyer would have. As noted, it did not seek to have 

Grupo Mexico be the buyer. Nor did it say no to Grupo 

Mexico's proposed deal. What it did was to turn the gold 

that it held (market-tested Southern Peru stock worth in cash 

its trading price) into silver (equating itself on a relative 



basis to a financially-strapped, non-market tested selling 

company), and thereby devalue its own acquisition currency. 

Put bluntly, a reasonable third-party buyer would only go 

behind the market if it thought the fundamental values were 

on its side, not retreat from a focus on market if such a 

move disadvantaged it. If the fundamentals were on Southern 

Peru's side in this case, the DCF value of Minera would have 

equaled or exceeded Southern Peru's give. But Goldman and 

the Special Committee could not generate any responsible 

estimate of the value of Minera that approached the value of 

what Southern Peru was being asked to hand over. 

Goldman was not able to value Minera at more than $2.8 

billion, no matter what valuation methodology it used, 

even when it based its analysis on Minera management's 

unadjusted projections. 158 As the plaintiff points out, 

Goldman never advised the Special Committee that Minera 

was worth $3.1 billion, or that Minera could be acquired at, 

or would trade at, a premium to its DCF value if it were a 

public company. Furthermore, the defendants' expert did not 

produce a standalone equity value for Minera that justified 

issuing shares of Southern Peru stock worth $3.1 billion at the 

time the Merger Agreement was signed. 

5. Can It All Be Explained By The 

Mysterious $1.30 Long–Term Copper Price? 

At trial, there emerged a defense of great subtlety that went 

like this. In reality, the Special Committee and Goldman did 

believe that Minera was worth more than $3.1 billion. Deep 

down, the Special Committee believed that the long-term 

direction of copper prices was strongly northward, and that as 

of the time of the deal were more like $1.30 per pound than 

the $1.00 that was the high range of Goldman's analysis for 

the Special Committee. This was, of course, a full $0.40 per 

pound higher than the $0.90 number used by Southern Peru in 

its own internal planning documents and its publicly disclosed 

financial statements, higher than the $0.90 used by Minera in 

its internal planning process, *806 and higher than the $0.90 

median of analyst price estimates identified by Goldman and 

relied on by Goldman in issuing its fairness opinion. 

According to the defendants, as effective negotiators, the 

Special Committee and Goldman perceived that if one applied 

this “real” long-term copper price trend to Minera, it would 

generate very high standalone values for Minera and thus be 

counterproductive from a negotiating standpoint. Hence, the 

Special Committee did not use these prices, but rather focused 

on a relative valuation approach, not because it obscured that 

Southern Peru was not obtaining a get as good as the give, but 

so Grupo Mexico would not recognize how great a deal that 

Southern Peru was getting. 

In support of this theory, the defendants presented a qualified 

academic, Eduardo Schwartz, who testified that if one valued 

Southern Peru and Minera on a relative valuation basis using 

the ultimate Goldman assumptions and a $1.30 copper price, 

Southern Peru actually paid far too little. 159 The theory 

of this expert and the defendants is that a rising copper 

price would have benefited Minera far more than it did 

Southern Peru. 160 Schwartz also says that Southern Peru's 

stock market trading price had to be explained by the fact 

that the stock market was actually using a long-term copper 

price of $1.30, despite the lower long term price that Southern 

Peru, other companies, and market analysts were using at the 

time. 161 

But what the defendants' expert did not do is telling. Despite 

his eminent qualifications, Schwartz would not opine on the 

standalone value of Minera, he would not lay his marker 

down on that. Furthermore, the implication that Minera 

would benefit more than Southern Peru from rising copper 

prices resulted from taking the assumptions of the Special 

Committee process itself, 162 in which great efforts had 

been made by Grupo Mexico and the Special Committee to 

optimize Minera's value and nothing comparable had been 

done to optimize Southern Peru's value. The defendants' 

expert appears to have given no weight to the nearly $300 

million EBITDA underestimate in the 2004 Southern Peru 

cash flow estimates, or to the fact that the 2005 estimates 

for Southern Peru also turned out to be close to $800 million 

less than estimated, whereas Minera did not outperform the 

2004 estimates used in the deal and outperformed the 2005 

estimates *807 by a far lower percentage than Southern 

Peru. The defendants' position that the Merger was fair in light 

of rising copper prices is also, as we shall see, undermined 

by evidence that they themselves introduced regarding the 

competitive performance of Southern Peru and Minera from 

2005 onward to 2010. That evidence illustrates that in terms 

of generating EBITDA, Southern Peru continued to be the 

company with the comparatively strong performance, while 

Minera lagged behind. 

Even more important, I can find no evidence in the actual 

record of deal negotiations of any actual belief by the Special 

Committee or Goldman that long-term copper prices were in 



fact $1.30, that it would be easy to rationalize a deal at the 

price Grupo Mexico suggested at copper prices of $1.30, but 

that for sound negotiating reasons, they would not run DCF 

analyses at that price, but instead move to a relative valuation 

approach. There is just nothing in the record that supports 

this as a contemporaneous reality of the negotiating period, 

as supposed to an after-the-fact rationalization conceived of 

for litigation purposes. 163 

The Special Committee members who testified admitted that 

they were taken aback by Goldman's analysis of Minera's 

standalone value. None said that they insisted that Goldman 

run models based on higher long-term copper prices or that 

they believed the long-term price that Southern Peru was 

using in its public filings was too low. It is hard to believe 

that if the Special Committee felt deep in its deal bones 

that the long-term copper price was higher than $1.00, it 

would not have asked Goldman to perform a DCF analysis 

on those metrics. Importantly, Southern Peru continued to 

use a long-term copper price of $0.90 per pound for internal 

planning purposes until December 31, 2007, when it changed 

to $1.20. 164 In terms of the negotiating record itself, the only 

evidence is that a long-term copper price of $1.00 was deemed 

aggressive by the Special Committee and its advisors and 

$0.90 as the best estimate. 165 Thus, Schwartz's conclusion 

that the market was assuming a long-term copper price of 

$1.30 in valuing Southern Peru appears to be based entirely 

on post-hoc speculation. Put simply, there is no credible 

evidence of the Special Committee, in the heat of battle, 

believing that the long-term copper price was actually $1.30 

per pound but using $0.90 instead to give Southern Peru an 

advantage in the negotiation process. 

Furthermore, the Special Committee engaged in no serious 

analysis of the differential effect, if any, on Southern Peru 

and Minera of higher copper prices. 166 That is *808 a 

dynamic question that involves many factors and, as I have 

found, the Special Committee did not attempt to “optimize” 

Southern Peru's cash flows in the way it did Minera's. The 

plaintiff argues that by simply re-running his DCF analyses 

using a long-term copper price assumption of $1.30, Schwartz 

glosses over key differences in the effect of an increase 

in long-term copper prices on the reserves of Minera and 

Southern Peru. Primarily, the plaintiff argues that if the longterm 

copper price assumption is increased to $1.30, then 

Southern Peru's reserves would have increased far more 

dramatically than Minera's and, therefore, the relative value 

of the two companies would not remain constant at a higher 

long-term copper price. The defendants, as discussed above, 

respond that Minera, not Southern Peru was more sensitive 

to increases in copper price assumptions, and thus, if higher 

copper prices are used the deal becomes even more favorable 

for Southern Peru. It is not clear if anybody really knew, at 

the time of the Merger, the extent to which the projections of 

Southern Peru or Minera would have changed in the event that 

the companies regarded $1.30 per pound as a reliable longterm 

copper price. But, the parties' arguments with respect 

to the relative effects of changes in the long-term copper 

price on Minera and Southern Peru's reserves end up being of 

little importance, because there is no evidence in the record 

that suggests that anyone at the time of the Merger was 

contemplating a $1.30 long-term copper price. 

The idea that the Special Committee and Goldman believed 

that copper prices were going steeply higher also makes its 

decision to seek a fixed exchange ratio odd, because the likely 

result of such price movements would have been, as things 

turned out, to result in Southern Peru delivering more, not 

less, in value to Grupo Mexico as a result of stock market 

price movements. Remember, the Special Committee said 

it sought such a ratio to protect against a downward price 

movement. 167 Perhaps this could be yet another indication of 

just how deeply wise and clandestine the Special Committee's 

negotiating strategy was. If the Committee asked for a collar 

or other limitation on the cash value it would pay in its 

stock, it would tip off Grupo Mexico that Minera was really 

worth much more than Southern Peru was paying. This sort of 

concealed motivation and contradiction is usually the stuff of 

international espionage, not M & A practice. I cannot say that 

I find a rational basis to accept that it existed here. To find that 

the original low standalone estimates, the aggressive efforts 

at optimizing cash flows, the charitable sharing of Southern 

Peru's own multiples, and, as we shall next discuss, the lastgasp 

measures to close the resulting value gap that yet still 

remained were simply a cover for a brilliant, but necessarily 

secret, negotiating strategy by the Special Committee and 

Goldman is difficult for a mind required to apply secular 

reasoning, rather than conspiracy theories or mysticism, to the 

record before me. 168 

*809 6. Grupo Mexico's “Concessions” Were 

Weak And Did Not Close The Fairness Gap 

In their briefs, the defendants point to certain deal terms 

agreed to by Grupo Mexico as evidence of the Special 

Committee's negotiating prowess. These provisions include 



(1) the commitment from Grupo Mexico to reduce Minera's 

net debt at closing to $1 billion; (2) the $100 million special 

transaction dividend paid out by Southern Peru as part of 

the Merger's closing; (3) post-closure corporate governance 

changes at Southern Peru designed to protect minority 

stockholders, including a requirement for review of relatedparty 

transactions; (4) the super-majority vote required to 

approve the Merger; and (5) the fixed exchange ratio. 

But, these so-called “concessions” did little to justify the 

Merger terms. Grupo Mexico was contractually obligated 

to pay down Minera's debt because of rising copper prices, 

and it had already paid down its debt to $1.06 million 

as of June 30, 2004. 169 The dividend both reduced the 

value of Southern Peru's stock price, allowing the Special 

Committee to close the divide between its 64 million 

share offer and Grupo Mexico's 67.2 million share asking 

price and paid out cash to Grupo Mexico, which got 

54% of the dividend. Many of the corporate governance 

provisions were first proposed by Grupo Mexico, including 

the review of related party transactions, so that Southern Peru 

would remain compliant with applicable NYSE rules and 

Delaware law. 170 Correctly, Grupo Mexico did not regard 

the Special Committee's corporate governance suggestions as 

differing much from the “status quo.” 171 After proposing a 

$500,000 threshold for review of related-party transactions 

by an independent committee of the board, 172 the Special 

Committee accepted Grupo Mexico's counterproposal for a 

$10 million threshold. 173 This was more a negotiation defeat 

than victory. 

As for the two-thirds supermajority vote, the Special 

Committee assented to it after asking for and not obtaining 

a majority of the minority vote provision. The Special 

Committee knew that Cerro and Phelps Dodge wanted to 

sell, and that along with Grupo Mexico, these large holders 

would guarantee the vote. At best, the Special Committee 

extracted the chance to potentially block the Merger if postsigning 

events convinced it to change its recommendation 

and therefore wield Cerro's vote against the Merger. 174 But, 

as I will *810 discuss in the next section, the Special 

Committee did not do any real thinking in the period between 

its approval of the Merger and the stockholder vote on the 

Merger. Furthermore, as has been noted, several key material 

facts regarding the fairness of the Merger were not, in my 

view, fairly disclosed. 

The Special Committee's insistence on a fixed exchange 

ratio, as discussed, is difficult to reconcile with its purported 

secret belief that copper prices were on the rise. Other than 

protection against a falling Southern Peru stock price, the 

only justification for using a fixed versus floating exchange 

ratio in the Merger was one often cited to when two public 

companies that are both subject to market price fluctuations 

announce a merger, which is that because they are similar 

companies and proposing to merge, the values of Southern 

Peru and Minera would rise and fall together after the market 

reacts initially to the exchange ratio. Handelsman referred to 

this justification in his testimony. 175 In other words, if the 

stock price of Southern Peru went up, the value of Minera 

would go up as well, and the relative valuation would stay the 

same. This would make more sense in a merger between two 

companies in the same industry with publicly traded stock, 

because both companies would have actual stock prices that 

might change because of some of the same industry-wide 

forces and because both stocks might trade largely on the deal, 

after the initial exchange ratio is absorbed into their prices. 

Here, by contrast, only Southern Peru's stock had a price that 

was subject to market movement. These were not two public 

companies—changes in Southern Peru's stock price were in 

an important sense a one-sided risk. A rising market would 

only lift the market-tested value of one side of the transaction, 

the Southern Peru side. And, of course, the switch to a fixed 

exchange ratio turned out to be hugely disadvantageous to 

Southern Peru. 176 

*811 7. The Special Committee Did Not Update Its 

Fairness Analysis In The Face of Strong Evidence 

That The Bases For Its Decision Had Changed 

The Special Committee had negotiated for the freedom to 

change its recommendation in favor of the Merger if its 

fiduciary duties so required, and had the vote of a major 

minority stockholder (Cerro) tied to a withdrawal of its 

recommendation, but instead treated the Merger as a foregone 

conclusion from the time of its October 21, 2004 vote to 

approve the Merger Agreement. There is no evidence to 

suggest that the Special Committee or Goldman made any 

effort to update its fairness analysis in light of the fact that 

Southern Peru had blown out its EBITDA projections for 

2004 and its stock price was steadily rising in the months 

leading up to the stockholder vote (perhaps because it had 

greatly exceeded its projections), even though it had agreed 

to pay Grupo Mexico with a fixed number of Southern 

Peru shares that had no collar. To my mind, the fact that 



none of these developments caused the Special Committee 

to consider renegotiating or re-evaluating the Merger is 

additional evidence of their controlled mindset. Other than 

Handelsman's phone call to Goldman, no member of the 

Special Committee made any effort to inquire into an update 

on the fairness of the Merger. The Special Committee's failure 

to get a reasoned update, taken together with the negotiation 

process and the terms of the Merger, was a regrettable and 

important lapse. 

Although an obvious point, it is worth reiterating that the 

Special Committee was comprised of directors of Southern 

Peru. Thus, from internal information, they should have 

been aware that Southern Peru was far outperforming the 

projections on which the deal was based. This should have 

given them pause that the exercise in optimizing Minera 

had in fact optimized Minera (which essentially made its 

numbers for 2004) but had undervalued Southern Peru, which 

had beaten its 2004 EBITDA estimates by 37%, some $300 

million. This reality is deepened by the fact that Southern 

Peru beat its 2005 estimates by 135%, while Minera's 2005 

EBITDA was only 45% higher than its estimates. These 

numbers suggest that it was knowable that the deal pressures 

had resulted in an approach to valuation that was focused 

on making Minera look as valuable as possible, while 

shortchanging Southern Peru, to justify the single deal that 

the Special Committee was empowered to evaluate. 

Despite this, Goldman and the Special Committee did 

not reconsider their contribution analysis, even though 

Southern Peru's blow-out 2004 performance would suggest 

that reliance on even lower 2005 projections was 

unreasonable. 177 Indeed, *812 the Merger vote was held 

on March 28, 2005, when the first quarter of 2005 was 

almost over. In that quarter alone, Southern Peru made $303.4 

million in EBITDA, over 52% of what Goldman estimated 

for the entire year. 

This brings me to a final, big picture point. In justifying their 

arguments, each side pointed in some ways to post-Merger 

evidence. Specifically, the defendants subjected a chart in 

support of their argument that rising copper prices would have 

disproportionately benefited Minera over Southern Peru in 

the form of having greater reserves, and that this justified the 

defendants' use of a relative valuation technique, and undercut 

the notion that Minera's value was dressed up, and Southern 

Peru's weather beaten during the Special Committee process. 

The problem for this argument is that reserves are relevant to 

value because they should generate cash flow. As has been 

mentioned, Goldman stretched to justify the deal by using a 

range of multiples that started at the bottom with Southern 

Peru's Wall Street consensus multiple for 2005E EBITDA and 

ended at the top with a management-generated multiple of 

6.5x. Both of these were well north of the 4.8x median of 

Goldman's comparables. And, of course, Goldman estimated 

that Minera would earn nearly as much as Southern Peru in 

2004, and more than Southern Peru in 2005. Neither estimate 

turned out to be even close to true. Indeed, the Merger was 

premised on the notion that over the period from 2005 to 

2010, Minera would generate $1.35 of EBITDA for every 

$1.00 of Southern Peru. Using the underlying evidence cited 

in the defendants' own chart, 178 which came from the public 

financials of Southern Peru, a company under their continued 

control, after the Merger, my non-mathematician's evaluation 

of this estimate reveals that it turned out to be very far off 

the mark, with Minera generating only $0.67 for every dollar 

Southern Peru made in EBITDA. Put simply, even in a rising 

copper price market, Southern Peru seemed to more than hold 

its own and, if anything, benefit even more than Minera from 

the general rise in copper prices. 

The charts below addressing the companies' performance in 

generating EBITDA in comparison to the deal assumptions, 

if anything, confirms my impression that *813 Minera's 

value was optimized and Southern Peru's slighted to come 

to an exchange price no reasonable third party would have 

supported: 

2005 179 2006 2007 2008 2009 2010 Sum 

Minera $ 971.6 $1405.5 $1731.2 $ 856.5 $ 661.9 $1078.3 $ 6705.0 

Southern Peru $1364.8 $1918.4 $2085.4 $1643.5 $1144.8 $1853.8 $10010.7 

Ratio MM/SP .71 .73 .83 .52 .58 .58 .67 



For all these reasons, I conclude that the Merger was unfair, 

regardless of which party bears the burden of persuasion. 

The Special Committee's cramped perspective resulted in a 

strange deal dynamic, in which a majority stockholder kept 

its eye on the ball—actual value benchmarked to cash—and a 

Special Committee lost sight of market reality in an attempt to 

rationalize doing a deal of the kind the majority stockholder 

proposed. After this game of controlled mindset twister and 

the contortions it involved, the Special Committee agreed 

to give away over $3 billion worth of actual cash value in 

exchange for something worth demonstrably less, and to do 

so on terms that by consummation made the value gap even 

worse, without using any of its contractual leverage to stop 

the deal or renegotiate its terms. Because the deal was unfair, 

the defendants breached their fiduciary duty of loyalty. 

I now fix the remedy for this breach. 

IV. Determination Of Damages 

A. Introduction 

The plaintiff seeks an equitable remedy that cancels or 

requires the defendants to return to Southern Peru the shares 

that Southern Peru issued in excess of Minera's fair value. In 

the alternative, the plaintiff asks for rescissory damages in 

the amount of the present market value of the excess number 

of shares that Grupo Mexico holds as a result of Southern 

Peru paying an unfair price in the Merger. The plaintiff 

claims, based on Beaulne's expert report, that Southern Peru 

issued at least 24.7 million shares in excess of Minera's fair 

value. 181 The plaintiff asserts that, because *814 Southern 

Peru effected a 2–for–1 stock split on October 3, 2006 and a 

3–for–1 stock split on July 10, 2008, those 24.7 million shares 

have become 148.2 million shares of Southern Peru stock, 

and he would have me order that each of those 148.2 million 

shares be cancelled or returned to Southern Peru, or that the 

defendants should pay fair value for each of those shares. 

Measured at a market value of $27.25 per Southern Peru share 

on October 13, 2011, 148.2 million shares of Southern Peru 

stock are worth more than $4 billion. 

The plaintiff also argues that $60.20 in dividends have 

been paid on each of the 24.7 million Southern Peru 

shares (adjusted for stock-splits), and to fully remedy the 

defendants' breach of fiduciary duty the court must order 

that the defendants must pay additional damages in the 

amount of approximately $1.487 billion. Finally, the plaintiff 

requests pre and postjudgment interest compounded monthly, 

a request that seems to ignore the effect of the dividends just 

described. 

By contrast, the defendants say that no damages at all are 

due because the deal was more than fair. Based on the fact 

that Southern Peru's market value continued on a generally 

upward trajectory in the years after the Merger—even though 

it dropped in response to the announcement of the Merger 

exchange ratio and at the time of the preliminary proxy— 

the defendants say that Southern Peru stockholders should 

be grateful for the deal. At the very least, the defendants 

say that any damage award should be at most a fraction of 

the amounts sought by the plaintiff, and that the plaintiff 

has waived the right to seek rescissory damages because of 

his lethargic approach to litigating the case. The defendants 

contend that it would be unfair to allow the plaintiff to benefit 

from increases in Southern Peru's stock price that occurred 

during the past six years, because Grupo Mexico bore the 

market risk for so long due to the plaintiff's own torpor. 

The defendants also argue that the plaintiff's delays warrant 

elimination of the period upon which pre-judgment interest 

might otherwise be computed, and that plaintiff should not be 

entitled to compounded interest. 

[10] [11] This court has broad discretion to fashion 

equitable and monetary relief under the entire fairness 

standard. 182 Unlike the more exact process followed in an 

appraisal action, damages resulting from a breach of fiduciary 

duty are liberally calculated. 183 As long as there is a basis for 

an estimate of damages, and the plaintiff has suffered harm, 

“mathematical certainty is not required.” 184 In addition to an 

actual award of monetary relief, this court has the authority 

to grant pre-and post-judgment interest, and to determine the 

form of that interest. 185 

The task of determining an appropriate remedy for the 

plaintiff in this case is difficult, for several reasons. First, 

as the defendants point out, the plaintiff caused this case 

to languish and as a result this litigation has gone on 

for six years. Second, both parties took an odd approach 

to presenting valuation evidence, particularly *815 the 

defendants, whose expert consciously chose not to give an 

estimate of Minera's value at the time of the Merger. Although 

the plaintiff's expert gave no opinion on the fundamental 

value of Southern Peru, that did not matter as much as 

the defendants' expert's failure to give such an opinion, 



because the defendants themselves conceded that Southern 

Peru's acquisition currency was worth its stock market value. 

Third, the parties devoted comparatively few pages of their 

briefs to the issue of the appropriate remedy. Finally, the 

implied standalone DCF values of Minera and Southern Peru 

that were used in Goldman's final relative valuation of the 

companies are hard to discern and have never been fully 

explained by the source. 

These problems make it more challenging than it would 

already be to come to a responsible remedy. But, I will, as I 

must, work with the record I have. 

In coming to my remedy, I first address a few of the 

preliminary issues. For starters, I reject the defendants' 

argument that the post-Merger performance of Southern 

Peru's stock eliminates the need for relief here. As noted, 

the defendants did not bother to present a reliable event 

study about the market's reaction to the Merger, and there 

is evidence that the market did not view the Merger as fair 

in spite of material gaps in disclosure about the fairness of 

the Merger. Furthermore, even if Southern Peru's stock has 

outperformed comparable companies since the Merger, the 

company may have performed even better if the defendants 

had not overpaid for Minera based on its own fundamentals. 

Notably, Southern Peru markedly outperformed the EBITDA 

estimates used in the deal for both 2004 and 2005, and the 

ratio of Southern Peru's EBITDA to Minera's EBITDA over 

the six years since the Merger suggests that the assumptions 

on which the Merger was based were biased in Minera's favor. 

A transaction like the Merger can be unfair, in the sense that 

it is below what a real arms-length deal would have been 

priced at, while not tanking a strong company with sound 

fundamentals in a rising market, such as the one in which 

Southern Peru was a participant. That remains my firm sense 

here, and if I took into account the full range of post-Merger 

evidence, my conclusion that the Merger was unfair would be 

held more firmly, rather than more tentatively. 

By contrast, I do agree with the defendants that the plaintiff's 

delay in litigating the case renders it inequitable to use a 

rescission-based approach. 186 Rescissory damages are the 

economic equivalent of rescission and therefore if rescission 

itself is unwarranted because of the plaintiff's delay, so 

are rescissory damages. 187 Instead of entering a rescissionbased 

remedy, I will craft from the “panoply of equitable 

remedies” within this court's discretion a damage award 

that approximates the difference between the price that the 

Special Committee would have approved had the Merger 

been entirely fair (i.e., absent a breach of fiduciary duties) 

and the price that the Special Committee actually agreed to 

pay. 188 In other words, I will take the difference between 

this fair price and the market value of 67.2 million shares 

*816 of Southern Peru stock as of the Merger date. 189 That 

difference, divided by the average closing price of Southern 

Peru stock in the 20 trading days preceding the issuance 

of this opinion, will determine the number of shares that 

the defendants must return to Southern Peru. Furthermore, 

because of the plaintiff's delay, I will only grant simple 

interest on that amount, calculated at the statutory rate since 

the date of the Merger. 

In all my analyses, I fix the fair value of Minera at October 

21, 2004, the date on which the Merger Agreement was 

signed. I do not believe it fair to accord Grupo Mexico any 

price appreciation after that date due to its own fixation on 

cash value, the fact that Southern Peru outperformed Minera 

during this period, and the overall conservatism I employ 

in my remedial approach, which already reflects leniency 

toward Grupo Mexico, given the serious fairness concerns 

evidenced in the record. 

B. The Damages Valuation 

[12] Having determined the nature of the damage award, I 

must next determine the appropriate valuation for the price 

that the Special Committee should have paid. Of course, 

this valuation is not a straightforward exercise and inevitably 

involves some speculation. There are many ways to fashion 

a remedy here, given that the parties have provided no real 

road map for how to come to a value, and the analyses 

performed by Goldman and the Special Committee do not 

lend themselves to an easy resolution. I will attempt to do my 

best on the record before me. 

Given the difference between the standalone equity values of 

Minera derived by Goldman and the plaintiff's expert and the 

actual cash value of the $3.75 billion in Southern Peru stock 

that was actually paid to Grupo Mexico in the Merger, this 

record could arguably support a damages award of $2 billion 

or more. My remedy calculation will be more conservative, 

and in that manner will intentionally take into account some 

of the imponderables I previously mentioned, which notably 

include the uncertainties regarding the market's reaction to the 

Merger and the reality that the Merger did not stop Southern 

Peru's stock price from rising over the long term. 190 



To calculate a fair price for remedy purposes, I will 

balance three values: (1) a standalone DCF value of Minera, 

calculated by applying the most aggressive discount rate used 

by Goldman in its DCF analyses (7.5%) and a long-term 

copper price of $1.10 per pound to the DCF model presented 

by the plaintiff's expert, Beaulne; (2) the market value of 

the Special Committee's 52 million share counteroffer made 

in July 2004, which was sized *817 based on months of 

due diligence by Goldman about Minera's standalone value, 

calculated as of the date on which the Special Committee 

approved the Merger; and (3) the equity value of Minera 

derived from a comparable companies analysis using the 

comparable companies identified by Goldman. 

1. A Standalone DCF Value 

The only standalone DCF value for Minera in the record 

that clearly takes into account the projections for Minera 

that Goldman was using on October 21, 2004 is Beaulne's 

DCF analysis of Minera, which yielded an equity value as 

of October 21, 2004 of $1.838 billion. 191 Beaulne used the 

same A & S-adjusted projections for Minera that Goldman 

used in its October 21, 2004 presentation to calculate his 

standalone DCF value for Minera. 192 He assumes a longterm 

copper price of $0.90 per pound, which was also relied 

on by Goldman. 193 The major difference between Beaulne's 

DCF analysis and the Goldman DCF analysis, other than the 

fact that Goldman gave up on deriving a standalone equity 

value for Minera, is that Beaulne uses a lower discount rate 

than Goldman did—6.5% instead of 8.5%. 194 

Because Beaulne used the same underlying projections in his 

analysis, and his inputs are not disputed by the defendants 

or the defendants' expert, I am comfortable using his DCF 

valuation model. But, I am not at ease with using his discount 

rate of 6.5%, because it is outside the range of discount 

rates used by Goldman and seems unrealistically low. Instead, 

I will apply Goldman's lowest discount rate, 7.5%. In the 

spirit of being conservative in my remedy, I will, by contrast, 

apply a long-term copper price of $1.10 per pound, which 

is $0.10 more than the highest long-term copper price used 

by Goldman in its valuation matrices ($1.00) and is halfway 

between Goldman's mid-range copper price assumption of 

$0.90 and the $1.30 per pound long-term copper price that 

the defendants contend was their secretly held assumption at 

the time of the Merger. In other words, I use the discount 

rate assumption from the Goldman analyses that is most 

favorable to the defendants and a long-term copper price 

assumption that is even more favorable to the defendants than 

Goldman's highest long-term copper price, and apply them to 

the optimized cash flow projections of Minera. Under these 

defendant-friendly assumptions, a standalone equity value for 

Minera as of October 21, 2004 of $2.452 billion results. 195 

*818 2. The Value Of The 

Special Committee's July Proposal 

The counteroffer made by the Special Committee in July 

2004, in which they proposed to pay for Grupo Mexico's stake 

in Minera with 52 million shares of Southern Peru stock, is 

arguably the last proposal made by the Special Committee 

while they still had some vestige of a “give/get” analysis 

in mind that a reasonable, uncontrolled Special Committee 

would have remained in during the entire negotiation process. 

I therefore believe that the then-current value of 52 million 

shares is indicative of what the Special Committee thought 

Minera was really worth. 

The Special Committee's July proposal was made between 

July 8, 2004 and July 12, 2004. The stock price of Southern 

Peru on July 8, 2004 was $40.30 per share, so the 52 million 

shares of Southern Peru stock then had a market price of 

$2.095 billion. Because Grupo Mexico wanted a dollar value 

of stock, I fix the value at what 52 million Southern Peru 

shares were worth as of October 21, 2004, the date on 

which the Special Committee approved the Merger, $2.388 

billion, 196 giving Minera credit for the price growth to that 

date. 

3. A Comparable Companies Approach 

In its October 21, 2004 presentation, Goldman identified 

comparable companies and deduced a mean and median 

2005 EBITDA multiple (4.8x) that could have been 

applied Minera's EBITDA projections to value Minera. The 

comparable companies used by Goldman were Antofagasta, 

Freeport McMoRan, Grupo Mexico itself, Phelps Dodge and 

Southern Peru. Goldman did not use this multiple to value 

Minera. As discussed earlier in this opinion, Goldman instead 

opted to apply a range of pumped-up Southern Peru 2005E 

EBITDA multiples to Minera's EBITDA projections so as to 



generate a value expressed only in terms of the number of 

Southern Peru shares to be issued. 197 

that premium to the value derived from my comparable 

companies analysis yields a value of $2.45 billion. 

Applying the median 2005E EBITDA multiple for the 

comparable companies identified by Goldman to Minera's 

2005 EBITDA projections as adjusted by A & S ($622 

million) 198 was the reasonable and fair valuation approach. 

Doing so yields a result of $1.986 billion. 199 

When using the comparable companies method, it is usually 

necessary to adjust for the fact that what is being sold is 

different (control of the entire company and thus over its 

business plan and full cash flows) than what is measured 

by the multiples (minority trades in which the buyer has no 

expectancy of full control over the company's strategy and 

thus influence over the strategy to maximize and spend its 

cash flows). 200 That is, the comparable companies method 

of analysis produces an equity valuation that includes an 

inherent minority trading discount because all of the data used 

for purposes of comparison is derived from minority trading 

values of the companies being used. 201 In appraisal cases, 

the court, in determining the fair value of the equity under 

a comparable companies method, must correct this minority 

discount by adding back a premium. 202 

*819 An adjustment in the form of a control premium 

is generally applied to the equity value of the company 

being valued to take into account the reality that healthy, 

solvent public companies are usually sold at a premium to the 

unaffected trading price of everyday sales of the company's 

stock. This method must be used with care, especially as 

to unlisted companies that have not proven themselves as 

standalone companies. For that reason, it is conservative 

that I add a control premium for Minera, given its financial 

problems and its lack of history as an independent public 

company. Using the median premium for merger transactions 

in 2004 calculated by Mergerstat of 23.4%, 203 and applying 

4. The Resulting Damages 

Giving the values described above equal weight in my 

damages analysis (($2.452 billion + $2.388 billion + $2.45 

billion) / 3), results in a value of $2.43 billion, which I then 

adjust to reflect the fact that Southern Peru bought 99.15%, 

not 100%, of Minera, which yields a value of $2.409 billion. 

The value of 67.2 million Southern Peru shares as of the 

Merger Date was $3.756 billion. 204 The remedy, therefore, 

amounts to $1.347 billion. 205 The parties shall implement 

my remedy as follows. They shall add interest at the statutory 

rate, without compounding, to the value of $1.347 billion 

from the Merger date, and that interest shall run until time of 

the judgment and until payment. 

Grupo Mexico may satisfy the judgment by agreeing to return 

to Southern Peru such number of its shares as are necessary 

to satisfy this remedy. Any attorneys' fees shall be paid out 

of the award. 206 

Within fifteen days, the plaintiff shall present an 

implementing order, approved as to form, or the parties' 

proposed plan to reach such an order. Too much delay has 

occurred in this case, and the parties are expected to bring this 

case to closure promptly, at least at the trial court level. 

V. Conclusion 

For all these reasons, the defendants breached their fiduciary 

duty of loyalty and judgment will be entered against them on 

the basis outlined in this decision. 

Footnotes 

1 On October 11, 2005, Southern Peru changed its name to “Southern Copper Corporation” and is currently traded on the NYSE under 

the symbol “SCCO.” 

2 Grupo Mexico held—and still holds—its interest in Southern Peru through its wholly-owned subsidiary Americas Mining Corporation 

(“AMC”). Grupo Mexico also held its 99.15% stake in Minera through AMC. AMC, not Grupo Mexico, is a defendant to this action, 

but I refer to them collectively as Grupo Mexico in this opinion because that more accurately reflects the story as it happened. 

3 JX–108 (UBS presentation to the Board (February 3, 2004)) at AMC0019912. 

4 JX–16 (resolutions on the establishment of the Special Committee (February 12, 2004)) at SP COMM 000441. 



5 The remaining plaintiff in this action is Michael Theriault, as trustee of and for the Theriault Trust. The defendants contend that the 

plaintiff does not qualify as an adequate fiduciary representative. This argument is premised largely on what the defendants see as the 

plaintiff's lack of familiarity with and understanding of the case. The plaintiff's less than active role in connection with this case, as 

evidenced by his absence at trial and lack of a fully developed knowledge about all of the litigation details, can in part be explained, 

though not be excused, by the protracted nature of these proceedings. This case lurched forward over a period of six years largely 

because of the torpor of the plaintiff's counsel, and the passage of time has had the regrettable effect of producing some turnover 

within the plaintiffs' ranks. Two of the original plaintiffs are no longer parties, and the remaining plaintiff, Michael Theriault, only 

became a party in 2008 because he inherited the claims as successor trustee upon the death of his father, an original plaintiff who had 

brought suit in his trustee capacity. It is against this regrettable backdrop that the defendants challenge Michael Theriault's adequacy 

as a derivative plaintiff. 

A derivative plaintiff “must be qualified to serve in a fiduciary capacity as a representative of the class of stockholders, whose 

interest is dependent upon the representative's adequate and fair prosecution of the action.” Emerald Partners v. Berlin, 564 A.2d 

670, 673 (Del.Ch.1989) (citation omitted). The defendant, however, bears the burden to show “a substantial likelihood that the 

derivative action is not being maintained for the benefit of the shareholders.” Id. at 674. Although a number of factors may be 

relevant to the adequacy determination, see In re Fuqua Indus., S'holder Litig., 752 A.2d 126, 130 (Del.Ch.1999) (citing factors), 

our Supreme Court has made clear that this is a very difficult burden unless the plaintiff has an actual economic conflict of 

interest or has counsel who is incompetent and suffers from such a conflict. See In re Infinity Broad. Corp. S'holders Litig., 

802 A.2d 285, 291 (Del.2002); see also In re Fuqua Indus., S'holder Litig., 752 A.2d at 130 (expressing principle); Kahn v. 

Household Acquisition Corp., 1982 WL 8778 (Del.Ch. Jan. 19, 1982); see generally Donald J. Wolfe, Jr. & Michael A. Pittenger, 

Corporate and Commercial Practice in the Delaware Court of Chancery, § 9.02(b)(1), at 9–32 (2009). The defendants have not 

met this burden. The defendants offer no evidence of an economic conflict between the plaintiff and the rest of the Southern Peru 

stockholders such that he would act in furtherance of his own self-interest at their expense. Although the plaintiff's failure to get 

himself up to speed is not laudable, neither was it such an egregious abdication of his role to supply a basis for disqualification, 

especially given the absence of facts suggesting an otherwise improper motive for maintaining the suit and the vigor with which 

his counsel have prosecuted the case since it was transferred to my docket. 

6 These individual defendants are Germán Larrea Mota–Velasco, Genaro Larrea Mota–Velasco, Oscar González Rocha, Emilio Carrillo 

Gamboa, Jaime Fernandez Collazo Gonzalez, Xavier García de Quevedo Topete, Armando Ortega Gómez and Juan Rebolledo Gout. 

7 The record in this case was made less reliable by the conduct of both sides. On the plaintiff's side, the prosecution moved slowly. 

Eventually, the banker from Goldman who worked for the Special Committee, Martin Sanchez, refused to come to Delaware to testify 

at trial, even though he had sat for a deposition in New York in 2009. Although one would hope that an investment banker would 

recognize a duty to a former client to come and testify, that expectation might be thought a bit unreasonable as Sanchez, who lives 

in Latin America, was being asked to testify in 2011 about a deal that closed in 2005, and he had left the employ of Goldman in 

2006. His absence is as much or more the fault of the plaintiff's slow pace as it is of the defendants. Another issue seems more the 

defendants' fault, or at least the fault of the former defendants, who were members of the Special Committee. Many of the minutes of 

the Special Committee meetings, including all minutes of any Special Committee meeting held after July 20, 2004, were not admitted 

into evidence by agreement of the parties. The defendants failed to produce minutes of these Special Committee meetings during fact 

discovery in this case, which ended on March 1, 2010. Then, on January 23, 2011, the defendants produced nearly all of the minutes 

of the Special Committee meetings that took place between July 20, 2004 and October 21, 2004. These minutes were rather obviously 

responsive to the discovery requests made by the plaintiff and there was no reasonable excuse for their non-production, which seems 

to have resulted from the migration of an attorney for the Special Committee to another job and a lack of diligence, rather than a lack 

of good faith, in the production process. The plaintiff moved to strike this post cut-off production, and an oral argument was held on 

the motion to strike on April 25, 2011. In re Southern Peru S'holders Litig., C.A. No. 961 (Del. Ch. Apr. 25, 2011) (TRANSCRIPT). 

At argument, the plaintiff's counsel admitted that he had not pressed for discovery of the missing minutes because the defendants' 

failure to produce them was advantageous to his case. Because the defendants produced the additional Special Committee meeting 

minutes only a few months before trial and the plaintiff was unwilling to re-depose witnesses and depose new witnesses based on this 

new information, the parties agreed to stipulate that such meetings occurred but not to admit them into evidence. The defendants never 

produced minutes for meetings of the Special Committee that defendants allege took place on August 5, 2004 and August 25, 2004. 

I am therefore missing important evidence which may have helped to inform my analysis of the Special Committee's deliberations. 

8 See JX–125 (Mining Mexico Form 20–F (July 14, 2004)) at 9 (“Our results were adversely affected in 2001 and 2002 by decreases 

in copper prices ... [U]nder pressure due to low metals prices and the resulting drop in liquidity, we restructured our debt in 2003 

because of our failure to make scheduled payments and our noncompliance with certain financial covenants contained in our credit 

agreements.”); id. at 19 (stating that in the “several year period prior to 2004,” Minera's “competitive and financial position had 

been negatively influenced” by low metal prices and that Minera had “changed its business plan, including the cessation of all but 



critically necessary capital expenditures ... and took several steps to downsize its operations in order to preserve cash resources,” but 

noting that the copper market had improved, which allowed Minera to “increase [its] levels of capital expenditures to levels consistent 

with [its] anticipated increased earnings growth.”); see also Tr. at 98 (Palomino) ( “Minera [ ] had been in pretty difficult financial 

conditions until 2002 or beginning of 2003.”). 

9 Parker Dep. at 50 (“It was apparent that the Minera properties had been severely cash constrained. There were large pieces of 

equipment that were parked because they were broken down and there weren't spare parts to repair them.”). 

10 See JX–105 (Goldman presentation to the Special Committee (September 15, 2004)) at SP COMM 006787 (showing net debt of 

Southern Peru was $15 million). 

11 JX–108 at AMC0019912. 

12 Id. 

13 JX–16 at SP COMM 000441. 

14 Although both Perezalonso and Ruiz were appointed to the Board by Grupo Mexico, the plaintiff does not contest that they were 

independent and unaffiliated with Grupo Mexico. See Aronson v. Lewis, 473 A.2d 805, 816 (Del.1984) (“[I]t is not enough to charge 

that a director was nominated by or elected at the behest of those controlling the outcome of a corporate election. That is the usual 

way a person becomes a corporate director. It is the care, attention and sense of individual responsibility to the performance of one's 

duties, not the method of election, that generally touches on independence.”). 

15 See Tr. at 21 (Palomino); see also JX–83 (minutes of Special Committee meeting (April 1, 2004)) (discussing the problems with the 

term sheet that the Special Committee had received on March 25, 2004). 

16 Tr. at 27 (Palomino). 

17 JX–156 (term sheet from Grupo Mexico to the Special Committee (May 7, 2004)) at SP COMM 007078. At this point in the 

negotiation process, Grupo Mexico mistakenly believed that it only owned 98.84% of Minera. As I will note, it later corrects for this 

error, and the final Merger consideration reflected Grupo Mexico's full 99.15% equity ownership stake in Minera. 

18 JX–101 (Goldman presentation to the Special Committee (June 11, 2004)) at SP COMM 003381. 

19 See Tr. at 221–222 (Handelsman) (“Q [the court].... But again I just want to be clear, I am not here—when I am ultimately looking at 

them, I am not looking at there is some sort of thing where, you know, the market was somehow overvaluing Southern Peru and that 

you have to sort of normalize for that. That's not what the committee ever considered. A. No. Q. Right. I just want you to understand 

there is obviously arguments you can make with respect to a thinly traded security like Southern Peru with the overhang of control 

that the trading price might not be as informative as something where there is a much more liquid float. A. Oh, I think there would 

have been a robust market for Southern Peru Copper in the copper industry at or better than the price that it traded at.”). Even though 

Handelsman testified that the Special Committee did not “seriously” consider whether Southern Peru could have sold 67 million 

shares into the market for some amount of money, because 67 million shares was close to 85% of the then outstanding Southern Peru 

stock, id. at 202 (Handelsman), when questioned by the court, he conceded that the market price of Southern Peru was a reliable 

measure of Southern Peru's worth. At the post-trial oral argument, the defendants' counsel further clarified Handelsman's belief that 

the market price was reliable. See In re Southern Peru S'holders Litig., C.A. No. 961, at 98 (Del. Ch. July 12, 2011) (TRANSCRIPT) 

(“A. [T]he [market] price [of Southern Peru] was what it was and [Handelsman] believed it ...”). In further exchange with the court, 

the defendants' counsel never contested that the market price was not a reliable indicator of Southern Peru's value. See e.g., id. at 99 

(“Q. ... [I]f your clients basically tell me the market price is the market price, and the market price is 3.1 billion and you are only up to 

2.7 billion, and you are trading at a multiple to DCF and you are buying something else at a multiple to DCF, that sounds like a pretty 

classic dumb deal. A. That's not what my clients believed ... [t]hey believed, as they testified, that they were getting a bargain; that 

Minera was worth more than the consideration that Grupo [Mexico] received.); id. at 105 (“Q. Let me just say my simplistic view of 

this is if your clients are not going to challenge, as they did not challenge, the market value of Southern Peru stock, then Southern 

Peru, the stock they gave up was basically worth the market price ... A. Right ...”). It is also worth noting that the Special Committee's 

advisors never advised it that Southern Peru's stock should be valued at a discount to its market value, that the defendants do not 

challenge the market price of Southern Peru in their briefs, and that the defendants' trial expert did nothing to question the reliability 

of the then-current market price. See Tr. at 464 (Schwartz) (“I didn't look at the liquidity, I didn't look at the control issues, I didn't 

look at other issues. I didn't look at other corporate companies that were trading.”). 

20 Tr. at 157 (Handelsman). 

21 Tr. at 159 (Handelsman) (“I think the committee was somewhat comforted by the fact that the DCF analysis of Minera [ ] and the 

DCF analysis of [Southern Peru] were not as different as the discounted cash flow analysis of Minera [ ] and the market value of 

Southern Peru.”). 

22 This is a word I do not use when I have to conduct a necessarily imperfect valuation of an asset. The word itself implies a certainty 

better attributed to an omniscient creator than a flawed human. 



23 See Tr. at 42 (Palomino) (“Q. ... [A]s of ... June 11, 2004, what was the special committee's view of the transaction that had been 

proposed by Grupo Mexico? A. That the figures that they were asking were too high ...”); Tr. at 156–57 (Handelsman) (“Q. What 

did you learn from these preliminary analyses that Goldman Sachs performed? A. That their results showed that the value of Minera 

[ ] was substantially less than the asked price of Grupo Mexico by a substantial margin ...”). 

24 JX–103 (Goldman presentation to the Special Committee (July 8, 2004)) at SP COMM 006896–SP COMM 006898. 

25 JX–18 (list of historical stock prices of Southern Peru) at 9 ($40.30 x 28,900,000 = $1,164,670,000; $40.30 x 71,300,000 = 

$2,873,390,000). 

26 Id. ($40.30 x 52,000,000 = $2,095,600,000). 

27 The exact terms of the Special Committee's proposed fixed exchange ratio are unclear on this record. 


29 Id. 

30 See id. at 48 (Palomino) (explaining that his impression at the time negotiations began was that Southern Peru was doing well in 

the market because “the market was estimating higher ore grades and higher copper prices than we thought were in fact going to be 

maintained in the long run”); id. at 313 (Jacob) (discussing rising copper prices in 2004). 

31 Between July 20, 2004 and August 21, 2004, the average closing price of Southern Peru stock was $38.28. JX–18 at 8–9 ($38.28 

x 80,000,000 = $3,062,400,000). 

32 JX–129 (Southern Peru Copper Corporation Schedule 14A (February 25, 2005) (Proxy Statement)) at 22. 

33 JX–18 at 8 ($41.20 x 67,000,000= $2,760,400,000). 

34 Id. ($45.72 x 67,000,000 = $3,063,240,000). 

35 JX–105 at SP COMM 006805. 

36 The EV/2005E EBITDA multiple of 6.3x used in this presentation was not a real market multiple, or even a Wall Street analysis 

consensus multiple, but an internal Southern Peru management number supposedly based on Southern Peru's internal projections 

for its 2005E EBITDA, unadjusted for royalty tax owed to the Peruvian government. As will be discussed, it seems aggressive, at 

the very least. 

37 JX–18 at 8 ($45.34 x 61,000,000 = $2,765,740,000; $45.34 x 72,000,000 = $3,264,480,000). 

38 Id. at 8 ($46.22 x 64,000,000 million = $2,958,080,000). 

39 Minera was contractually obligated to make mandatory prepayments on its long-term credit facilities when, among other things, 

the price of copper exceeded $0.88 per pound. See JX–125 at 55 (“when the price[ ] of copper ... exceed[s] $0.88 per pound ... we 

will pay an amount equal to 75% of the excess cash flow generated by the sales of such metals at the higher metal price, which 

will be applied first, to the amortization of Tranche B, then to the amortization of Tranche A.”). The price of copper went north of 

$0.88 per pound on October 15, 2003. The record shows that Minera was paying down its debt, presumably in compliance with its 

prepayment obligation. See JX–103 at SP COMM 006861 (Minera's net debt as of May 31, 2004 was $1.189 million); JX–107 (road 

show presentation (November 2004)) at SP COMM 006674 (Minera's net debt as of June 30, 2004 was $1.06 billion). 


41 Id. at 185 (Handelsman). 

42 Id. at 176 (Handelsman). 

43 JX–18 at 8 ($53.16 x 67,000,000 = $3,561,720,000). 

44 The parties further agreed that for the purposes of the two-thirds vote, each share would only be entitled to one vote. Thus, Grupo 

Mexico could only vote its 54.17% equity ownership, not the 63.08% voting power it ordinarily held due to the super-voting rights 

of the Founders Shares. 

45 14.2% and 13.95% respectively. 

46 The Founders Shares held by Cerro and Phelps Dodge were unregistered and thus could not be publicly sold in the marketplace. 

Securities Act of 1933 § 5(a), 15 U.S.C. § 77e(a) (2010). SEC Rule 144 provides an exemption from the registration requirements 

and allows public resale of restricted securities if certain conditions are met. But, Rule 144 contains volume restrictions that made it 

impossible for Cerro or Phelps Dodge to sell a bloc of their shares. Specifically, Cerro and Phelps Dodge, as “affiliates” of Southern 

Peru, were prevented from selling an amount greater than one percent of the outstanding Founders Shares in any three-month period. 

17 C.F.R. § 230.144(e) (2010). Absent registration, Cerro and Phelps Dodge faced a prolonged goodbye. 

47 Tr. at 182 (Handelsman) (“I had talked to the general counsel both of Grupo Mexico and Southern Peru about registration rights from 

the time of the first term sheet that Grupo Mexico sent.”). 

48 Id. at 167 (Handelsman) (“[W]e were all long-term holders, and we all had directors, so we were all affiliates. So none of us could 

really sell our shares.”); cf. id. at 184 (Handelsman) (discussing market difficulties of selling stock even if Cerro could cease to be 

an affiliate for purposes of the volume restrictions of Rule 144). 



49 See id. at 205 (Handelsman) (“Q. Do you know whether there were other people on behalf of Cerro that were speaking to Mr. Larrea 

at about that time [of the agreement to vote Cerro's shares in accordance with the Special Committee in exchange for registration 

rights] about Cerro's interest in selling its shares? A. I am sure there weren't.”). 

50 Id. at 168 (Handelsman) (“And both we and Phelps Dodge wanted to get out.”); id. at 167 (Handelsman) (“And quite frankly, we 

had an interest in selling our shares.”). 

51 Id. at 184–85 (Handelsman). 

52 JX–15 (letter agreement between AMC and Phelps Dodge (December 22, 2004)) at AMC0024877. 

53 JX–13 (Agreement and Plan of Merger (October 21, 2004)) § 5.9(b) ( “In the event that, prior to the Effective Time the Special 

Committee believes, in its good faith judgment, after receiving the advice of its outside legal counsel, that failing to do so would 

create a reasonable likelihood of breaching its fiduciary duties under applicable law, the Special Committee ... may ... withdraw or 

modify its approval or recommendation in favor of the [Merger].”). 

54 Id. 

* * * 

55 JX–18 at 7 ($45.90 x 67,200,000 = $3,084,480,000). 

56 During discovery, two Microsoft Excel worksheets were unearthed that appear to suggest the implied equity values of Minera and 

Southern Peru that underlie Goldman's October 21 presentation. One worksheet, which contains the Minera model, indicates an 

implied equity value for Minera of $1.25 billion using a long-term copper price of $0.90/lb and a discount rate of 8.5%. The other 

worksheet, which contains the Southern Peru model, indicates an implied equity value for Southern Peru of $1.6 billion using a 

copper price of $0.90 and a discount rate of 9.0%, and assuming a royalty tax of 2%. Both the plaintiff's expert and the defendants' 

expert relied on the projections contained in these worksheets in their reports. The defendants have also not contested the plaintiff's 

expert's contention that these worksheets include Goldman's discounted cash flow estimates as of October 21, 2004. 

57 JX–106 (Goldman presentation to the Special Committee (October 21, 2004)). 

58 JX–18 at 7 ($45.92 x 47,200,000 = $2,167,424,000; $45.92 x 87,800,000 = $4,031,776,000). 

59 See Tr. at 181–82 (Handelsman) (“We were sitting in Goldman Sachs' office in Mexico City on this October day, and a lawyer from 

Goldman's counsel called Goldman and said that—did they recognize that I had something that was the appearance of a conflict. And 

everybody looked at each other, and it was sort of incredulous about this and how it would come up on the morning of the date that 

the committee was supposed to vote. And I looked at it and I said, Well, if I have a conflict or they think I have a conflict or this is 

a potential for a conflict or there is an appearance of a conflict, then I won't vote.”). 

60 See, e.g., List of Historical Stock Prices of Antofagasta (October 21, 2004 to April 1, 2005), http://uk.finance.yahoo.com/q/hp? 

s=ANTO. L&b=21&a=09&c=2004&e=1&d=03&f =2005&g=d; List of Historical Stock Prices of FreeportMcMoRan (October 21, 

2004 to April 1, 2005), http:// finance.yahoo. com/q/hp?s=FCX&a=09&b=21&c=2004&d=03&e=1&f=2005&g=d; List of Historical 

Stock Prices of Grupo Mexico (October 21, 2004 to April 1, 2005), http:// finance.yahoo.com/q/hp?s=GMEXICOB. MX&a=09&b 

=21&c =2004&d=03&e=1&f=2005&g=d. 

61 Tr. at 187 (“Q. ... [b]efore the transaction closed at the end of April 2005, did the special committee do anything to determine whether 

the transaction was still fair? A. Well, I don't know what the special committee did, but I called a representative at Goldman and said, 

Has anything happened since the transaction was approved by the board that would suggest to you that this transaction was not fair? 

And I got the answer, no, nothing like that has happened.”). 

62 Southern Peru's 2004 full financial performance was publicly disclosed in its 2004 10–K, which was filed on March 16, 2005; the 

stockholder vote took place on March 28, 2005. Southern Peru's previously filed quarterly reports did not indicate that it would achieve 

such a high EBITDA. See, e.g., Southern Peru Copper Corporation 10–Q for the quarter ending September 30, 2004 (November 9, 

2004) at 3, available at http://sec. gov/Archives/edgar/data/1001838/000110465904034621/a04–13088_110q.htm, (showing 2004 

EBITDA for the last nine months of $597.8 million). But, the members of the Special Committee, as directors of the company, would 

have had access to the basic information contained in the 2004 10–K before it became public. Either way, the results were out 12 

days before the Merger vote. 

63 Southern Peru's actual 2005 EBITDA was $1.365 billion, as compared to Southern Peru's 2005E EBITDA based on unadjusted 

management projections of $581 million. 

64 Minera's actual 2005 EBITDA was $971.6 million, as compared to Minera's 2005E EBITDA based on unadjusted management 

projections of $672 million. 

65 JX–18 at 5 ($55.89 x 67,200,000 = $3,755,808,000). 

66 When Vice Chancellor Lamb left the Court in 2009, this case was reassigned to me. By that time, Vice Chancellor Lamb had already 

admonished the plaintiff for its torpid pace in prosecuting the case. In re Southern Peru S'holders Litig., C.A. No. 961 at 20 (Del. 

Ch. July 1, 2009) (TRANSCRIPT) (“I can't quite strongly enough express my displeasure at how delayed this litigation has been and 

the fact that it wasn't prepared for trial two or three years ago.”). 



67 Cf. In re Loral Space & Commc'ns Inc., 2008 WL 4293781, at *33 (Del.Ch. Sept. 19, 2008) (“For example, being a non-independent 

director who approved a conflict transaction found unfair does not make one, without more, liable personally for the harm caused. 

Rather, the court must examine that director's behavior in order to assess whether the director breached her fiduciary duties and, if a 

§ 102(b)(7) clause is in effect, acted with the requisite state of mind to have committed a non-exculpated breach.”). 

68 I recognize that this is a close question. The bottom line requirement of loyalty is that a director act in the best interests of the company 

and its stockholders, rather than for any other reason. See In re RJR Nabisco, Inc. S'holders Litig., 1989 WL 7036, at *15 (Del.Ch. 

Jan. 31, 1989). Myriad interests have caused fiduciaries to stray from the straight path. What I struggle with here is that a director 

would be considered interested because he (or in this case, his employer) desired the liquidity available to the other stockholders. 

Although I do not struggle with finding that a stockholder-representative in this situation has difficult incentives, I believe it would 

be mistaken to consider this sort of interest as constituting an interest in the formal sense of imposing liability for breach of the duty 

of loyalty absent a showing that the director in bad faith subordinated the best interests of the company in getting a fair price to his 

desire to have the liquidity available to other stockholders. Given that summary judgment in Handelsman's favor has already been 

granted and given the resources of Grupo Mexico and its affiliated defendants, this interesting question does not seem likely to have 

a real world effect. In view of that, I am even more reluctant to call a stockholder's desire for liquidity an interest, because there 

is likely utility in having directors who represent stockholders with a deep financial stake that gives them an incentive to monitor 

management and controlling stockholders closely. In a real way, Cerro and Phelps Dodge were seeking the same liquidity as other 

minority stockholders, although I realize Handelsman's service on the board was a choice that exacerbated Cerro's problem. 

69 See Kahn v. Tremont Corp., 694 A.2d 422, 428–29 (Del.1997) (applying entire fairness review to an interested transaction where the 

controlling shareholder of a corporation caused it to purchase shares of a second controlled corporation); Emerald Partners v. Berlin, 

726 A.2d 1215, 1221 (Del.1999) (applying entire fairness review to a merger whereby a controlled corporation acquired thirteen 

corporations controlled by the same shareholder); Leo E. Strine, Jr., The Inescapably Empirical Foundation of the Common Law of 

Corporations, 27 Del. J. Corp. L. 499, 510 (2002). 

70 In In re Pure Res., Inc., S'holders Litig., 808 A.2d 421, 443–46 (Del.Ch.2002); In re Cysive, Inc. S'holders Litig., 836 A.2d 531, 547– 

51 (Del.Ch.2003), In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 604, 617 (Del.Ch.2005), and more recently, In re CNX Gas 

Corp. S'holders Litig., 4 A.3d 397, 406–14 (Del.Ch.2010), the Court of Chancery has explained why there might be utility to having 

further guidance from the Supreme Court in this sensitive area of the law and the reasons why the standard articulated in Kahn v. Lynch 

Communication Systems, Inc., 638 A.2d 1110, 1117 (Del.1994), makes it difficult for parties to actually present questions regarding 

the standard to the Supreme Court. See In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d at 619–22 (explaining why this is so). 

71 Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del.1983) (citation omitted). 

72 Caution is required here. The entire fairness standard ill suits the inquiry whether disinterested directors who approve a self-dealing 

transaction and are protected by an exculpatory charter provision authorized by 8 Del. C. § 102(b)(7) can be held liable for breach 

of fiduciary duties. Unless there are facts suggesting that the directors consciously approved an unfair transaction, the bad faith 

preference for some other interest than that of the company and the stockholders that is critical to disloyalty is absent. The fact that 

the transaction is found to be unfair is of course relevant, but hardly sufficient, to that separate, individualized inquiry. In this sense, 

the more stringent, strict liability standard applicable to interested parties such as Grupo Mexico is critically different than that which 

must be used to address directors such as those on the Special Committee. 

73 See Weinberger, 457 A.2d at 711. 

74 Id. 

75 In re John Q. Hammons Hotels Inc. S'holder Litig., 2009 WL 3165613, at *13 (Del.Ch. Oct. 2, 2009) (citing Valeant Pharm. Int'l 

v. Jerney, 921 A.2d 732, 746 (Del.Ch.2007)). 

76 Weinberger, 457 A.2d at 711. 

77 See, e.g., Valeant Pharm. Int'l, 921 A.2d at 746 (“The two components of the entire fairness concept are not independent, but rather 

the fair dealing prong informs the court as to the fairness of the price obtained through that process.”). 

78 Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110 (Del.1994). 

79 See id. at 1117 (“Nevertheless, even when an interested cash-out merger transaction receives the informed approval of a majority of 

minority stockholders or an independent committee of disinterested directors, an entire fairness analysis is the only proper standard 

of review.”); see also In re Pure Res., Inc., S'holders Litig., 808 A.2d 421, 435–36 (Del.Ch.2002) (explaining this reality); In re Cox 

Commc'ns, Inc. S'holders Litig., 879 A.2d 604, 617 (Del.Ch.2005) (same); see also id. at 617 (“All in all, it is perhaps fairest and more 

sensible to read Lynch as being premised on a sincere concern that mergers with controlling stockholders involve an extraordinary 

potential for the exploitation by powerful insiders of their informational advantages and their voting clout. Facing the proverbial 800 

pound gorilla who wants the rest of the bananas all for himself, chimpanzees like independent directors and disinterested stockholders 

could not be expected to make sure that the gorilla paid a fair price. Therefore, the residual protection of an unavoidable review of 



the financial fairness whenever plaintiffs could raise a genuine dispute of fact about that issue was thought to be a necessary final 

protection.”) (citations omitted). 

80 See Lynch, 638 A.2d at 1117 (citation omitted). 

81 See Pl. Op. Post–Tr. Br. at 14 (citing Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del.1997); Gesoff v. IIC Indus., 902 A.2d 1130, 

1148 (Del.Ch.2006); Rabkin v. Olin Corp., 1990 WL 47648, at *6 (Del.Ch. Apr. 17, 1990)). 

82 As I have noted before, it is unclear to me if there is much, if any, practical implication of a burden shift. See In re Cysive, Inc. 

S'holders Litig., 836 A.2d 531, 548 (Del.Ch.2003) (“The practical effect of the Lynch doctrine's burden shift is slight. One reason 

why this is so is that shifting the burden of persuasion under a preponderance standard is not a major move, if one assumes, as I do, 

that the outcome of very few cases hinges on what happens if ... the evidence is in equipoise.”). 

83 Tremont, 694 A.2d at 429 (Del.1997) (citation omitted). 

84 Id. at 428. 

85 In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 604, 617 (Del.Ch.2005) (“But, in order to encourage the use of procedural devices 

such as special committees and Minority Approval Conditions that tended to encourage fair pricing, the Court [in Lynch ] did give 

transactional proponents a modest procedural benefit—the shifting of the burden of persuasion on the ultimate issue of fairness to 

the plaintiffs—if the transaction proponents proved, in a factually intensive way, that the procedural devices had, in fact, operated 

with integrity.”) (emphasis added) (citation omitted). 

86 Accord Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110, 1121 (“[U]nless the controlling or dominating shareholder can demonstrate 

that it has not only formed an independent committee but also replicated a process ‘as though each of the contending parties had in 

fact exerted its bargaining power at arm's length,’ the burden of proving entire fairness will not shift.”) (citing Weinberger v. UOP, 

Inc., 457 A.2d 701, 709–10 n. 7 (Del.1983)). 

87 Tremont, 694 A.2d at 424. 

88 Id. at 426 (“Although the three men were deemed ‘independent’ for purposes of this transaction, all had significant prior business 

relationships with Simmons or Simmons' controlled companies.”); id. at 429–30 (exploring the significance of the ties). 

89 Id. at 426–27 (discussing that the financial advisor was affiliated with the controlling stockholder, that the legal advisor was selected 

by the general counsel of both the company and the controlling stockholder, that the conflict check was performed by the general 

counsel, and that the legal advisor had represented the controlling stockholder's company in prior business deals). 

90 Id. at 427. 

91 Id. (noting that the special committee only met four times, that only one director was able to attend all the meetings, and that he was 

also the only director to attend the review sessions with the advisors). 

92 Id. at 430. 

93 Judge Quillen was then a member of the Superior Court and was sitting on the Supreme Court by designation. Id. at 423 n. *. 

94 Id. at 433 (Quillen, J., concurring) (noting the value of the deal to the controlling stockholder, the difficulties the controlling 

stockholder would face in trying to accomplish a similar deal with a non-affiliated entity, and the time constraint the controlling 

stockholder was under to achieve the tax savings). 

95 Id. 

96 Id. 

97 Id. (falling from $16 per share to $12.75 per share). 

98 Id. 

99 Id. (majority opinion) at 429. 

100 Id. at 428. 

101 See also Kahn v. Lynch Commc'n Sys., Inc., 638 A.2d 1110, 1121 (Del.1994) (discussing with approval the Supreme Court's 

conclusion in Rabkin v. Philip A. Hunt Chem. Corp. that “the majority stockholder's ‘attitude towards the minority,’ coupled with 

the ‘apparent absence of any meaningful negotiations as to price,’ did not manifest the exercise of arm's length bargaining by the 

independent committee” and that “the burden on entire fairness would not be shifted by the use of an independent committee which 

concluded its processes with ‘what could be considered a quick surrender’ to the dictated terms of the controlling shareholder.”) 

(citing Rabkin v. Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1106 (Del.1985)). 

102 See, e.g., In re Cysive, Inc. S'holders Litig., 836 A.2d 531, 548 (Del.Ch.2003) (“Because these devices are thought, however, to be 

useful and to incline transactions towards fairness, the Lynch doctrine encourages them by giving defendants the benefits of a burden 

shift if either one of the devices is employed.”). 

103 See William T. Allen et. al., Function Over Form: A Reassessment of Standards of Review in Delaware Corporation Law, 56 Bus. 

L. 1287, 1297 (2001) (explaining that standards of review should be functional, in that they should serve as a “useful tool that aids 

the court in deciding the fiduciary duty issue” rather than merely “signal the result or outcome.”). 



104 Obviously, if a more important shift was contingent upon this factor, the cost-benefit analysis would be closer. In part for that reason 

and, as importantly, because the role of an independent negotiating agent is different from that of an approving principal (to use 

economic, not legal concepts), see In re John Q. Hammons Hotels Inc. S'holder Litig., 2009 WL 3165613, at *12 (Del.Ch. Oct. 2, 

2009); In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 604, 645 (Del.Ch.2005), and because our statute often contemplates 

both the requirements of board and stockholder approval in third-party mergers, 8 Del. C. § 251, I am more comfortable according 

business judgment rule standard of review treatment to an interested transaction only if a transaction is contingent in advance on 

both: i) the negotiation, approval and veto authority of an independent board majority or special committee; and ii) the approval 

of a majority of the uncoerced, fully informed, and disinterested stockholders. In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 

at 643 (noting that such an alteration would “mirro[r] what is contemplated in an arms-length merger under § 251—independent, 

disinterested director and stockholder approval.”) (footnote omitted). Absent the assurance that the stockholders themselves have the 

opportunity to turn down the transaction freely, the costs of such a move would seem to outweigh the benefits. With a standard that 

would systemically encourage both the employment of an active independent negotiating agent and the empowerment of disinterested 

stockholders to protect themselves and hold those agents accountable, the benefits to investors could be considerable and there would 

be a better chance to focus litigation on those transactions that are most questionable, which would also make the cost-benefit ratio 

of the representative litigation process better for diversified investors. See id. at 643–45 (discussing how this reform would eliminate 

perverse litigation incentives and “encourage the filing of claims only by plaintiffs and plaintiffs' lawyers who genuinely believed 

that a wrong had been committed.”). 

105 See In re Cysive, Inc. S'holders Litig., 836 A.2d at 548–49 (explaining why this more searching approach tends to conflate the burdenshifting 

analysis with that of procedural fairness). 

106 See Allen et. al., supra note 103, at 1297–98. 

107 Cf. In re Cysive, Inc. S'holders Litig., 836 A.2d at 549 (noting that “it is unsurprising that few defendants have sought a pre-trial 

hearing to determine who bears the burden of persuasion on fairness” given “the factually intense nature of the burden-shifting 

inquiry” and the “modest benefit” gained from the shift). 

108 See Allen et. al., supra note 103, at 1303–04 n. 63 (noting the practical problems litigants face when the burden of proof they are 

forced to bear is not made clear until after the trial); cf. In re Cysive, Inc. S'holders Litig., 836 A.2d at 549 (“[I]n order to prove that a 

burden shift occurred because of an effective special committee, the defendants must present evidence of a fair process. Because they 

must present this affirmatively, they have to act like they have the burden of persuasion throughout the entire trial court process.”). 

109 See In re Cysive, Inc. S'holders Litig., 836 A.2d at 549 (noting that it is inefficient for defendants to seek a pre-trial ruling on the 

burden-shift unless the discovery process has generated a sufficient factual record to make such a determination). 

110 See Emerald Partners v. Berlin, 726 A.2d 1215, 1222–23 (Del.1999) (describing that the special committee must exert “real 

bargaining power” in order for defendants to obtain a burden shift); see also Beam v. Stewart, 845 A.2d 1040, 1055 n. 45 (Del.2004) 

(citing Kahn v. Tremont Corp., 694 A.2d 422, 429–30 (Del.1997)) (noting that the test articulated in Tremont requires a determination 

as to whether the committee members “in fact ” functioned independently). 

111 Tremont, 694 A.2d at 428. 

112 Rabkin v. Olin Corp., 1990 WL 47648, at *6 (Del.Ch. Apr. 17, 1990), aff'd, 586 A.2d 1202 (Del.1990) (TABLE) (“If an informed 

vote of a majority of the minority shareholders has approved a challenged transaction, and in fact the merger is contingent on such 

approval, the burden entirely shifts to the plaintiffs to show that the transaction was unfair to the minority.” (emphasis added)); see 

also In re Wheelabrator Techs., Inc. S'holders Litig., 663 A.2d 1194, 1203 (Del.Ch.1995) (same). 

113 In a merger where there is no controller and the disinterested electorate controls the outcome from the get go, there is no need to 

bargain over this element. In such a situation, it has long been my understanding of Delaware law, that the approval of an uncoerced, 

disinterested electorate of a merger (including a sale) would have the effect of invoking the business judgment rule standard of review. 

See, e.g., In re Wheelabrator Techs., Inc. S'holders Litig., 663 A.2d at 1201 n. 4, 1202–03 (describing the effect of an informed, 

uncoerced, and disinterested stockholder approval of a merger not involving a controlling stockholder and finding that such approval 

invokes the business judgment rule standard of review). It may be that a vote in that context does not involve “pure ratification,” see 

Gantler v. Stephens, 965 A.2d 695, 712–13 (Del.2009), but I have long understood that under our law it would invoke the business 

judgment rule standard of review. See Harbor Fin. Partners v. Huizenga, 751 A.2d 879, 890, 895–900 (Del.Ch.1999) (discussing 

history of the long tradition to invoking the business judgment rule standard when informed, disinterested stockholders approve a 

third-party merger and the limited waste exception to this effect); Solomon v. Armstrong, 747 A.2d 1098, 1113–17 (Del.Ch.1999), 

aff'd, 746 A.2d 277 (Del.2000) (citing cases to this effect); see also Allen et. al., supra note 103, at 1307–09 (expressing the policy 

rationale for giving full “ratification” effect to an uncoerced, disinterested shareholder vote). Perhaps a more nuanced nomenclature 

is needed to describe the traditional effect that a disinterested stockholder vote has had on the standard of review used to evaluate 

a challenge to an arm's length, third-party merger and to distinguish it from “classic” or “pure ratification.” See Harbor Finance 

Partners, 751 A.2d at 900 n. 78 (“For want of better nomenclature, I use the term [“ratification”] as describing a stockholder vote 



sufficient to invoke the business judgment rule standard of review.”). The key is not what you call it, but rather preserving the utility 

of a long-standing doctrine of our law. 

114 See In re John Q. Hammons Hotels Inc. S'holder Litig., 2009 WL 3165613, at *13 (Del.Ch. Oct. 2, 2009) (“Moreover, a clear 

explanation of the pre-conditions to the Merger is necessary to ensure that the minority stockholders are aware of the importance of 

their votes and their ability to block a transaction they do not believe is fair.”). 

115 See Bershad v. Curtiss–Wright Corp., 535 A.2d 840, 846 (Del.1987) (citations omitted). 

116 See JX–103 at SP COMM 006886 (generating a high-end standalone value of Minera of $2.085 billion, using the A & S-adjusted 

projections, a 7.5% discount rate, and a long-term copper price of $1.00/lb); id. at SP COMM 006898 (generating a mid-range relative 

value of 58.8 shares of Southern Peru, using A & S-adjusted projections, a 9.0% discount rate, and a long-term copper price of 

$0.90/lb). 

117 The vote is of no less importance for purposes of the disclosure analysis simply because the result of the vote was effectively a 

lock. Otherwise, the defendants would reap an analytical benefit from their decision not to condition the Merger on a majority of 

the minority vote. 

118 Grupo Mexico's equity share of Southern Peru increased from 54.2% to 75.1% as a result of the Merger. See JX–107. 

119 In its June 11, 2004 presentation, Goldman presented a DCF analysis that generated a midrange implied equity value for Minera of 

$1.7 billion, using an 8.5% discount rate, $0.90/lb long-term copper prices, and the A & S adjusted projections. JX–101 at SP COMM 

003375. In its July 8, 2004 presentation, Goldman presented a revised DCF analysis, which generated a mid-range implied equity 

value for Minera of $1.358 billion, using the same 8.5% discount rage, $0.90/lb long-term copper prices, and the A & S adjusted 

projections. JX–103 at SP COMM 006886. 

120 According to Goldman's spreadsheets produced by the plaintiff in discovery, Goldman arrived at a mid-range implied equity value 

of $1.254 billion for Minera, using an 8.5% discount rate and a $0.90 long-term copper price. The spreadsheets show that Southern 

Peru's mid-range implied equity value was $1.6 billion, assuming a 9.5% discount rate, a $0.90 long-term copper price, and a royalty 

tax rate of 2%. 

121 At the time of signing on October 21, 2004, Southern Peru shares were trading at $45.92. Given its capitalization of 80 million issued 

shares, Southern Peru's actual market equity value was $3.67 billion. 

122 JX–129 at 34. Southern Peru's EV/2005E EBITDA multiple of 5.5x was based on estimates of future results contained in selected 

Wall Street research reports, id. at 33, and appears to have been unadjusted for the $100 million dividend. Compare JX–106 at 24 n. 

1 (adjusting the multiple to account for the dividend, which increases Southern Peru's EV/2005E EBITDA multiple based on Wall 

Street consensus to 5.6x). 

123 Id. at 34. The comparable company EV/2005E EBITDA multiples were all based on median estimates published by the Institutional 

Brokers Estimate System. Id. at 33. 

124 JX–106 at SP COMM 004926. As discussed above, the 5.6x multiple (5.5x if unadjusted for the dividend) used by Goldman was 

based on estimates of Southern Peru's 2005E EBITDA as contained in Wall Street research reports. The materially higher 6.3x, 6.4x, 

and 6.5x multiples, however, were based on Southern Peru's internal projections for its 2005E EBITDA, which reduced the 2005E 

EBITDA figures to questionably low levels, given its strong performance in 2004 coupled with the incentives to decrease the figures 

in order to arrive at a higher multiple to support a 67.2 million share issuance for Minera. 

125 JX–106 at SP COMM 004926 (internal 2005E EBITDA projections ranging from $570 million to $592 million, where Wall Street 

projections were $664 million and its 2004 YTD annualized EBITDA was at that point $801 million). 

126 Id. (showing that at minimum, either a combination of a 6.4x multiple multiplied by management's unadjusted 2005E EBITDA for 

Minera or a 6.5x multiple multiplied by the A & S adjusted 2005E EBITDA for Minera was needed to justify an issuance of over 

67 million shares). 

127 The 2005E Wall Street consensus median multiple of the comparable companies used by Goldman for 2005 was 4.8x. JX–129 at 34. 

128 The 2005E Wall Street consensus multiple of Southern was 5.5x (unadjusted for the dividend) or 5.6x (adjusted for the dividend). 

JX–129 at 34; JX–106 at 24 n. 1 

129 JX–107 (Road Show Presentation) at SP COMM 006674. As I will discuss, this multiple was derived from an enterprise value of 

Minera of $4.1 billion. 

130 JX–106 at SP COMM 004926. 

131 Goldman's contribution analysis assumed that Minera's estimated 2005 EBITDA would be $622 million (as adjusted by A & S) or 

$672 (per the unadjusted management figures). The road show, however, implied an estimated 2005 EBITDA for Minera of $732 

million (derived by dividing the listed $4.1 billion enterprise value by the 5.6x EV/2005E EBITDA multiple). JX–107 at SP COMM 

006674. 



132 The road show assumed an estimated 2005 copper production of 365.4 Mt, JX–107 at SP COMM 006674, whereas, as of October 

21, 2004, A & S projected an estimated 2005 copper production of 329.1 Mt, and Minera itself projected an estimated 2005 copper 

production of 355.0 Mt. JX–106 at SP COMM 004918. 

133 JX–16 at SP COMM 000441. 

134 See Tr. at 14 (Palomino) (“Q. To what extent did the Special Committee have the authority to negotiate with Grupo Mexico? A. 

Well ... we had to evaluate in any way that deems to be desirable, in such manner as deems to be desirable. While we did not try to 

make our own proposals to Grupo Mexico, we could negotiate with them in the sense of telling them what it is that we don't agree 

with; and if we are going to evaluate this in a way that makes this transaction move forward, then you're going to have to change 

the things that we don't agree with or we won't be able to recommend it.”); id. at 143–44 (Handelsman) (“Q. To what extent was the 

Special Committee empowered to negotiate with Grupo Mexico? A. Well, the way I looked at this was that ... the committee was to 

educate itself and determine whether they believe that the proposed transaction was a good or bad one. If good, then the transaction 

would progress in its normal course. And if the committee found that the transaction was not beneficial to the shareholders other than 

Grupo Mexico of Southern Peru, then the committee would say no. And that if Grupo Mexico determined that it wanted to negotiate 

in the face of a no, it could do so.”); Palomino Dep. at 39–40 (“Our mandate was to evaluate the transaction and to—provided that 

the transaction was beneficial to all shareholders of [Southern Peru] and to minority shareholders in particular, to recommend to 

the board that the transaction be approved.”); id. at 106 (“Our mandate was to evaluate and recommend to the board, so we did ... 

I don't recall exactly what, if any, responsibilities were left or any purpose of the Special Committee was left after that.”); see also 

Handelsman Dep. at 34–35 (acknowledging that the resolution creating the Special Committee did not say “negotiate”). 

135 See In re Loral Space & Commc'ns Inc., 2008 WL 4293781, at *9 (Del.Ch. Sept. 19, 2008). 

136 But cf. Venoco, Inc. v. Eson, 2002 WL 1288703, at *7 (Del.Ch. June 7, 2002) (“The primary concern for directors, even if they 

are minority directors and significant shareholders, must be the best interests of the corporation rather than their own interests as 

shareholders.”). 

137 The defendants suggest that Handelsman's interest in liquidity had less to do with Cerro's wish for registration rights and more with 

improving Southern Peru's public float for the benefit of all minority shareholders. I have no doubts that Handelsman rationalized that 

granting the registration rights would create a better public float and more efficient market for Southern Peru shareholders, but this 

seems to me more of a high-minded justification rather than the driving reason why Handelsman pursued such rights. Handelsman 

has been an attorney for the Pritzker interests since 1978 and has represented them in various business transactions, and he admitted 

that it was very clear to him that the Pritzkers wanted to sell their shares and liquidate their ownership position in Southern Peru. 

Put simply, I do not decide the case on the inference that Handelsman, with the prospect of registration rights as part of the Merger 

dangling in front him, put the Pritzkers' interest wholly aside and only considered the benefit the registration rights created for the 

minority shareholders. 

138 The August 21, 2004 term sheet sent by Grupo Mexico to the Special Committee included “Liquidity and Support” provisions that 

would provide registration rights necessary to allow Cerro and Phelps Dodge to liquidate their holdings in Southern Peru after the 

close of the Merger. JX–157 at SP COMM 010487. The September 23, 2004 term sheet from the Special Committee stated that 

as to the possibility of Cerro and Phelps Dodge receiving registration rights for the sale of their shares in Southern Peru, the term 

sheet provided that such rights would be “[a]s determined in good faith by agreement among the Founding Stockholders, with the 

consultation of the Special Committee.” JX–159 at AMC 0027547. 

139 Cf. Merritt v. Colonial Foods, Inc., 505 A.2d 757, 765 (Del.Ch.1986) (“[T]he law, sensitive to the weakness of human nature and 

alert to the ever-present inclination to rationalize as right that which is merely beneficial, will accord scant weight to the subjective 

judgment of an interested director concerning the fairness of a transaction that benefits him.” (citation omitted)). 

140 Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del.1997). 

141 See In re Loral Space & Commc'ns Inc., 2008 WL 4293781, at *9, *24–25 (Del.Ch. Sept. 19, 2008). 

142 Pl. Op. Pre–Tr. Br. at 3. 

143 See Tr. at 49 (Palomino) (“[I]f you used these same numbers for Minera [ ] and Southern Peru [ ] and on the same parameters, then 

you were comparing apples to apples.”); see also Def. Op. Post–Tr. Br. at 17 (explaining that one of the major reasons the Special 

Committee used relative valuation was that it allowed Southern Peru and Minera to be evaluated using the same set of assumptions, 

“i.e., an apples-to-apples comparison.”). 

144 See JX–74 (summary of Grupo Mexico/UBS/GS meeting (March 9, 2004)) at SPCOMM 010049 (noting that “mine studies have 

recently been completed by third party experts for all of [Minera]'s mines to support their life and quality arguments ... [Grupo 

Mexico] is aware of no recent reports on [Southern Peru] mines”); see also Tr. at 355–56 (Beaulne) (discussing the differences 

between Minera's updated and optimized life-of-mine plan and the Southern Peru's stale life-of-mine plan). 

145 Parker Dep. at 41. 



146 Compare JX–103 at SP COMM 006883 (discussing Minera projections and noting that “[n]ew optimization plan for Cananea 

(‘Alternative 3’), recently developed by [Grupo Mexico] and Mintec was not included in the projections at this point. According 

to Mintec, such a plan could yield US $240mm in incremental value on a pre-tax net present value basis prior to any potential 

adjustments by [A & S], using a 8.76% real discount rate as per [Minera] management”) with JX–106 at SP COMM 004917 (noting 

that Minera projections “include new optimization plan for Cananea (‘Alternative 3’) developed by [Grupo Mexico] and Mintec.”). 

147 Parker Dep. at 44. 

148 See, e.g., JX–102 (Goldman presentation to the Special Committee (June 23, 2004)) at SP COMM 006976 (discussing Southern Peru 

projections and noting that “[A & S] changes to [Southern Peru] Case limited to CapEx assumptions; overall NPV impact of [A & 

S] changes to the model is about 70mm assuming 9% discount rate”). 

149 JX–75 (A & S comments to Goldman following its meeting with Mintec and Minera (June 25, 2004)) at SP COMM 006957. 

150 See Parker Dep. at 50; Tr. at 98 (Palomino); see also JX–47 (expert report of Daniel Beaulne) (March 16, 2010) (“Beaulne Report”) 

at 17 (discussing adverse effects of depressed metal prices and lower sales volumes on Minera's financial performance in 2001, 2002, 

and 2003). 

151 JX–106 at SP COMM 004917 (noting that Minera projections used in the fairness analysis “assume[ ] that [the Merger] closes on 

December 31, 2004.”). 

152 See In re Loral Space & Commc'ns Inc., 2008 WL 4293781, at *24 (Del.Ch. Sept. 19, 2008) (criticizing the special committee for 

its failure “to respond to the realities as an aggressive negotiator seeking advantage would have”). 

153 JX–33 (Goldman engagement letter (March 2, 2004)) at SP COMM 014786–SP COMM 014787 (providing for a flat fee structure). 

154 Weinberger v. UOP, Inc., 457 A.2d 701, 712–13 (Del.1983). 

155 Paramount Commc'ns, Inc. v. Time Inc., 571 A.2d 1140, 1150 n. 12 (Del.1989). 

156 Paramount Commc'ns, Inc. v. Time Inc., 1989 WL 79880, at *19 (Del.Ch. July 14, 1984), aff'd, 571 A.2d 1140 (Del.1989). 

157 Time, 571 A.2d at 1149. 

158 See JX–103 at SP COMM 006886. This value was calculated by applying Goldman's most aggressive assumptions (a $1.00 long-term 

copper price and 7.5% discount rate) to unadjusted projections provided by Minera management. I am not taking into account the $3 

billion valuation that was produced under the same assumptions in Goldman's June 11 presentation because at that point due diligence 

on Minera was still very much a work in progress. See also JX–101 at SP COMM 003338 (“Due diligence process is still ongoing ...”). 

159 Tr. at 445 (Schwartz). In his report, Schwartz, who used the same relative valuation methodology as Goldman did, sets forth a 

continuum of valuation results ranging from those based on the $0.90/lb long-term copper price used by Goldman to the $1.30/lb 

long-term copper price that he considered to be a reasonable assumption at the time. At $0.90/lb Minera was worth approximately 

67.6 million shares of Southern Peru stock, with a then-current market value of $1.7 billion; at $1.30 it was worth approximately 

80 million shares, with a then-current market value of $3.7 billion. JX–48 (expert report of Eduardo Schwartz) (April 21, 2010) 

(“Schwartz Report”) 25 at Ex. 2. These dollar values are derived from determining the number of shares that Southern Peru would 

issue for Minera under a relative DCF analysis using these copper price assumptions, multiplied by the $45.92 closing price of 

Southern Peru on October 21, 2004. 

160 Tr. at 437 (Schwartz) (“In this case, Minera [ ] was more sensitive to the price of copper. When we increase the price of copper, the 

value, the present value of Minera [ ] went higher than [Southern Peru] ...”); Schwartz Report 45 (“[A] lower copper price causes 

the calculated value of Minera to decrease to a greater extent than the value of [Southern Peru] using the same assumptions.”). 

161 Schwartz Report 36–43. 

162 Tr. at 481 (Schwartz) (“I got the Excel file from Goldman Sachs as modified by [A & S], and that's the data that I used to value 

both Minera [ ] and [Southern Peru].”). 

163 Defendants point to the testimony of Palomino as evidence of the Special Committee's bargaining strategy. Palomino testified that 

“strategically, it was to our advantage to try to be conservative with copper prices, because otherwise, the relative valuations would 

be altered in favor of Minera ... [t]he fact that the lower the price, the better for us, that was quite clear from the beginning.” Tr. at 

41 (Palomino). But nowhere does any piece of written evidence support this as being a genuine deal dynamic. 

164 JX–143 at 66 (Southern Copper Corporation Form 10–K (February 29, 2008)). 

165 JX–101; JX–102; JX–103; JX–105; JX–106. 

166 The value of copper mining companies is basically related to the reserves they have. A copper mining company's reserves are not 

fixed based on the amount of ore in the ground, but are rather a representation of how much of that ore can be mined at a profit. That 

calculation, of course, turns in large part on the long-term copper price. When the long-term copper price goes up, the company's 

reserves will increase without any new ore being discovered because at a higher price more ore can be taken from the mine at a 

profit. Accordingly, in the long term, the company will take more copper out of the ground and its projections may change to reflect 

an increase in its reserves. 




168 In contrast to Schwartz, the plaintiff's expert Daniel Beaulne determined a standalone fair value for Minera. Using a DCF analysis, 

Beaulne came up with an enterprise value for Minera of $2.785 billion as of October 21, 2004. See Beaulne Report at 42. Using 

a comparable companies analysis, Beaulne came up with an enterprise value for Minera of $2.831 billion as of October 21, 2004. 

Beaulne then took the average of the two enterprise values from each of the valuation approaches and added Minera's cash balance 

and subtracted Minera's debt, concluding that the “indicated equity value” of Minera was $1.854 billion as of October 21, 2004. 

Operating under the assumption that the “publicly traded share price of [Southern Peru] is a fair and accurate representation of the 

market value of a share of its common stock,” Beaulne multiplied the $1.854 billion equity value of Minera by the 99.15% interest that 

Southern Peru was purchasing and then divided that amount by the publicly-available share price of Southern Peru as of October 21, 

2004 adjusted by the $100 million transaction dividend (which translated to $1.25 per share). Out of conservatism, I adopt a different 

valuation for remedy purposes, but, if I had to make a binary choice, I would favor Beaulne's DCF analysis as more reliable than 

the Schwartz approval, which largely accepted (without any gumption check for, say, the $300 million in extra EBITDA Southern 

Peru earned in 2004) the defendant-friendly inputs of a flawed process and used an after-the fact generated copper price along with 

them to come to a determination of fairness. 

169 JX–125 at 55; JX–107 at SP COMM 006674. 

170 JX–156 at SP COMM 007080. 

171 JX–118 (UBS presentation to Grupo Mexico (July 2004)) at UBS–SCC00005558. 

172 JX–159 at AMC0027547. 

173 Compare JX–160 at SP COMM 010497 (offering $10 million threshold) with Pre–Tr. Stip at 15 (stipulating that parties agreed to 

$10 million threshold). 

174 Cerro's voting agreement required it to vote in accordance with the Special Committee's recommendation, but Phelps Dodge's voting 

agreement, which was entered into two months after the Merger was signed, did not have a similar provision. Rather, the agreement 

provided that, given the Special Committee's recommendation in favor of the Merger and the Board's approval of the Merger, Phelps 

Dodge expressed its current intention to vote in favor of the Merger. Although it seems that Phelps Dodge would be contractually 

entitled to vote against the Merger if the Special Committee had subsequently withdrawn its recommendation, nowhere does the 

agreement require such a result. Given Phelps Dodge's independent interest in obtaining the liquidity rights that were tied to the 

Merger, it is unclear how it would have voted if the Special Committee had changed its mind. Thus, because Phelps Dodge's vote 

by itself would be sufficient to satisfy the two-thirds supermajority vote condition, it is equally unclear what power the Special 

Committee actually had to stop the Merger once it was signed. 

175 Tr. at 175 (Handelsman) (“I thought the collar had some meaning, but I thought that it was less important because I believed—based 

on my feeling that a relative value of the two companies made sense, that ships rise with a rising tide and ships fall with a falling tide; 

and, therefore, the chances of the value of one getting out of sync with the value of the other was a chance that was worth taking, 

although it certainly would have been better to have the collar.”). 

176 The switch to a fixed exchange ratio turned out to be hugely disadvantageous to Southern Peru. If the Special Committee had instead 

accepted Grupo Mexico's original May 7, 2004 proposal for Southern Peru to issue $3.1 billion dollars worth of stock with the number 

of shares to be calculated based on the 20–day average closing price of Southern Peru starting five days before the Merger closed, 

Southern Peru would have only had to issue 52.7 million shares of Southern Peru stock, based on the 20–day average price at that 

time of $59.75 per share. In other words, if the Special Committee had done no negotiating at all and had simply accepted Grupo 

Mexico's first ask, Southern Peru would have issued about 14.5 million fewer shares to purchase Minera than it did after the Special 

Committee was finished negotiating. 

177 In their papers, both the plaintiff and the defendants point to evidence post-dating the Merger to support their arguments. See, e.g., Pl. 

Op. Post–Tr. Br. at 7–9, 18 (discussing post-Merger evidence of reported ore reserves for Southern Peru and post-Merger completion 

of a significant exploration program relating to Southern Peru's mines); Pl. Ans. Post–Tr. Br. at 12 (citing to evidence of Southern Peru 

and Minera's 2005 EBITDA performance); Def. Op. Post–Tr. Br. at 22 (including chart that shows investment return in Southern Peru 

and selected comparable companies from October 21, 2004 to June 27, 2011). Def. Ans. Post–Tr. Br. at Ex. A. As their supplemental 

letters after post-trial argument show, our law is not entirely clear about the extent to which such evidence can be considered. In an 

appraisal case, it is of course important to confine oneself to only information that was available as of the date of the transaction 

giving rise to appraisal. 8 Del. C. § 262(h) (“[T]he [c]ourt shall determine the fair value of the shares exclusive of any element of 

value arising from the accomplishment or expectation of the merger or consolidation.”). But even in appraisal, there are situations 

when post-transaction evidence has relevance. Cede & Co. v. Technicolor, Inc., 758 A.2d 485, 499 (Del.2000) (holding that postmerger 

evidence that validated a pre-merger forecast was admissible “to show that plans in effect at the time of the merger have born 

fruition.” (citation omitted)); Cavalier Oil Corp. v. Harnett, 1988 WL 15816, at *14 (Del.Ch. Feb. 22, 1988), aff'd, 564 A.2d 1137 

(Del.1989) (“[p]ost-merger data may be considered” if it meets the Weinberger standard pertaining to non-speculative evidence); 



see generally R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations and Business Organizations § 9.45 

(3d ed.1998) (discussing the court's ability to consider post-merger evidence in the appraisal context). In an entire fairness case, 

where the influence of control is important, there is a sucker insurance purpose to such evidence. See Gentile v. Rossette, 2010 WL 

2171613, at *2 (Del.Ch. May 28, 2010) (noting that “[s]ome rumination upon the outcome of the fair price and process dynamic ... 

cannot be avoided”); Ryan v. Tad's Enters., Inc., 709 A.2d 682, 697 (Del.Ch.1996) (considering post-merger events in determining 

whether merger price was fair). In this case, for example, the estimated cash flows for Southern Peru, which were not optimized, were 

important in setting the transaction price. As of the Merger date, the Special Committee and Grupo Mexico had access to results of 

Southern Peru that showed that the estimates for 2004 had been exceeded by a large amount and that Southern Peru was running well 

ahead of the 2005 estimate, suggesting that Southern Peru's non-optimized cash flow estimates might have been too low, whereas 

Minera's optimized cash flows seemed about right. The ultimate results from 2005 also cast serious doubt on the fairness of the 

relative valuation exercise that was used to justify the transaction. 

178 Def. Ans. Post–Tr. Br. at Ex. A. 

179 All actual EBITDA numbers are drawn from Southern Peru's post-Merger annual reports, which continue to report the results of the 

Southern Peru and the Minera businesses separately as operating segments. JX–138; JX–142; JX–143; JX–144; JX–146; JX–147. 

All numbers are in millions. 

180 

2005E 2006E 2007E 2008E 2009E 2010E Sum 

Minera $622.0 $530.0 $627.0 $497.0 $523.0 $567.0 $3366.0 

Southern Peru $581.0 $436.0 $415.0 $376.0 $350.0 $329.0 $2487.0 

Ratio MM/SP 1.07 1.22 1.51 1.32 1.49 1.72 1.35 

180 All estimated EBITDA numbers are based on the A & S-adjusted projections used in Goldman's October 21, 2004 presentation. 

The 2005E EBITDA numbers are based on the A & S-adjusted estimates in Goldman's contribution analysis, JX–106 at SP COMM 

004926 (which assume a 2% royalty tax on Southern Peru and certain other additional adjustments) and the 2006E–2010E EBITDA 

numbers are based on the A & S-adjusted projections underlying Goldman's final relative DCF analyses. Id. at SP COMM004918; 

SP COMM004920. 

* * * 

181 See Beaulne Report at 45. The 24.7 million figure is based on calculations as of the date of closing (April 1, 2005), rather than as of 

the date of Goldman's fairness opinion and the Special Committee's approval of the Merger (October 21, 2004). 

182 Int'l Telecharge, Inc. v. Bomarko, Inc., 766 A.2d 437, 439 (Del.2000) (noting that the Delaware Supreme Court “defer[s] substantially 

to the discretion of the trial court in determining the proper remedy....”); Weinberger v. UOP, Inc., 457 A.2d 701, 715 (Del.1983) 

(noting “the broad discretion of the Chancellor to fashion such relief as the facts of a given case may dictate”). 

183 Thorpe v. CERBCO, Inc., 676 A.2d 436, 444 (Del.1996). 

184 Bomarko, Inc. v. Int'l Telecharge, Inc., 794 A.2d 1161, 1184 (Del.Ch.1999), aff'd, 766 A.2d 437 (Del.2000). 

185 Summa Corp. v. Trans World Airlines, Inc., 540 A.2d 403, 409 (Del.1988). 

186 Ryan v. Tad's Enters., Inc., 709 A.2d 682, 699 (Del.Ch.1996) (highlighting the principle of equity that a plaintiff waives the right 

to rescission by excessive delay in seeking it, and extending that principle to rescissory damages, based on the policy reason that 

excessive delay allows plaintiffs to see whether the defendants achieve an increase in the value of the company before deciding to 

assert a claim). 

187 Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 855 A.2d 1059, 1072 (Del.Ch.2003). 

188 Weinberger v. UOP, Inc., 457 A.2d 701, 714 (Del.1983); Ryan, 709 A.2d at 699. 

189 As discussed earlier in this opinion, the Special Committee should have re-evaluated the Merger between signing and the stockholder 

vote due to changes in Southern Peru's stock price and Southern Peru's projection-shattering 2004 EBITDA and 2005 year to date 

performances. Instead, the Special Committee's decision to treat the Merger as a foregone conclusion was a-failure in terms of fair 

process. For this and other related reasons, I am therefore calculating damages with respect to the market value of Southern Peru 

shares as of the Merger date, April 1, 2005. 

190 I say did not stop rather than did not slow, because they are different. By being conservative in my approach to a remedy, I give the 

defendants credit for some of their market-based arguments, in a manner that one could even say I should not in a duty of loyalty 

case. See Thorpe v. CERBCO, Inc., 676 A.2d 436, 444 (Del.1996) (“Delaware law dictates that the scope of recovery for a breach of 

the duty of loyalty is not to be determined narrowly.”). But I think this is responsible because the record suffers from some issues, 

including the absence of a Goldman trial witness and likely diminished memories, that are properly laid at the plaintiff's door. 

191 Beaulne Report at 44. 

192 Id. at 21. 

193 Tr. at 340–341 (Beaulne). 



194 Beaulne Report at 36. Like Beaulne, I disregard the potential tax benefits of $0–131 million for Minera that Goldman factored in to 

its valuations as of the date of the fairness opinion. JX106 at SP COMM 004917. The schedules and estimates provided by Minera 

management to Goldman on the potential tax benefits are not in the record, making them difficult to evaluate. Moreover, Schwartz 

also disregards these potential tax benefits in his relative valuation analysis, Schwartz Report 22, and the defendants do not take 

issue with Beaulne's exclusion of them. 

195 Beaulne's model, adjusted to reflect my inputs, yields an enterprise value for Minera of $3.452 billion, from which I subtracted the $1 

billion in debt that Southern Peru assumed in the Merger. To the extent the defendants' gripe about the remedy, using the $0.90 per 

pound long-term copper price they told the investing public was the right number, the equity value of Minera would be only $1.512 

million. At the high end of the long-term copper prices used in Goldman's standalone DCF model, or $1.00 per per pound, Minera's 

value was only $1.982 million. This underscores the conservatism of my approach, given the record evidence. 

196 $45.92 closing price x 52,000,000 = $2,387,840,000. 

197 See JX–106 at SP COMM 004913, SP COMM 004925. 

198 Id. at SP COMM 004925. 

199 $1.986 billion = (4.8 x 622 million)—$1 billion net debt. 

200 Andaloro v. PFPC Worldwide, Inc., 2005 WL 2045640, at *16 (Del.Ch. Aug. 19, 2005). 

201 Borruso v. Commc'ns Telesystems Int'l, 753 A.2d 451, 458 (Del.Ch.1999). 

202 Agranoff v. Miller, 791 A.2d 880, 893 (Del.Ch.2001). 

203 2006 Mergerstat ® Review (Santa Monica: FactSet Mergerstat, LLC, 2006) at 24. 

204 $55.89 closing price x 67,200,000 = $3,755,808,000. 

205 $3.756 billion - $2.409 billion = $1.347 billion. 

206 The plaintiff has not sought to have the defendants pay his attorneys' fees. The parties shall confer regarding whether they can reach 

agreement on a responsible fee that the court can consider awarding, with the plaintiff's counsel taking into account the reality their 

own delays affected the remedy awarded and are a basis for conservatism in any fee award.

M&A Litigation: You Sold the Company and Bought ... - RR Donnelley

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