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Quinn-M&A Additional Materials
  • 1 Defacto Merger Doctrine and Successor Liability

    • 1.1 Spring Real Estate v. Echo/RT Holdings

      Fraudulent conveyance, successor liability

      1
      Spring Real Estate, LLC d/b/a Spring Capital Group
      v.
      Echo/RT Holdings, LLC
      2
      Court of Chancery of Delaware
      3
      C.A. No. 7994–VCN
      4
      Submitted: September 11, 2013
      5
      December 31, 2013
      6

      Eric J. Monzo, Esquire
      Morris James LLP
      500 Delaware Avenue, Suite 1500
      Wilmington, DE 19801

      7

      John L. Reed, Esquire
      Scott B. Czerwonka, Esquire
      Andrew H. Sauder, Esquire
      DLA Piper LLP (US)
      919 N. Market Street, Suite 1500
      Wilmington, DE 19801

      8
      John W. Noble, Vice Chancellor
      9

      Dear Counsel:

      10

      Plaintiff Spring Real Estate, L L C (“Spring Capital”)[1] seeks to recover on a $99,057.50 default judgment (the “RT Default Judgment”) entered against Defendant RayTrans Distribution Services, Inc. (“RayTrans”), a dissolved Illinois corporation.[2] Before it was dissolved, RayTrans sold substantially all of its assets to Defendant Echo/RT Holdings, LLC (“Echo/RT”), a Delaware limited liability company, through an Asset Purchase Agreement dated June 2, 2009 (the “Purchase Agreement”).[3] Defendant Echo Global Logistics, Inc. (“Echo”) guaranteed the performance of certain obligations of Echo/RT, its wholly-owned subsidiary, under the Purchase Agreement.[4]

      11

      Spring Capital is attempting to collect on the RT Default Judgment from Echo/RT, Echo, and RayTrans. RayTrans Holdings, Inc. (“RayTrans Holdings”) and James A. Ray (“Ray”) are named as Nominal Defendants. Spring Capital asserts two claims for declaratory judgment against Echo/RT and Echo (together, the “Echo Defendants”): first, that they have successor liability for the RT Default Judgment under the Purchase Agreement or under Delaware law (the “Successor Liability Claim”);[5] and second, that they are liable for the RT Default Judgment under the Illinois Business Corporation Act (the “Illinois Claim”).[6] Spring Capital also alleges that the Echo Defendants are liable for the RT Default Judgment because the Purchase Agreement was a fraudulent transfer under Delaware and Illinois law (the “Fraudulent Transfer Claims”).[7]

      12

      The Echo Defendants have moved to dismiss all four claims under Court of Chancery Rule 12(b)(6) for failure to state a claim (the “12(b)(6) Motion”).[8] For the following reasons, the Court grants the 12(b)(6) Motion.

      13
      I. BACKGROUND
      14
      A. The RT Default Judgment
      15

      Sierra Concrete Design, Inc., and Trevi Architectural, Inc. (together, the “Debtors”) filed for Chapter 7 bankruptcy on August 29, 2008.[9] In the ninety days preceding their bankruptcy filings, the Debtors made five payments totaling $98,807.50 to RayTrans.[10] On July 29, 2010, the trustee for the Debtors' estates filed a petition against RayTrans to recover that sum, alleging the payments were in violation of the bankruptcy laws.[11] RayTrans did not answer or otherwise respond to the petition, leading to entry of the RT Default Judgment on July 21, 2011.[12] Spring Capital purchased the RT Default Judgment from the Debtors' estates on August 20, 2012, and the RT Default Judgment remains unpaid.[13]

      16
      B. The Transaction Between the Echo Defendants and RayTrans
      17

      Spring Capital alleges generally that Echo/RT is “jointly and severally liable” for the RT Default Judgment “[a]s RayTrans's successor in liability.”[14] The specific allegations of how Echo/RT is liable for the RT Default Judgment are not only internally inconsistent, but also in conflict with the Purchase Agreement.

      18

      Initially, Spring Capital claims the assumption of liability was “pursuant to the June 2, 2009 Agreement,” an allegation it supports by citation to the Purchase Agreement.[15] At this point, it also recognizes that “Echo guaranteed payment and Echo/RT's performance of the June 2, 2009 Agreement.”[16] But, subsequently, Spring Capital alleges the Echo Defendants assumed RayTrans's liability through a merger, citing to a June 10, 2009, Echo press release announcing the transaction (the “Press Release”) for support.[17] Several other allegations in the Complaint suggest the transaction was a merger[18]—in fact, Spring Capital even implies that the Purchase Agreement contemplated a merger.[19]

      19

      Spring Capital makes generalized allegations about the assets and liabilities Echo/RT assumed in the transaction with RayTrans. The single specific allegation is that the liabilities Echo/RT assumed included

      20

      those directly relating to RayTrans's network of skilled transportation professionals and carriers that relate to RayTrans's specialty in flatbed, over-sized, auto-haul and other specific services, as well as traditional dry van brokerage, coupled with the relationships RayTrans built to service their shippers.[20]

      21

      Noticeably absent from this list is an allegation that Echo/RT expressly assumed the RT Default Judgment under the Purchase Agreement. Spring Capital does not otherwise reference, cite to, or quote from any specific provisions of the Purchase Agreement or other transactional document in support of its claims.

      22
      II. ANALYSIS
      23
      A. The Standard of Review
      24

      When presented with this 12(b)(6) Motion, the Court accepts all nonconclusory allegations in the Complaint as true and draws all reasonable inferences from those allegations in Spring Capital's favor.[21] Conversely, the Court may disregard conclusory allegations and unreasonable inferences.[22] Thus, the Court should grant the 12(b)(6) Motion only if Spring Capital “could not recover under any reasonably conceivable set of circumstances susceptible of proof.”[23]

      25

      Under Court of Chancery Rule 10(c), “[a] copy of any written instrument which is an exhibit to a pleading is a part thereof for all purposes.” Accordingly, the Court will consider the Purchase Agreement and the Press Release because they were attached to the Complaint.[24]

      26
      B. The Claims Against Echo/RT
      27

      Viewing the Complaint and the attached documents most favorably to Spring Capital, the only reasonable inference is that the transaction between Echo/RT and RayTrans was an asset purchase governed by the Purchase Agreement, not a merger suggested by the Press Release. The allegations to the contrary are without substance.

      28
      1. The Successor Liability Claim
      29

      Spring Capital contends that, under its reading of the Purchase Agreement, Echo/RT assumed “all obligations accruing, arising out of or relating to the conduct or operation of RayTrans's business”—which it argues would include the RT Default Judgment.[25] Were its contract interpretation incorrect, Spring Capital argues Echo/RT would still be liable for the RT Default Judgment under two alternate theories: either the Purchase Agreement was a de facto merger, or, after the Purchase Agreement, Echo/RT was a mere continuation of RayTrans.[26] Spring Capital further contends that it would be unjust and thus improper for Echo/RT to avoid liability for the RT Default Judgment.[27]

      30

      In response, Echo/RT contends Spring Capital has failed to allege an adequate basis for the Successor Liability Claim. Echo/RT opposes Spring Capital's interpretation of the Purchase Agreement, claiming instead that, under the terms of the contract, RayTrans retained the RT Default Judgment as a legal liability arising out of its conduct and operations before the closing date.[28] Separate from the express terms of the Purchase Agreement, Echo/RT argues Spring Capital has failed to allege the elements necessary for the Court to find successor liability under the de facto merger theory[29] or the continuation theory.[30]

      31

      Under the Purchase Agreement, Echo/RT assumed certain liabilities, and RayTrans retained all other liabilities.[31] Section 1.3 of the Purchase Agreement provides that Echo/RT assumed, among other specifically enumerated liabilities, “all obligations accruing, arising out of or relating to the conduct or operation of the Business or the ownership of the Purchased Assets from and after the Closing Date, including all such obligations arising out of any action, proceeding or other litigation.”[32] Conversely, Section 1.4 provides that RayTrans retained all unassumed liabilities, specifically including “any Liabilities (including any future legal actions) relating to or arising out of the ownership, conduct or operation of the Business or the Purchased Assets on or prior to the Closing Date.”[33]

      32

      In light of the unambiguous terms of the Purchase Agreement,[34] the Court concludes that Echo/RT did not assume, and thus RayTrans retained, liability for any legal claim arising out of the conduct or operation of RayTrans on or prior to the closing date of June 2, 2009[35]—which would include liability for the five payments in 2008 that comprise the RT Default Judgment. Therefore, as a matter of law, Echo/RT did not assume the RT Default Judgment through the Purchase Agreement.[36] Nonetheless, Spring Capital contends Echo/RT has successor liability under two Delaware law-based theories namely, the de facto merger theory and the continuation theory.

      33

      Almost always, a purchaser of assets “is liable only for liabilities it expressly assumes.”[37] It has been said that narrow situations, such as “where an avoidance of liability would be unjust,” may warrant an exception to this principle.[38] This Court, in discussing general jurisprudence on successor liability for asset purchasers, noted that Pennsylvania law recognizes four specific exceptions:

      34

      (1) the purchaser expressly or impliedly agrees to assume such obligations; (2) the transaction amounts to a consolidation or merger of the selling corporation with or into the purchasing corporation; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for such obligations.[39]

      35

      Spring Capital believes these exceptions, particularly the de facto merger and continuation theories, are also recognized under Delaware law.[40] Echo/RT does not challenge the accuracy of Spring Capital's recitation of Delaware law; rather, it maintains that the Complaint does not state a claim that should qualify under either theory of successor liability.[41]

      36

      The parties rely on a statement of Delaware law not from the Delaware Supreme Court or this Court, but instead from a federal court decision, Fehl v. S.W.C. Corp.[42] The Fehl court concluded that Delaware courts recognized, but construed narrowly, the de facto merger and continuation theories.[43]

      37

      Typically, Delaware does not recognize statutorily compliant asset sales as de facto mergers.[44] In other situations, when courts have recognized de facto mergers, application of the doctrine requires a corporation to have “transfer[red] all of its assets to another,” in exchange for stock consideration “issued by the transferee directly to the shareholders of the transferring corporation,” and “the transferee [to have] agree[d] to assume all the debts and liabilities of the transferor.”[45] Spring Capital did not allege that RayTrans failed to comply with the relevant asset transfer statute. In addition, as a matter of law under the unambiguous terms of the Purchase Agreement, RayTrans did not transfer all its assets;[46] Echo/RT paid consideration in cash;[47] and Echo/RT expressly did not agree to assume all of RayTrans's liabilities.[48] Thus, Echo/RT has no liability for the RT Default Judgment under this theory, regardless of its general viability.

      38

      Even if the Court adopts the continuation theory here, it must acknowledge that this exception has been construed very narrowly to require the purchaser of the assets to be a continuation of “the same legal entity,” not just a continuation of the same business in which the seller of the assets engaged.[49] The “primary elements” of being the same legal entity have been said to include “the common identity of the officers, directors, or stockholders of the predecessor and successor corporations, and the existence of only one corporation at the completion of the transfer.”[50]

      39

      Spring Capital alleges generally that the Purchase Agreement “resulted in the continuity of ownership because the stakeholders of RayTrans became stakeholders in Echo/RT and/or Echo,” but it notes specifically only that the Echo Defendants have continued the business of RayTrans and that Ray is “continuing to serve in a management capacity within Echo/RT's and/or Echo's enterprises.”[51] That, as alleged, Echo/RT continued the business of RayTrans in this way is not a sufficient allegation that Echo/RT was a continuation RayTrans as a legal entity. Neither does the allegation that Ray serves in a management capacity satisfy the element of common stakeholders because there is no allegation that Echo/RT shared the same, let alone any, officers, directors, or members (or stockholders) with RayTrans. Furthermore, the Purchase Agreement contemplated that RayTrans would to continue to exist. Thus, regardless of whether the Court recognizes the continuation theory of successor liability, Spring Capital has failed to state a claim under it.[52]

      40

      Finally, the facts alleged do not present a situation in which, as Spring Capital argued,[53] the avoidance of liability would be unjust. The opposite is true—it would be unjust to hold Echo/RT liable for the RT Default Judgment, most obviously because it expressly did not assume that type of liability under the Purchase Agreement.

      41
      2. The Fraudulent Transfer Claims
      42

      Spring Capital contends it has alleged both actual and constructive fraudulent transfer claims against Echo/RT under Delaware and Illinois law.[54] Echo/RT asserts that the relevant statutes and case law of these jurisdictions are analogous for the Fraudulent Transfer Claims.[55] Because Spring Capital has not challenged this assertion or otherwise identified how Illinois law differs from Delaware law, the Court assumes the analysis is the same for present purposes.[56]

      43

      A transfer by a debtor “[w]ith actual intent to hinder, delay or defraud any creditor of the debtor” may be fraudulent.[57] A non-conclusory allegation of actual intent is necessary to survive a motion to dismiss,[58] but intent may be inferred by allegations of certain “nonexclusive factors” enumerated in the statute.[59] Spring Capital did not argue that it alleged any of the statutory factors favoring its position—in its brief, it did not even identify the existence of the factors.[60] The Court accordingly will not address them.[61]

      44

      Spring Capital's allegation of intent in the Complaint is entirely conclusory. It merely alleges that “one or more of the Defendants” transferred assets, presumably by the Purchase Agreement, “with the actual intent to hinder, delay, or defraud creditors of RayTrans, including Trustee and/or Plaintiff....”[62] Spring Capital has failed to allege that Echo/RT, or even RayTrans, actually intended to defraud, by the June 2009 Purchase Agreement, a creditor under the RT Default Judgment, which did not exist until July 2011. Thus, the Complaint fails to state a claim against Echo/RT for actual fraud.

      45

      A transfer may also be fraudulent if the debtor did not receive reasonably equivalent value and the debtor was rendered insolvent, or at least reasonably should have believed it would become insolvent, by the transfer.[63] Spring Capital argues it alleged RayTrans did not receive reasonably equivalent value under the Purchase Agreement because the RT Default Judgment has not been paid.[64] By the same token, it argues that RayTrans was rendered insolvent.[65]

      46

      The Complaint does not state a claim for constructive fraudulent transfer because these allegations are conclusory and mere recitations of the fraudulent transfer statute.[66] To the extent the allegations are not conclusory, the Complaint still fails to state a claim because it is not reasonably conceivable that the $6,050,000 paid by Echo/RT to RayTrans under the Purchase Agreement[67] was not reasonably equivalent value for the transferred assets. The Court agrees with Echo/RT's statement that, under these facts, “what a debtor like RayTrans decides to do with money it receives from the sale of assets has no bearing on whether the amount paid is a fair price or reasonably equivalent value for the assets sold.”[68] Any argument that the Purchase Agreement was not an arm's-length transaction[69] is unsupported by specific allegations and thus without merit.

      47

      Moreover, Spring Capital has not alleged any relationship between the Purchase Agreement and the RT Default Judgment—other than the obvious delay of over two years between the events. Thus, particularly when comparing the purchase price of $6,050,000 and the RT Default Judgment of $99,057.50, it is not reasonably conceivable that the unpaid RT Default Judgment demonstrates in any way that the Purchase Agreement caused RayTrans's purported insolvency or even that RayTrans reasonably should have believed the Purchase Agreement would render it insolvent.

      48
      3. The Illinois Claim
      49

      In its opening brief in support of the 12(b)(6) Motion, Echo/RT argued why the Illinois Claim should be dismissed for failure to state a claim.[70] As Echo/RT subsequently noted,[71] aside from a passing citation to an apparently relevant statute,[72] Spring Capital did not mention, let alone defend the allegations in support of, the Illinois Claim in its answering brief. In this Court, a plaintiff may waive a claim if it does not brief the sufficiency of its allegations in response to a defendant's motion to dismiss.[73] Spring Capital's single citation to an ostensibly governing statute, without an accompanying legal or factual argument about the allegations of the Complaint, is an inadequate response to Echo/RT's arguments. The Illinois Claim has been waived.[74]

      50
      C. The Claims Against Echo
      51

      In its answering brief and at oral argument, Spring Capital relied upon filings from the recent bankruptcy proceeding of RayTrans Holdings in support of its claims against Echo.[75] What those documents purport to show was not alleged in the Complaint. In testing the sufficiency of the Complaint for the 12(b)(6) Motion, the Court's inquiry is limited, with narrow exceptions, to the facts alleged in the Complaint.[76] Spring Capital has not argued that these filings, or what they purport to show, are either incorporated into the Complaint or otherwise integral to its claims. Therefore, the filings are not properly before the Court.

      52

      Taking all reasonable inferences from the Complaint in Spring Capital's favor, it is not reasonably conceivable that Echo was anything more than a limited guarantor of certain of Echo/RT's obligations under the Purchase Agreement. As Spring Capital conceded at oral argument, the only facts alleged in the Complaint against Echo, other than the guaranty, are the statements in the Press Release.[77] But, the Press Release is not controlling; the Purchase Agreement is, and the terms of that contract, in which Echo was only a guarantor, “effectively negate” the Successor Liability Claim, the Fraudulent Transfer Claims, and the Illinois Claim as a matter of law.[78] As Echo effectively argued,[79] Spring Capital has not alleged or argued a theory of liability to the contrary.

      53

      Thus, there is no reasonably conceivable basis for the claims against Echo.[80]

      54
      III. CONCLUSION
      55

      For the foregoing reasons, the Echo Defendants' 12(b)(6) Motion is granted.

      56

      An implementing order will be entered.

      57

      Very truly yours,
      /s/ John W. Noble

      58

      [1] Spring Real Estate, LLC operates under the registered trade name Spring Capital Group. First Am. Verified Compl. (the “Complaint” or “Compl.”) ¶ 2.

      59

      [2] Id. ¶¶ 8, 25, Ex. A.

      60

      [3] Id. ¶¶ 7, 9, 30, Ex. C (Purchase Agreement). The Purchase Agreement was by and among Echo/RT, RayTrans, RayTrans Holdings, Inc., and James A. Ray. Purchase Agreement Recitals, Signature Page.

      61

      [4] Id. Recitals, § 11.16, Signature Page.

      62

      [5] Compl. ¶¶ 36–42.

      63

      [6] Id. ¶¶ 59–62 (citing 805 I LCS 5/11.50(a)(5)).

      64

      [7] Id. ¶¶ 43–58.

      65

      [8] Spring Capital argues the 12(b)(6) Motion should be denied as untimely and improper because the Echo Defendants previously filed an answer to the original complaint. Pl.'s Opp'n to Defs. Echo/RT and Echo's Mot. to Dismiss (“Pl.'s Answering Br.”) 8. By stipulation among the parties, Spring Capital was permitted to amend the original complaint, and the Echo Defendants expressly reserved the right to move to dismiss any amended complaint. See Am. Stip. and Order Governing Pl.'s Amendment of Verified Compl. and Defs.' Resp. Thereto (Apr. 24, 2013). The 12(b)(6) Motion is therefore not procedurally improper.

      66

      [9] Compl. ¶¶ 2, 16. The Debtors' estates were consolidated and administrated jointly. Id. ¶ 18.

      67

      [10] Id. ¶ 21.

      68

      [11] Id. ¶ 20. The Complaint incorrectly alleges the petition was filed on July 29, 2009. It was actually filed on July 29, 2010. Sauder Aff. Ex. D. at Signature. The Court takes judicial notice of the correct date. See D.R.E. 202(d)(1)(B).

      69

      [12] Compl. ¶¶ 22–25. The judgment also included court costs.

      70

      [13] Id. ¶¶ 3–4, 27.

      71

      [14] Id. ¶ 29.

      72

      [15] Id. ¶ 30 (“RayTrans transferred all or substantially all of its assets and operations to Echo/RT pursuant to the June 2, 2009 Agreement.”).

      73

      [16] Id.

      74

      [17] Id. ¶ 32, Ex. D (Press Release) (“Echo Global Logistics, Inc., ... has acquired RayTrans Distribution Services, Inc. .... James Ray, Jr., ... will continue as General Manager of the RayTrans Division of Echo Global Logistics.”).

      75

      See, e.g., id. ¶¶ 33 (“On or after the June 2009 merger, RayTrans was dissolved and no longer conducted business....”), 37 (“Echo/RT ... is liable as a result of its acquisition of RayTrans and the merger of the two entities in or about June 2009.”), 42 (“Because Echo /RT has merged with RayTrans, ... Echo/RT is the successor in liability to RayTrans....”).

      76

      [19] Id. ¶ 31 (“In connection with the June 2, 2009 Agreement, Echo/RT has taken the responsibility for RayTrans's pre-merger liabilities....”).

      77

      [20] Id.

      78

      [21] See Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 536 (Del. 2011).

      79

      [22] See Nemec v. Shrader, 991 A.2d 1120, 1125 (Del. 2010).

      80

      [23] Cent.Mortg. Co., 27 A.3d at 536.

      81

      [24] See Alliance Data Sys. Corp. v. Blackstone Capital P'rs V L.P., 963 A.2d 746, 752 (Del. Ch. 2009), aff'd, 976 A.2d 170 (Del. 2009) (TABLE).

      82

      [25] Pl.'s Answering Br. 12 (citing Purchase Agreement § 1.3(g)).

      83

      [26] Id. 12-15 (citing Compl. ¶¶ 38-40).

      84

      [27] Id. 15.

      85

      [28] Defs. Echo/RT and Echo's Reply Br. in Supp. of Their Mot. to Dismiss (“Defs.' Reply Br.”) 8-9; Defs. Echo/RT and Echo's Opening Br. in Supp. of Their Mot. to Dismiss (“Defs.' Opening Br.”) 12-13.

      86

      [29] Defs.' Reply Br. 9-11; Defs.' Opening Br. 9-11.

      87

      [30] Defs.' Reply Br. 11-12; Defs.' Opening Br. 14-18.

      88

      [31] The Court notes the Purchase Agreement provides the state and federal courts sitting in Illinois with exclusive jurisdiction to hear “[a]ny suit brought hereon and any and all legal proceedings to enforce this Agreement, whether in contract, tort, equity or otherwise.” Purchase Agreement § 11.3. Because no party raised the question of whether this action is one “brought hereon” or one to “enforce” the Purchase Agreement, the Court declines to examine this issue independently.

      89

      [32] Id. § 1.3(g).

      90

      [33] Id. § 1.4.

      91

      [34] Illinois law governs the Purchase Agreement. Id. § 11.3. Under Illinois law, if a contract term is clear and unambiguous, the term should be interpreted according to its plain meaning. See, e.g., Owens v. McDermott, Will & Emery, 736 N.E.2d 145, 150 (Ill.App.Ct.2000). A term is ambiguous “when the language used is susceptible to more than one meaning or is obscure in meaning through indefiniteness of expression.” See, e.g., Meyer v. Marilyn Miglin, Inc., 652 N.E.2d 1233, 1238 (Ill.App.Ct.1995) (citations omitted).

      92

      [35] Purchase Agreement Recitals, § 2.1, Signature Page.

      93

      [36] Based on the contractual language, the Court reaches this conclusion regardless of whether the preference liability arose before or after the closing date of the Purchase Agreement. In addition, under this analysis, it is irrelevant whether the transfers by the Debtors to RayTrans were in the ordinary course of business.

      94

      [37] Mason v. Network of Wilmington, Inc., 2005 WL 1653954, at *5 (Del. Ch. July 1, 2005) (quoting Corporate Prop. Assocs. 8, L.P. v. AmeriSig Graphics, Inc., 1994 WL 148269, at *4 (Del. Ch. Mar. 31, 1994)).

      95

      [38] Id. (quoting Fehl v. S.W.C. Corp., 433 F.Supp. 939, 945 (D.Del.1977)).

      96

      [39] Corporate Prop. Assocs., 1994 WL 148269, at * 4 (quoting Knapp v. N. Am. Rockwell Corp., 506 F.2d 361, 363–64 (3d Cir.1974) (applying this principle of New York law to Pennsylvania law)).

      97

      [40] Pl.'s Answering Br. 13 (“As noted by then Vice Chancellor Chandler in Corporate Properties, there are four recognized exceptions to this general rule....”). Spring Capital then focused on the de facto merger and continuation theories.

      98

      [41] Defs.' Opening Br. 8–18.

      99

      [42] See, e.g., Fountain v. Colonial Chevrolet Co., 1988 WL 40019, at *7 (Del.Super.Apr. 13, 1988) (“The Delaware rule on corporate successor liability was enunciated in Fehl v. S.W.C. Corp.”); see also Magnolia's at Bethany, LLC v. Artesian Consulting Eng'rs, Inc., 2011 WL 4826106, at *1 (Del.Super.Sept. 19, 2011) (citing Fountain, 1988 WL 40019, at *7); Ross v. Desa Hldgs. Corp., 2008 WL 4899226, at *4 (Del.Super.Sept. 30, 2008) (same).

      100

      [43] Fehl was a case in which, to determine whether it was consistent with due process to assert personal jurisdiction over the purchaser of assets “based on specific business transactions by its predecessor,” the court deemed it appropriate to analogize to “the developing body of substantive law in the area of products liability.” Fehl, 433 F.Supp. at 943, 945. Finding Delaware's product liability jurisprudence lacking for this purpose, the Fehl court again analogized to Delaware's treatment of creditor claims against successor entities. Id. at 946–47.

      101

      [44] See generally Hariton v. Arco Elecs., Inc., 188 A.2d 123, 125 (Del.1963) (“[T]he sale-of-assets statute and the merger statute are independent of each other. They are, so to speak, of equal dignity, and the framers of a reorganization plan may resort to either type of corporate mechanics to achieve the desired end.”); see also Nixon v. Blackwell, 626 A.2d 1366, 1380 (Del.1993) (noting this distinction and citing subsequent precedent); but see Orzeck v. Englehart, 195 A.2d 375, 378 (Del.1963) (citing Drug, Inc. v. Hunt, 168 A. 87 (Del.1933)) (“We do not intend to be understood as holding that the doctrine of de facto merger is not recognized in Delaware. Such is not the case for it has been recognized in cases of sales of assets for the protection of creditors or stockholders who have suffered an injury by reason of failure to comply with the statute governing such sales.”).

      102

      [45] Magnolia's, 2011 WL 4826106, at *3 (citing Drug, Inc., 168 A. at 96).

      103

      [46] Purchase Agreement § 1.2.

      104

      [47] Id. § 1.5.

      105

      [48] Id. § 1.4.

      106

      [49] Fountain, 1988 WL 40019, at * 8–9 (quoting Fehl, 433 F.Supp. at 946).

      107

      [50] Magnolia's, 2011 WL 4826106, at *3 (citing In re Asbestos Litig. (Bell), 517 A.2d 697, 699 (Del.Super.1986) (applying Pennsylvania law)).

      108

      [51] Compl. ¶¶ 39–41.

      109

      [52] The case law upon which Spring Capital relies for the continuation theory also does not have explicit support in the precedent of the Supreme Court or this Court. Rather, Spring Capital again cites to the same Superior Court decisions that relied exclusively upon Fehl.

      110

      [53] Pl.'s Answering Br. 15.

      111

      [54] Id. 15–21.

      112

      [55] Defs.' Opening Br. 18–19.

      113

      [56] Cf. Emerald P'rs v. Berlin, 726 A.2d 1215, 1224 (Del.1999).

      114

      [57] Del. C. § 1304(a)(1); see also740 ILCS 160/5(a)(1).

      115

      [58] See Metro Commc'n Corp. BVI v. Advanced MobileComm Techs. Inc., 854 A.2d 121, 166 (Del. Ch.2004); see also Ostrolenk Faber LLP v. Genender Int'l Imps., Inc., 2013 WL 1289130, at * 6 (Ill.App. Mar. 29, 2013) (“Proof of fraud in fact requires a showing of an actual intent to hinder creditors....”).

      116

      [59] See Hospitalists of Del., LLC v. Lutz, 2012 WL 3679219, at *13–14 (Del. Ch. Aug. 28, 2012) (citing 6 Del. C. § 1304(b)(1)-(11)); see also 740 ILCS 160/5(b)(1)-(11).

      117

      [60] Instead, Spring Capital stated that courts often infer intent from circumstantial evidence, citing to a bankruptcy court decision that is not controlling on this Court. Pl.'s Answering Br. 16 (citing In re Fedders N. Am., Inc., 405 B.R. 527, 545 (Bankr.D.Del.2009)).

      118

      [61] Were it to do so, the Court anticipates the factors would almost certainly not support Spring Capital's otherwise insufficient allegation of intent.

      119

      [62] Compl. ¶¶ 48, 56.

      120

      [63] 6 Del. C. § 1304(a)(2); see also 740 I LCS 160/5(a)(2).

      121

      [64] Pl.'s Answering Br. 20 (citing Compl. ¶¶ 26–27).

      122

      [65] Id.

      123

      [66] See Hospitalists, 2012 WL 3679219, at *13 (“In the circumstances of this case, even under Delaware's minimal notice pleading standard, simply reciting the statutory or common law elements of [a fraudulent transfer], as Plaintiffs have here, is insufficient to state a claim upon which relief may be granted.”); see also Ostrolenk Faber LLP, 2013 W L 1289130, at *6.

      124

      For example, the paragraphs by which Spring Capital claims it alleged that RayTrans did not receive reasonably equivalent value state, in relevant part, that “the Defendants fraudulently transferred assets held by RayTrans by ... transferring assets, without receiving reasonably equivalent value in exchange for the transfer” and that “the Defendants fraudulently transferred assets held by RayTrans without receiving a reasonably equivalent value in exchange for the transfer of said assets by ... distributing these assets to various third-parties at a time when RayTrans was insolvent or the transfer of assets rendered RayTrans insolvent.” Compl. ¶¶ 48–49, 56–57. How these allegations are more than a conclusory recitation of the statute remains unclear to the Court.

      125

      [67] Purchase Agreement § 1.5. After subsequent earn-out payments, the purchase price could increase up to $12,550,000. Id.

      126

      [68] Defs.' Reply Br. 14.

      127

      [69] Pl.'s Answering Br. 17.

      128

      [70] Defs' Opening Br. 22–23.

      129

      [71] Defs.' Reply Br. 15.

      130

      [72] Pl.'s Answering Br. 11 (citing 805 ILCS 5/11.50(a)(5)).

      131

      [73] See Forsythe v. ESC Fund Mgmt. Co. (U.S.), Inc., 2007 WL 2982247, at * 11 (Del. Ch. Oct. 9, 2007); see also Emerald P'rs, 726 A.2d at 1224 (“Issues not briefed are deemed waived.”).

      132

      [74] The minimal discussion of the Illinois Claim at oral argument does not change the Court's conclusion. Oral Arg. Defs.' Mot. to Dismiss (“Oral Arg.”) 27–28. Regardless, a cursory review reveals that the cited Illinois statute governs a merger or consolidation. 805 ILCS 5/11.50(a)(5). For the reasons set forth earlier, there clearly was no merger or consolidation here. There is no reasonably conceivable basis for this claim.

      133

      [75] Pl.'s Answering Br. 11; Oral Arg. 23–24, 29–30, 34, 40.

      134

      [76] See Malpiede v. Townson, 780 A.2d 1075, 1082 (Del.2001); see also Vanderbilt Income & Growth Assocs., L.L.C. v. Arvida/JMB Managers, Inc., 691 A.2d 609, 612–13 (Del.1996) (citing In re Santa Fe Pac. Corp. S'holder Litig., 669 A.2d 59, 69–70 (Del.1995)) (describing the narrow exceptions as when a document is “integral to a plaintiff's claim and incorporated into the complaint ... [or] not being relied upon to prove the truth of its contents”).

      135

      [77] Oral Arg. 33–34; see also Compl. ¶ 32.

      136

      [78] See Malpiede, 780 A.2d at 1083 (noting how a court may conclude, at the motion to dismiss stage, that the exhibits to a complaint “negate the claim as a matter of law”).

      137

      [79] Defs.' Reply Br. 7, 15; Defs.' Opening Br. 23–24.

      138

      [80] Moreover, that Spring Capital failed to state a claim against Echo/RT, as the acquiror, supports the Court's conclusion that Spring Capital also failed to state a claim against Echo, as the guarantor.

  • 2 Duty of Disclosure/Candor

    • 2.1 In Re Wayport Inc. Litigation

      1
      IN RE WAYPORT, INC. LITIGATION.
      2

      Consol. C.A. No. 4167-VCL.

      3

      Court of Chancery of Delaware.

      4

      Date Submitted: January 31, 2013.
      Date Decided: May 1, 2013.

      5

      Bruce E. Jameson, Marcus E. Montejo, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Attorneys for Plaintiffs.

      6

      Gregory V. Varallo, John D. Hendershot, Rudolf Koch, Scott W. Perkins, RICHARDS, LAYTON & FINGER, P.A.; Attorneys for Defendants Wayport, Inc. and Gordon P. Williams, Jr.

      7

      M. Duncan Grant, James H.S. Levine, PEPPER HAMILTON LLP, Wilmington, Delaware; Roger A. Lane, Courtney Worcester, FOLEY & LARDNER LLP, Boston, Massachusetts; Attorneys for Defendants New Enterprise Associates VIII L.P. and New Enterprise Associates 8A L.P.

      8

      Michael F. Bonkowski, COLE, SCHOTZ, MEISEL, FORMAN & LEONARD, P.A., Wilmington, Delaware; John J. McKetta III, GRAVES DOUGHERTY HEARON & MOODY, P.C., Austin, Texas; Attorneys for Defendant Trellis Partners Opportunity Fund, L.P.

      9
      OPINION
      10
      LASTER, Vice Chancellor.
      11

      The plaintiffs sued for damages arising out of their sales of stock in Wayport, Inc. ("Wayport" or the "Company"). Vice Chancellor Lamb granted the defendants' motion to dismiss in part, and his rulings represent law of the case. See Latesco, L.P. v. Wayport, Inc., 2009 WL 2246793 (Del. Ch. July 24, 2009) (the "Dismissal Opinion"). The litigation proceeded to trial against the remaining defendants on claims for breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, common law fraud, and equitable fraud. Judgment is entered in favor of plaintiff Brett Stewart and against defendant Trellis Partners Opportunity Fund, L.P. ("Trellis Opportunity Fund") in the amount of $470,000, subject to an adjustment to be calculated by the parties in accordance with this opinion, plus pre- and post-judgment interest at the legal rate, compounded quarterly. Judgment otherwise is entered against the plaintiffs and in favor of the defendants.

      12
      I. FACTUAL BACKGROUND
      13

      The case was tried on September 17-20, 2012. The parties introduced over 400 exhibits, submitted deposition testimony from nineteen witnesses, and adduced live testimony from ten fact witnesses and one expert witness. The burden of proof rested on the plaintiffs. Having evaluated live witness testimony, weighed credibility, and considered the evidence as a whole, I make the following factual findings.

      14
      A. Wayport's Early Days
      15

      Wayport was a privately held Delaware corporation with its principal place of business in Austin, Texas. Founded in 1996, the Company was a pioneer in designing, developing, and enabling Wi-Fi hotspots, which use a wireless router to offer internet access within the immediate vicinity. Stewart was Wayport's original CEO, a member of its board of directors (the "Board"), and a named inventor on most of its patents. Plaintiffs Dirk Heinen and Brad Gray were the Company's vice president of operations and vice president of sales, respectively.

      16

      Early on, Heinen introduced Stewart to John Long, who was a partner in a venture capital firm known as Trellis Partners.[1] In 1998, Trellis purchased Series A Preferred Stock in Wayport and obtained (i) the right to designate a director, (ii) the right to receive financial information, and (iii) a right of first refusal ("ROFR") on plaintiffs' shares. Long joined the Board as the Trellis designee. He had primary responsibility for Trellis's investment in Wayport, but often discussed the Company's progress with Broeker, one of his partners at Trellis.

      17

      In 1999, Wayport sought additional funding. Trellis introduced Wayport to Richard Kramlich, a partner in the venture capital firm New Enterprise Associates ("NEA").[2] NEA purchased Series B Preferred Stock in Wayport and obtained (i) the right to designate a Board observer, (ii) the right to receive financial information, and (iii) a ROFR on plaintiffs' shares. Kramlich became NEA's Board observer and had primary responsibility for NEA's investment.

      18
      B. The Bursting Of The Technology Bubble
      19

      In 2000, the technology bubble burst, and Wayport's business prospects soured. Wayport's struggles led the Board to consider a management transition. According to the defendants, Stewart was forced to step aside. Stewart testified that he did not oppose the change. He considered himself a "technology and analysis" buff, and once fundraising and cash flow issues became all-consuming, Stewart felt he was out of his "comfort zone." Tr. 90.

      20

      In fall 2000, Dave Vucina took over as CEO, and Stewart received the title of President. Stewart soon became disenchanted with his new role, which he felt was "ambiguous," "uncomfortable," and "poorly defined." Tr. 91. In late 2001, Stewart resigned from all positions with the Company. He nominated Heinen to serve as a director in his stead, and Heinen continued as a director until May 2005.

      21
      C. Wayport's Prospects Revive.
      22

      Under Vucina's leadership, Wayport reduced its cash burn and began to turn around its business. Over four years, thanks in part to a rebounding economy and the advent of smart phones, the Company went from operating at a loss on little revenue to generating $90-100 million in sales with positive cash flow and a healthy balance sheet.

      23

      In 2005, Wayport began exploring an initial public offering. In preparation, Vucina hired defendant Gordon P. Williams, Jr. as Wayport's new general counsel. In the trial record, Gordon Williams is referred to frequently as Chuck Williams. Another Wayport employee, Greg Williams, plays a smaller part in the case. To distinguish between the two, and because Gordon Williams has the more prominent role, I refer to him as "Williams." When his colleague enters the frame, I refer to him as "Greg Williams."

      24

      Williams took steps to "prepare [Wayport] for an IPO" by implementing what he believed were "best practices" with respect to sharing financial and other information about the Company. Tr. 874-75. Wayport previously shared information freely with directors and stockholders alike. Williams worried that sharing unaudited financial information posed a risk of misleading investors and could lead to violations of securities laws. He therefore instituted a policy that required any common stockholder who wanted information to make a formal books and records demand pursuant to Section 220 of the Delaware General Corporation Law (the "DGCL"), 8 Del. C. § 220, and sign a nondisclosure agreement (collectively, the "Section 220 Policy"). The Section 220 Policy did not affect Trellis or NEA, because they had contractual information rights and representatives in the boardroom.

      25

      Also in 2005, Wayport management began to explore whether the Company could better utilize its intellectual property. As an initial step, Wayport hired Craig Yudell, a patent attorney with the firm Dillon & Yudell, to clean up the portfolio. Yudell's firm also served as a patent broker, and Wayport anticipated that Yudell might serve in that role. Over the next twelve to eighteen months, Yudell organized a patent inventory, assessed the portfolio's potential value, and determined which patents required the filing of amendments with the U.S. Patent and Trademark Office ("USPTO").

      26
      D. Stewart Offers His Two Cents On Patents.
      27

      In spring 2005, as part of the patent cleanup process, Yudell reached out to Stewart to obtain his signature on certain patent amendments. Stewart "hadn't really thought about Wayport for several years," but Yudell's inquiry sparked his interest. Tr. 98. On May 17, Stewart sent an email to the Board and management containing a lengthy and unsolicited strategic manifesto about how Wayport could monetize its patent portfolio.

      28
      I have seen no evidence of any attempt by Wayport to enforce [its] ever increasingly valuable patent assets. Indeed, I would be surprised if the ability to enforce the patents [was] not to some extent already limited by either direct licenses, covenants not to sue, or implicit licenses under the patent exhaustion doctrine as a part of other deals Wayport has done with [carriers].
      29
      . . . .
      30
      However, there is more to IP strategy than waiting defensively to be sued, or offensively suing someone. I would like here to propose a set of strategic actions in this regard. Four years ago, [Vucina] asked me to make such a proposal, and I could not think of a good one. But today, many things have changed. So I herewith have two trivial and one significant patent asset management strategies to propose. My credentials for these proposals are threefold: I am a significant shareholder with a desire to see Wayport maximize value of all assets, I am a named inventor on all of Wayport's system and method patents, and I pretty much only did technology IP strategy and deals globally for AMD during the five years prior to starting Wayport. . . .
      31
      I can quickly dispose of the trivial:
      32
      1. Abandon any investment, including fees, in [patent A] if you have not already done so. . . .
      33
      2. Offer to sell [patent] 6732176 to Cisco. . . . The cash benefit to Wayport could be relatively immediate and significant. However, I don't see how Wayport would need to continue to invest in this patent over time — it is about gear, and not about service. . . . Regarding value of this patent, I would propose you start at 5% of actual or forecast[ed] sales, and settle for 2% or some NPV equivalent of 2%. This could be many hundreds of thousands of dollars. . . .
      34
      3. Far more interesting is the profound component of strategy I would like to propose regarding the remaining system and method patients.
      35
      The big change in the environment from 2000/2001 is the presence of municipalities operating wifi networks. Some or all of these will infringe [patent B] and its progeny. But you can enforce patents against a government with a degree of impunity not available when contemplating enforcement against customers, suppliers, or competitors.
      36
      . . . .
      37
      As I see it there are three approaches:
      38
      — [D]o nothing, wait for more infringement
      39
      — [D]o the `little fish/big fish' dance, well known to technology IP strategists. Under this approach Wayport would find a small municipality somewhere (the little fish) operating a municipal wifi network, approach them, say `hey you know what? You infringe my patents. But [don't] worry, I am not trying to shut you down. Why [don't] you just give me $500 and I'll give you this license. Then you never have to worry about this again.'
      40
      Next, find a slightly bigger fish, and repeat at a slightly higher price, saying `municipality A needed a license, and so do you.' Repeat. Repeat. Repeat. . . .
      41
      — The third approach is my personal favorite. If you know who you'd do this with, and [carrier A] or [carrier B] come directly to mind, . . . just go to their IP section and lay out the strategy, and use the NPV of the strategy to add to valuation discussions either with private or public markets. The neat thing about this approach is that you can directly get valuation from a carrier who would like to control the patent assets . . . .
      42
      The courtesy of a response to these suggestions would be greatly appreciated.
      43

      JX 8 (the "Patent Strategy Memo"). As these excerpts indicate, the tone of the Patent Strategy Memo was not entirely complimentary towards Wayport management. But for Stewart's emails, which tend toward the prickly and condescending, it was relatively subdued. The 6,732,176 patent referenced in the Patent Strategy Memo was one of the chief patents in a family (the "MSSID Patents") that Wayport would sell to Cisco Systems, Inc. ("Cisco") in a transaction that serves as the foundation for much of the plaintiffs' case.

      44

      On the same day he received the Patent Strategy Memo, Wayport's then-general counsel, Bob Kroll, sent a brief email thanking Stewart "for [his] time and for sharing [his] thoughts." JX 9. He then referred to a patent monetization strategy and team:

      45
      We are aggressively pursuing a patent monetization strategy and will give due consideration to the suggestions you have set forth below. No doubt many ideas for deep consideration are contained in it, but time constraints limit my ability to fully consider them right now. They will be shared with the patent monetization team once it is in place, which should be within the near future.
      46
      Again, thank you for your continuing interest in Wayport's success.
      47

      Id. Kroll copied Stewart, Vucina, Heinen, other members of the Board, and Yudell.

      48

      Wayport's Chief Technology Officer at the time, Dr. James Keeler, also replied to Stewart, but cautioned that any patent strategy would take time.

      49
      Thank you for your thoughts. We view the patent portfolio as being a valuable asset and I have been nurturing this asset in the US and in selected international locations. . . .
      50
      The actual strategy of what to do with [the patents] is a complex one that tends to move slowly — when I was involved in licensing the patent portfolio at Pavilion . . . it took about 4 to 5 years from start to finish, $5 million of investment, and resulted in about $30Million [sic] licensing fees after 2 lawsuits . . . .
      51
      Under [Kroll's] leadership we are engaging several firms regarding our strategy for how to monetize this asset and we expect to have a plan put in place within the next six months or so. However, it will be a multi-year process to actually monetize. . . .
      52
      I will say that the value of your patents has not gone unnoticed by me, the board or our lawyers. It is being worked on and strategies are being developed. . . . There is a lot of work to do to tap into that mine, however, and it takes a lot of time for these things to become monetized.
      53
      . . . [W]e are approaching this in a very structured and professional manner that we expect will optimize the value of the good work that you have done in the past.
      54

      JX 10.

      55

      Long also responded to Stewart:

      56
      Thanks for prodding us on this, and for laying out the issue more clearly. It's clear to all of us that Wayport's patents have value, but as you know the issue has been how and when to best realize that value. Your idea is interesting and worth
      57

      examining closely. JX 15.

      58

      To me, these communications appear professional and courteous. To Stewart, they were disingenuous, and he concluded that the Board had no concept of the patent portfolio's value. In an email to Heinen, Stewart summarized his reaction. "As a person literate in the English language, it is safe to assume there is no patent monetization activity underway, just glib lip service." JX 15. At trial, Stewart testified to the same effect. He believed that Wayport had brushed aside the Patent Strategy Memo and had no alternative patent strategy. See Tr. 176-77 (Stewart agreeing that "regardless of what the company was telling [him] through several different voices, [he] made a decision personally simply not to give credit to that information").

      59

      Despite what Stewart perceived to be a dismissal of his recommendations, Long and Stewart continued discussing the Company's patents. In summer 2005, they met for lunch, but the meeting ended badly when Long became "annoyed at what [he] took as [Stewart's] zings against Wayport and its board . . . ." JX 27. After this difficult encounter, Long reached out to Stewart again in fall 2005. Yudell was nearing the end of his housekeeping efforts and starting to develop a formal marketing plan, and Long hoped to tap Stewart's expertise. On October 21, Long emailed Stewart:

      60
      I would like to follow up with you about your ideas on how Wayport can best exploit its IP portfolio. This has become a higher priority for [Vucina] and the board, and [Vucina] acknowledges that you are uniquely qualified by background and talent to help with these efforts. The company has not been completely idle here, although I know we have not moved as quickly as you would have liked or followed your suggestions around IP strategy. The board is scheduled to hear presentations in a couple of weeks from two outside IP firms to get their assessments of the Wayport portfolio and their thoughts around exploitation strategies.
      61

      Id. Long asked whether Stewart would "be willing to look into this matter and help us" and suggested that there appeared to be "a real opportunity to drive meaningful value to Wayport . . . ." Id. He suggested that Stewart and the Company "look past [their] disagreements and frictions . . . ." Id.

      62

      Stewart replied the same day and reiterated his criticisms of Vucina and the Company, including what he described as its failures to honor his requests for information even when he complied with the Section 220 Policy. While acknowledging Wayport's efforts, Stewart denigrated the strategy of using brokers to market and sell the patents.

      63
      Indeed, I view the process you describe, of outside law firms presenting ("pay me fees and I will go ask for licenses in the following way") as one where I could hardly add value, likely to have the prospect of consuming inordinate amounts of my (uncompensated) time, and unlikely to do anything significant for shareholder value in the time frame of interest. I have seen this movie and I know how it ends.
      64

      JX 27. In subsequent emails, Stewart offered more heated assessments of how Wayport had treated him and whether its patent strategy was likely to succeed.

      65

      On November 11, 2005, Long again informed Stewart that Wayport was taking his suggestions seriously and would soon act.

      66
      While [Vucina] may not have moved as quickly as you would have liked, and may not have the technology background to understand the issues, opportunities and strategies as completely as you would like, I can assure you that he now has a sense of urgency on this topic and is marshalling resources to move quickly.
      67

      JX 33. In the same email, Long asked Stewart to be more constructive and suggested that he stop any independent efforts to reach out to industry contacts about Wayport's patents. Long expressed concern that a dual track sales process, one managed by Wayport and one conducted independently by Stewart, would undermine the Company's efforts.

      68
      I believe that your proposed independent activities with potential partners risk greater potential harm than potential gain. I am confident that the value of Wayport's IP will get communicated to the appropriate people . . . . In pursuing this course you would also be taking a position that the company could only view as adversarial, an outcome I think would be very unfortunate.
      69

      Id. Stewart reserved his right to do whatever he wanted, and the discussions between Stewart and Long stopped.

      70
      E. The First Stock Sale
      71

      In November 2005, Max Chee, a principal at Millennium Technology Value Partners, L.P. ("Millennium") contacted Stewart and Gray about their shares of Wayport common stock. Millennium is a venture capital fund that invests in founders' shares. Chee asked whether Stewart and Gray might be interested in liquidating a portion of their Wayport common stock.

      72

      Stewart was initially suspicious. Coming on the heels of his exchanges with Long about the patents, he thought there was "zero chance [Chee] [did] not have Wayport's hand up his back." JX 37. But less than a month later, Stewart, Heinen, and Gray signed letters of intent to sell a portion of their Wayport common stock to Millennium at $3.00 per share. Stewart, Heinen, and Gray initially agreed to sell 184,000 shares. In January 2006, plaintiff Paul Koffend, formerly Wayport's CFO during Stewart's tenure as CEO, caught wind of the opportunity and asked to sell some of his shares to Millennium on the same terms.

      73

      The contemplated sales could not close immediately because of the ROFRs held by Wayport, Trellis, and NEA. When the sellers gave notice of their intent to sell, Wayport and NEA declined to exercise their rights, but Trellis sought to buy.

      74

      A dispute then ensued between Stewart and Trellis. Stewart's shares ostensibly were covered by multiple iterations of a stockholder agreement that contained various other ROFRs, but the parties to the iterations were different and Stewart was not a signatory to the later versions, including the version that Trellis believed was operative. To Trellis's dismay, Stewart began sending ROFR notices to parties under the last version of the stockholder agreement that he signed, including parties that Trellis believed were not entitled to notice. Stewart also objected to the shares being purchased by a Trellis fund that was not a signatory to the agreement he deemed controlling and therefore, in his view, did not have a ROFR.

      75

      After much wrangling and considerable delay, Williams came up with a solution. Each version of the ROFR permitted the affected seller, the Company, and a supermajority of the preferred stockholders to waive any provision of the agreement. As long as the necessary votes could be obtained, the ROFRs could be waived, avoiding the need to determine which version of the stockholder agreement was actually controlling. The parties followed this course.

      76

      Everything was proceeding towards a closing until March 9, 2006, when Trellis backed out. According to Broeker, Trellis decided to invest in other portfolio companies. Trellis's decision did not affect the plaintiffs because Millennium stepped in to buy their shares. In late March, Millennium acquired 527,500 shares from the plaintiffs.

      77
      F. Wayport Markets The MSSID Patents.
      78

      At some point in 2006, Wayport Executive Vice President Greg Williams assumed responsibility for executing Wayport's patent strategy. In the fall, Greg Williams told Vucina that he wanted Wayport to be in good faith negotiations for a license to the MSSID Patents by April 1, 2007.

      79

      Consistent with this goal, Wayport began marketing the MSSID Patents in February 2007. Yudell distributed offering materials to approximately sixty potential buyers and asked for initial indications of interest by the end of March. Only two parties submitted indications of interest: Cisco and Intellectual Ventures Management, LLC ("Intellectual Ventures"), an investment firm focused on intellectual property.

      80
      G. The Second Stock Sale Begins.
      81

      In December 2006, shortly before the auction for the MSSID Patents commenced, Stewart contacted Wayport about selling more stock to Millennium. The transaction was anticipated to close on substantially similar terms, including a $3.00 sale price. Stewart asked if Williams wanted to handle the ROFR issues through the waiver process. On December 13, Stewart followed up with an email in which he informed Williams that the selling stockholders preferred the waiver approach. The same day, Stewart and Williams spoke by phone, and Williams suggested that Trellis and NEA would likely agree to waive their ROFRs if plaintiffs made enough shares available such that Trellis and NEA could participate. Stewart alluded to this conversation in an email to Williams on December 14:

      82
      I was thinking over our conversation yesterday, and after a few discussions among the [plaintiffs], I would like to indicate to you the potential flexibility to increase the number of shares available, should one of the [preferred stockholders] have an interest in taking an additional position. I don't have a number, I just want to communicate receptivity to discussing this, should it turn out that one of the issues in getting a waiver . . . is, as you anticipated, the desire for one of the [preferred stockholders] to co-buy.
      83

      JX 145 (emphasis added). Williams responded: "Thanks [Stewart]. It does help." Id. Later that week, Williams confirmed that Wayport was willing to proceed by waiver, but he still needed to coordinate with Trellis and NEA.

      84

      On December 20, 2006, Long emailed the Board and noted that there were two directors, Katzen and McCormick, who wanted to purchase shares. Long described how Williams planned to satisfy everyone's desires.

      85
      [Williams] has concluded it doesn't make sense to intervene in the current proposed sale, but rather to see if the [plaintiffs] would sell an additional 200-250k shares directly to [Katzen and McCormick]. [Williams] also learned from Greg Williams that he would be interested in selling 100k of his shares, which would reduce the request to the [plaintiffs].
      86

      JX 149. Caught off-guard, Vucina emailed Williams and asked why he made this "formal recommendation." JX 150. Williams downplayed the idea of a "formal recommendation" but did not dispute that requesting additional shares from the plaintiffs was his idea.

      87
      I had originally been thinking of this as a two step (company buys and then sells to directors) approach as well. Different approach of facilitating the sales directly came into the discussion yesterday and has the appeal of keeping the Company out of the transaction . . . . I was still forming my thinking around that yesterday but it is settling in as a better simpler [sic] approach.
      88

      Id. Under Williams's structure, the plaintiffs and Greg Williams would sell directly to Katzen and McCormick.

      89

      Williams conveyed his proposal to Stewart, who agreed. On January 25, 2007, Williams supplied the parties with a draft stock purchase agreement. Around this time, Trellis and NEA decided not to participate in the second stock sale, at least while the going-rate was $3.00 per share.

      90
      H. Millennium Lowers Its Bid.
      91

      On January 31, 2007, Millennium asked Wayport for financial information to help evaluate the proposed transactions. The record does not contain direct evidence of what Millennium received or learned, but on February 13, Millennium told Stewart that it was dropping its price to $2.50. Stewart vented to Williams: "I learned yesterday evening that . . . [Millennium] received new information from Wayport that was unavailable to the [plaintiffs], and that as a consequence of that information and subsequent questioning of management, [Millennium] would decline to perform the stock transfer [at $3.00 per share]." JX 171. Stewart asked Williams to give him the same information to "restore [the] balance of information available." Id.

      92

      Williams forwarded Stewart's email directly to Millennium, remarking that Stewart's communication was his "morning surprise." JX 171. Williams and Millennium spoke by phone twenty minutes later. Williams also gave a heads up to Vucina, who was upset that Millennium had acted without warning the Company. Vucina commented:

      93
      One of the things I don't understand is the need for [Millennium] to share this level of information with [Stewart]. I don't feel like we should have any more of these conversations with [Millennium] if they are going to turn around and communicate back to [Stewart] in this manner. .. . [T]hey have put us in a tough position.
      94

      JX 173.

      95

      Williams did not respond to Stewart until after his communications with both Millennium and Vucina. On February 15, 2007, Williams decided that Stewart would get "exactly what [Millennium] got." JX 174. Wayport sent Stewart the additional information and set up a call between Stewart and Wayport's CFO, Ken Kieley, which took place on February 27.

      96

      Meanwhile, Williams continued acting as an intermediary for the stock sales. On February 16, 2007, Williams facilitated the exchange of draft stock purchase agreements between Stewart and McCormick. On February 21, Stewart asked Williams whether Trellis and NEA were interested in buying stock at the new price, and Williams responded "definitely." JX 186. On February 28, Stewart confirmed to Williams and Millennium that plaintiffs would still sell at $2.50 per share. To generate the same proceeds, Gray increased the number of shares he would make available by 20,000 shares. On March 1, Williams reported on these developments to the Board.

      97

      On March 2, 2007, Greg Williams learned that Millennium had lowered the price from $3.00 to $2.50. He declined to sell at the new price. On March 7, Stewart and Williams worked out a ledger reflecting Greg Williams's withdrawal.

      98

      Because the price had changed, the revised stock sales at $2.50 per share required a new ROFR waiver. On March 8, Wayport waived the Company's ROFR, but Trellis and NEA now indicated that they wanted to buy.

      99

      To keep everyone happy, Williams stepped in. He first determined the preferred stockholders' investment appetites. Once this figure was known, Williams asked Stewart whether the plaintiffs would make additional shares available to accommodate both the preferred stockholders and Millennium, indicating that it would enable him to procure the ROFR waivers. When Stewart agreed, Williams contacted Trellis and NEA to confirm that if the plaintiffs made additional shares available, the extra shares could go to Millennium. When they agreed, Williams believed he had a transaction in which the ROFRs could be waived, and Trellis, NEA, and Millennium would be able to participate

      100
      I. The Auction Generates Two Bidders.
      101

      While Williams and Stewart were putting together the stock sales, the auction results came in for the MSSID Patents. On March 30, 2007, Cisco submitted a "non-binding indication of interest" suggesting a transaction price in a "range" of $1-10 million, subject to "Cisco's evaluation of relevant market factors," "due diligence," and negotiation of a "definitive agreement." JX 211. Attached to the indication of interest was an extensive list of due diligence requests. Greg Williams understood Cisco to be closer to the $1 million figure.

      102

      On April 3, 2007, Intellectual Ventures submitted a "preliminary, non-binding indication of interest" suggesting a transaction price "between $1.5 and $2.25 million." JX 212. Intellectual Ventures also asked about purchasing an additional patent for $500,000. Id. The Intellectual Ventures indication of interest was subject to "due diligence" including "the review of complete file histories, relevant prior art, [and] pre-existing licenses . . . ." Id.

      103

      Yudell tried to negotiate the bidders up. Cisco balked at his initial counteroffer of $12-17 million, so he proposed a "non-exclusive license" requiring an "up-front payment" of $8 million. JX 234. On May 17, 2007, Yudell sent Cisco's counsel a non-binding term sheet reflecting Wayport's counteroffer. Cisco went silent, and Greg Williams thought Yudell had overplayed his hand.

      104

      Negotiations with Intellectual Ventures progressed more smoothly. By June 8, 2007, Intellectual Ventures had proposed a transaction that included a $5 million upfront payment and future royalties. Wayport countered with a new term: the deal would be conditioned on a license for "a large networking equipment manufacturer," namely Cisco. JX 252. Greg Williams's contemporaneous emails suggest he thought the condition might cause Intellectual Ventures to believe it faced competition and increase its bid. But Intellectual Ventures never agreed to the condition and never raised its price.

      105

      Meanwhile, Greg Williams reached out to Cisco to restart negotiations. On June 14, 2007, he reported to the Board on his efforts, and the directors formally authorized him to reopen discussions. After the meeting, Greg Williams offered to sell the MSSID Patents to Cisco for $10 million, subject "to Cisco's sole satisfaction with its due diligence . . . ." JX 257.

      106

      On June 18, 2007, Greg Williams sent Cisco a proposed sale agreement. Cisco rejected Wayport's form of the agreement and supplied its own, without specifying a price. On June 20, Wayport began providing Cisco with due diligence. Eight days later, on June 28, Cisco finally named a price: $9 million. Greg Williams countered, and Cisco and Wayport reached agreement at a price of $9.5 million. The agreement was executed on June 29.

      107

      The sale of the MSSID Patents was a major achievement for Wayport. After paying Yudell's success fee, Wayport received $7.6 million in cash. The proceeds increased the Company's year-end cash position by 22%, and the gain on sale represented 77% of the Company's year-end operating income. On July 2, 2007, Vucina notified the Board. The directors received detailed materials about the Cisco sale on July 20 and gathered for a Board meeting on July 25 where Greg Williams provided a formal update. No one at Wayport said anything about the sale of the MSSID Patents to the plaintiffs.

      108
      J. The Second Stock Sale Closes.
      109

      In late March 2007, as bids for the MSSID Patents arrived, Stewart was growing increasingly frustrated with the delays in closing the second stock sale caused by Trellis and NEA deciding how many shares to purchase. On April 9, NEA indicated that it would purchase 200,000 shares. Trellis originally indicated that it would purchase 400,000 shares, but reduced its ask to approximately 300,000 shares as a courtesy to NEA. Katzen and McCormick would purchase 270,000 shares in the aggregate. Millennium would purchase the balance. On April 24, with the transaction structure finalized, Wayport waived its ROFR.

      110

      On April 25, 2007, Stewart and Koffend sold shares to Millennium. On May 9, a sufficient number of preferred stockholders executed ROFR waivers to facilitate the remainder of the transactions. The same day, Williams's paralegal circulated Wayport's draft stock purchase agreement.

      111

      For the sales to the directors, Williams negotiated the terms of the stock purchase agreement with Williams's paralegal. Stewart asked that certain buyer-friendly language be removed, and Williams agreed. Stewart had more difficulty with Trellis. Trellis's outside counsel tried to add language to the stock purchase agreement reciting that the parties were operating with equal information, but Stewart objected. On June 8, 2007, after Stewart and Trellis's counsel reached an impasse, Broeker weighed in:

      112
      We cannot have a one sided representation . . . . I think [Trellis's counsel] has outlined a number of solutions which are attempting to address comfort so we can have symmetry in the [representations]. He indicated we'd be happy to [represent] a number of items. We are not aware of any bluebirds of happiness in the Wayport world right now and have graciously offered to [represent] that. But what happens if Google walks in in 30 days and says "we'd like to buy [Wayport]". [sic] The way the [representation] is worded, you would come to us and say foul — you should have told me. I think we can address this but we need to focus on solutions that will meet [Wayport's] guidance for existing investors and [B]oard members and our counsel.
      113

      JX 248 (emphasis added). In response, Stewart emailed Broeker, saying that "[i]f you know of a Google deal in play, perhaps you ought to refrain from this transaction, or arrange for us to be on a level information playing field." JX 246.

      114

      At trial, this "bluebirds" email was hotly disputed. Stewart testified that he understood "bluebirds" to mean any unspecified good news. Broeker testified that it meant an acquisition. Having heard the witnesses and considered the email in context, I agree with Stewart. Broeker's reference to an acquisition was just one example of a potential bluebird. During his deposition, Greg Williams volunteered an example of another "great big bluebird"—a patent sale in the range of the Cisco sale. Greg Williams Dep. Tr. 64-65.

      115

      Later that day on June 8, 2007, Broeker attempted to break the logjam with Stewart by providing him with a copy of a stock purchase agreement that Trellis entered into with Dave Hampton, a former Wayport employee. Broker pointed out that Hampton was "no longer at the company and doesn't receive financial information," but he agreed to the "mutual representations" that Trellis wanted. JX 247. Broeker offered: "If you feel you do not have the correct information to make an informed selling decision, we stand by ready to provide whatever we can to help you make an informed decision." Id. Neither the agreement nor the offer mollified Stewart, who remained concerned about being at an information disadvantage. Ultimately Trellis and Stewart executed a stock purchase agreement that did not contain any representations about information.

      116

      On June 13, 2007, Stewart closed his sale of stock with NEA. On June 14, Katzen and McCormick backed out of their purchases, leaving Stewart with 270,000 shares that he had planned on liquidating. On June 20, Stewart, Heinen, and Gray closed their sales with Trellis.

      117
      K. The Third Stock Sale
      118

      On June 26, 2007, Stewart emailed Williams and stated that he was "contemplating asking for [William's] assistance in mitigating the effect of [Katzen and McCormick] bolting." JX 272. First, though, he asked for "a copy of the 11-months to date" current fiscal year unaudited financial statements. Id. Williams sent the materials the following day. Recall that at the time, Greg Williams had reengaged with Cisco. On June 28, Cisco offered $9 million for the MSSID Patents, and on June 29, the parties executed a patent sale agreement at a price of $9.5 million. Williams never informed Stewart of these developments.

      119

      On July 2, 2007, Stewart confirmed that he wanted to sell additional shares and asked Williams for his "assistance in recovering from the 11th-hour departure of [Katzen and McCormick]." JX 281. Williams initially suggested that Stewart reach out to Trellis and NEA directly. Stewart wrote back:

      120
      If you would like to change the flow of communication over the last six months, where the company interposed itself between the preferred [stockholders] and the [plaintiffs] until the actual transfer was about to occur, that is OK by me. I am happy to contact Trellis and NEA, but I suspect we will quickly be back to where we are now.
      121

      JX 290. Williams then contacted Trellis and NEA and advised them that Stewart wanted to sell additional shares at a price of $2.50 per share. After several weeks of internal discussions, Trellis and NEA decided to purchase 100,000 and 150,000 shares, respectively. The parties agreed to use the same versions of the stock purchase agreement previously used. On September 27 and 28, the transactions closed.

      122
      L. Stewart Learns Of The Patent Sale.
      123

      On October 1, 2007, just days after the final stock sale, Stewart asked Williams for a copy of Wayport's audited financials. On October 30, Williams provided them. Buried in the notes was the following three sentence disclosure:

      124
      In June 2007, Wayport completed the sale of certain of its patents related to a distributed network communication system which enables multiple network providers to use a common distributed network infrastructure. Cash proceeds of $7.6 million, net of expenses related to the transaction, were received in June 2007. The Company has no ongoing obligations under the patent sale agreement and was granted a royalty-free, nontransferable license to the related patents sold.
      125

      JX 316. This was the first time Stewart learned of the patent sale.

      126

      At his deposition, Williams testified that he was upset that even this limited disclosure was included in the financial statements. Williams opposed making any disclosure about the sale, citing the need to respect Cisco's confidentiality. Williams also testified that he ultimately agreed to the disclosure only because Wayport's auditors told him that they "really didn't have an alternative . . . ." Williams Dep. Tr. 207-08. If the auditors had not insisted on following GAAP, Stewart might never have learned about the sale.

      127

      On November 6, 2007, Stewart asked Williams about the purchase, including "who bought them?" JX 318. Williams refused to divulge anything, citing a confidentiality agreement between Cisco and Wayport. Stewart then pared back his request, agreed to forego the name of the buyer, and asked for only (i) whether one or more patents were sold, (ii) whether any pending patents were sold, (iii) the date of the sale, and (iv) the gross sale proceeds. Williams would not budge, and Wayport provided nothing.

      128

      On December 21, 2007, Stewart made formal demand under Section 220. When Wayport failed to respond, he filed a books and records action on January 3, 2008. On March 10, Wayport provided Stewart with a list of its currently held patents, which enabled Stewart to deduce which patents were sold. Wayport did not disclose the gross proceeds, the timing, or the purchaser. Wayport continued to withhold this information even after Cisco filed a patent amendment with the USPTO that publicly identified Cisco as the purchaser of the MSSID Patents.

      129
      M. AT&T; Purchases Wayport.
      130

      On November 6, 2008, Wayport announced that it would be acquired by AT&T; Inc. and its common stock would be converted into the right to receive $7.20 per share. The plaintiffs were informed of the transaction upon announcement. The discussions with AT&T; began just months after Stewart completed his final stock sale. The AT&T; transaction closed on December 11, 2008.

      131
      N. The Plaintiffs Sue.
      132

      On November 17, 2008, Stewart filed this litigation. As amended, his complaint contained seven counts:

      133
      • Count I—Breach of the fiduciary duty of disclosure;
      134
      • Count II—Breach of the fiduciary duty of loyalty;
      135
      • Count III—Common law fraud;
      136
      • Count IV—Civil conspiracy;
      137
      • Count V—Aiding and abetting a breach of fiduciary duty;
      138
      • Count VI—Unjust enrichment;
      139
      • Count VII—Breach of the implied covenant of good faith and fair dealing.
      140

      In the Dismissal Opinion, Vice Chancellor Lamb dismissed all claims with respect to any stock sales that took place before 2007. He also dismissed Counts I, IV, VI, and VII with respect to the 2007 stock sales. The motion to dismiss Counts II and III was denied as to defendants Wayport, Williams, Trellis, and NEA. The motion to dismiss Count V was denied as to Wayport. Dismissal Op. at *8-10.

      141

      After discovery, the plaintiffs moved to amend their complaint to add a claim for equitable fraud. Leave was granted on the grounds that all of the elements of equitable fraud are subsumed within the elements of common law fraud and therefore were already at issue in the case. See Ct. Ch. R. 15(a) ("leave [to amend] shall be freely given when justice so requires"); Ikeda v. Molock, 603 A.2d 785, 788 (Del. 1991) (finding reversible error and ordering new trial where trial court failed to permit amendment of the pleadings on the morning of trial); see also Bellanca Corp. v. Bellanca, 169 A.2d 620, 622 (Del. 1961) (affirming grant of leave to amend mid-trial under Ct. Ch. R. 15(b) where additional theory of liability did not require "additional evidence" and thereby posed "no possible prejudice").

      142
      II. LEGAL ANALYSIS
      143

      The Dismissal Opinion located this case at "an interesting intersection of contract, fiduciary duty, and fraud." Dismissal Op. at *8. In making this comment, Vice Chancellor Lamb assumed based on the allegations of the complaint that the ROFRs would play a significant role and that only the Company had waived its ROFR. Id. at *1. Trial simplified matters, because the plaintiffs proved that all of the parties waived all of their ROFRs. By executing the Waivers of Rights of First Refusal and Co-Sale that Williams prepared, Wayport, Trellis, NEA, and the plaintiffs relinquished "all rights of first refusal and co-sale" with respect to the sale transactions. JX 154; see also Pre-trial Order ¶¶ 65-66, 80-81. Default common law principles therefore apply. The plaintiffs have advanced two principal theories of liability: breach of fiduciary duty and fraud.

      144
      A. The Claim For Breach Of Fiduciary Duty
      145

      The plaintiffs contended at trial that Trellis, NEA, Williams, and Wayport breached their fiduciary duties of loyalty. The plaintiffs did not carry their burden of proof, and judgment is entered in favor of the defendants on the fiduciary duty claim.

      146
      1. The Nature Of The Fiduciary Duty Claim
      147

      The plaintiffs contended that the defendants owed them fiduciary duties that included a duty to disclose material information when they purchased the plaintiffs' shares. Directors of a Delaware corporation owe two fiduciary duties: care and loyalty. Stone ex rel. AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006). The "duty of disclosure is not an independent duty, but derives from the duties of care and loyalty." Pfeffer v. Redstone, 965 A.2d 676, 684 (Del. 2009) (internal quotation marks omitted). The duty of disclosure arises because of "the application in a specific context of the board's fiduciary duties . . . ." Malpiede v. Townson, 780 A.2d 1075, 1086 (Del. 2001). Its scope and requirements depend on context; the duty "does not exist in a vacuum." Stroud v. Grace, 606 A.2d 75, 85 (Del. 1992). When confronting a disclosure claim, a court therefore must engage in a contextual specific analysis to determine the source of the duty, its requirements, and any remedies for breach. See Lawrence A. Hamermesh, Calling Off the Lynch Mob: The Corporate Director's Fiduciary Disclosure Duty, 49 Vand. L. Rev. 1087, 1099 (1996). Governing principles have been developed for recurring scenarios, four of which are prominent.

      148

      The first recurring scenario is classic common law ratification, in which directors seek approval for a transaction that does not otherwise require a stockholder vote under the DGCL. See Gantler v. Stephens, 965 A.2d 695, 713 (Del. 2009) (describing ratification in its classic form); id. at 713 n.54 (distinguishing "the common law doctrine of shareholder ratification" from "the effect of an approving vote of disinterested shareholders" under 8 Del. C. § 144). If a director or officer has a personal interest in a transaction that conflicts with the interests of the corporation or its stockholders generally, and if the board of directors asks stockholders to ratify the transaction, then the directors have a duty "to disclose all facts that are material to the stockholders' consideration of the transaction and that are or can reasonably be obtained through their position as directors." Hamermesh, supra, at 1103. The failure to disclose material information in this context will eliminate any effect that a favorable stockholder vote otherwise might have for the validity of the transaction or for the applicable standard of review. Id.; see Gantler, 965 A.2d at 713 ("With one exception, the `cleansing' effect of such a ratifying shareholder vote is to subject the challenged director action to business judgment review, as opposed to `extinguishing' the claim altogether (i.e., obviating all judicial review of the challenged action)."); id. at 713 n.54 ("The only species of claim that shareholder ratification can validly extinguish is a claim that the directors lacked the authority to take action that was later ratified. Nothing herein should be read as altering the well-established principle that void acts such as fraud, gift, waste and ultra vires acts cannot be ratified by a less than unanimous shareholder vote.").

      149

      A second and quite different scenario involves a request for stockholder action. When directors submit to the stockholders a transaction that requires stockholder approval (such as a merger, sale of assets, or charter amendment) or which requires a stockholder investment decision (such as tendering shares or making an appraisal election), but which is not otherwise an interested transaction, the directors have a duty to "exercise reasonable care to disclose all facts that are material to the stockholders' consideration of the transaction or matter and that are or can reasonably be obtained through their position as directors." Hamermesh, supra, at 1103; see Stroud, 606 A.2d at 84 ("[D]irectors of Delaware corporations [have] a fiduciary duty to disclose fully and fairly all material information within the board's control when it seeks shareholder action."). A failure to disclose material information in this context may warrant an injunction against, or rescission of, the transaction, but will not provide a basis for damages from defendant directors absent proof of (i) a culpable state of mind or non-exculpated gross negligence, (ii) reliance by the stockholders on the information that was not disclosed, and (iii) damages proximately caused by that failure. See Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 146-47 (Del. 1997).

      150

      A third scenario involves a corporate fiduciary who speaks outside of the context of soliciting or recommending stockholder action, such as through "public statements made to the market," "statements informing shareholders about the affairs of the corporation," or public filings required by the federal securities laws. Malone v. Brincat, 722 A.2d 5, 11 (Del. 1998). In that context, directors owe a duty to stockholders not to speak falsely:

      151
      Whenever directors communicate publicly or directly with shareholders about the corporation's affairs, with or without a request for shareholder action, directors have a fiduciary duty to shareholders to exercise due care, good faith and loyalty. It follows a fortiori that when directors communicate publicly or directly with shareholders about corporate matters the sine qua non of directors' fiduciary duty to shareholders is honesty.
      152

      Id. at 10. "[D]irectors who knowingly disseminate false information that results in corporate injury or damage to an individual stockholder violate their fiduciary duty, and may be held accountable in a manner appropriate to the circumstances." Id. at 9; see id. at 14 ("When the directors are not seeking shareholder action, but are deliberately misinforming shareholders about the business of the corporation, either directly or by a public statement, there is a violation of fiduciary duty."). Breach "may result in a derivative claim on behalf of the corporation," "a cause of action for damages," or "equitable relief . . . ." Id.

      153

      The fourth scenario arises when a corporate fiduciary buys shares directly from or sells shares directly to an existing outside stockholder. Hamermesh, supra, at 1103. Under the "special facts doctrine" adopted by the Delaware Supreme Court in Lank v. Steiner, 224 A.2d 242 (Del. 1966), a director has a fiduciary duty to disclose information in the context of a private stock sale "only when a director is possessed of special knowledge of future plans or secret resources and deliberately misleads a stockholder who is ignorant of them." Id. at 244. If this standard is met, a duty to speak exists, and the director's failure to disclose material information is evaluated within the framework of common law fraud. If the standard is not met, then the director does not have a duty to speak and is liable only to the same degree as a non-fiduciary would be. It bears emphasizing that the duties that exist in this context do not apply to purchases or sales in impersonal secondary markets. See Hamermesh, supra, at 1153 & n.296. Transactions in the public markets are distinctly different. See, e.g., In re Am. Int'l Gp., Inc., 965 A.2d 763, 800 (Del. Ch. 2009), aff'd, 11 A.3d 228 (Del. 2011) (TABLE); In re Oracle Corp., 867 A.2d 904, 932-33, 953 (Del. Ch. 2004), aff'd, 872 A.2d 960 (Del. 2005); Guttman v. Huang, 823 A.2d 492, 505 (Del. Ch. 2003).

      154

      The current case originally raised the second, third, and fourth scenarios, but only the fourth remains. Count I of the complaint was titled "Breach of Fiduciary Duty of Disclosure." Dkt. 25 at 20. At the motion to dismiss stage, it was understood to invoke the second scenario, viz., the duty of disclosure in the context of a request for stockholder action. Vice Chancellor Lamb dismissed Count I on the grounds that "a call for an individual stockholder to sell his shares does not, without more, qualify as a call for stockholder action." Dismissal Op. at *6 n.18.

      155

      Count II of the complaint was titled "Breach of Fiduciary Duty of Loyalty." Dkt. 25 at 21. At the motion to dismiss stage, it was understood to invoke both the third scenario (the duty under Malone not to engage in deliberate falsehoods) and the fourth scenario (the duty to speak that a fiduciary may have in the context of a direct purchase of shares from a stockholder). As to the former, Vice Chancellor Lamb recognized that the "corporation and its officers and directors are, of course, subject to the underlying duty of loyalty not to make false statements or otherwise materially misrepresent the facts in such a way as to defraud the stockholder in any such negotiation [over the purchase of shares]." Dismissal Op. at *6 n.19 (citing Malone, 722 A.2d at 10). He held, however, that the complaint pled "no facts whatsoever to suggest that the company, or its directors or officers, made any knowingly false statements . . . ." Id. He therefore dismissed Count II as to the Company and the director defendants, effectively disposing of the Malone claim. As to the latter, Vice Chancellor Lamb denied the motion to dismiss, holding that Count II implicated the "normal standard of fraud, as applied to transactions between corporate insiders . . . ." Dismissal Op. at *5 (emphasis added). In a footnote, Vice Chancellor Lamb contrasted this variety of fraud with "the affirmative-misrepresentation or intentional concealment species of fraud (that is, the forms of fraud that do not require a duty to speak)" that applies to non-fiduciaries. Id. at *5 n.17. This remaining aspect of Count II was litigated and tried.

      156
      2. The Duty Of Disclosure In A Direct Purchase By A Fiduciary
      157

      The legal principles that govern a direct purchase of shares by a corporate fiduciary from an existing stockholder have a venerable pedigree.

      158
      As almost anyone who has opened a corporation law casebook or treatise knows, there has been for over a century a conflict of authority as to whether in connection with a purchase of stock a director owes a fiduciary duty to disclose to the selling stockholder material facts which are not known or available to the selling stockholder but are known or available to the director by virtue of his position as a director.
      159

      Hamermesh, supra, at 1116. Three rules were developed: a majority rule, a minority rule, and a compromise position known as the "special facts doctrine." Id. at 1116-17; see also Robert Charles Clark, Corporation Law § 8.8, at 306-09 (1986); Stephen M. Bainbridge, Incorporating State Law Fiduciary Duties into the Federal Insider Trading Prohibition, 52 Wash. & Lee L. Rev. 1189, 1219 (1995).

      160

      The "supposedly `majority' rule disavows the existence of any general fiduciary duty in this context, and holds that directors have no special disclosure duties in the purchase and sale of the corporation's stock, and need only refrain from misrepresentation and intentional concealment of material facts." Hamermesh, supra, at 1116-17. Under this rule, corporate fiduciaries may

      161
      trade like strangers at arm's length, provided they do not commit a deliberate active fraud for the purpose of procuring the shareholders' stock. They need not disclose to the shareholders important official information which they possess, at least in the absence of inquiry. Not only the element of active misrepresentation is required, but also the reliance of the shareholders thereon as an inducement to part with their shares.
      162

      Henry Winthrop Ballantine, Ballantine on Corporations § 80, at 212 (1946); accord Clark, supra, § 8.9, at 311 ("[T]he majority rule appears to have been that corporate directors and officers owe their fiduciary duties to the corporation, . . . so that shareholders selling to an officer who purchased on the basis of inside information would ordinarily have no remedy."); 2 Seymour D. Thompson & Joseph W. Thompson, Commentaries on the Law of Corporations § 1363, at 885 (1927) (describing majority rule under which "a director may purchase the stock of the stockholder without disclosing to him the condition of the corporation, or without giving the stockholder the benefit of any knowledge that such director may possess in relation to the corporate affairs and affecting the value of the stock"); see also 3A William Meade Fletcher, Fletcher Cyc. Corp. § 1168.1, at 321-26 (perm ed., rev. vol. 2011 & supp. 2013) (collecting cases exemplifying majority rule). The majority rule was "criticized as a rule of unconscionable laxity" and "condemned by almost all text writers and commentators . . .." Ballantine, supra, § 80, at 213; see, e.g., Adolf A. Berle, Jr. & Gardiner C. Means, The Modern Corporation & Private Property, at 327-29 (1932) (criticizing majority rule). By 1937, the majority rule arguably no longer represented the rule in a majority of jurisdictions. See Bainbridge, supra, at 1120.

      163

      "The ostensibly opposing `minority' view broadly requires directors to disclose all material information bearing on the value of the stock when they buy it from or sell it to another stockholder." Hamermesh, supra, at 1117. Jurisdictions taking this approach hold that a director's fiduciary duties obligate the director to make the necessary disclosures of material information or abstain from the transaction. See Clark, supra, § 8.9, at 311; Ballantine, supra, § 80, at 213; Berle & Means, supra, at 328; Thompson & Thompson, supra, § 1364, at 888; see also Fletcher, supra, § 1168.2, at 326-29 (collecting cases exemplifying minority rule).

      164

      The special facts doctrine attempts to strike a compromise position between "the extreme view that directors and officials are always under a full fiduciary duty to the shareholders to volunteer all their information and a rule that they are always free to take advantage of their official information." Ballantine, supra, § 80, at 213. Under this variant, a director has a duty of disclosure only

      165
      in special circumstances . . . where otherwise there would be a great and unfair inequality of bargaining position by the use of inside information. Such special circumstances or developments have been held to include peculiar knowledge of directors as to important transactions, prospective mergers, probable sales of the entire assets or business, agreements with third parties to buy large blocks of stock at a high price and impending declarations of unusual dividends.
      166

      Id.; see id. at 213-14 (collecting cases exemplifying special facts rule). Like the minority rule, the compromise position recognizes a duty of disclosure, but cuts back on its scope by limiting disclosure only to that subcategory of material information that qualifies as special facts or circumstances. Berle and Means criticized the "reasoning underlying [the intermediate rule as] not particularly clear . . . ." Berle & Means, supra, at 329.

      167

      In Kors v. Carey, 158 A.2d 136 (Del. Ch. 1960), the Delaware Court of Chancery applied the special facts doctrine. The stockholder plaintiff alleged that the defendant directors had acted inequitably by causing the corporation to purchase the plaintiff's block of stock secretly, without revealing the corporation's identity, under circumstances where the court agreed the plaintiff would not have sold if the purchaser's true identity was known. Id. at 143. Then-Vice Chancellor Marvel dismissed the breach of fiduciary duty claim, explaining that

      168
      it disregards the principle that directors generally do not occupy a fiduciary position vis à vis individual stockholders in direct personal dealings as opposed to dealings with stockholders as a class, failing to recognize that it is only in special cases where advantage is taken of inside information and the like that the selling stockholder is afforded relief and then on the basis of fraud . . . .
      169

      Id. (emphasis added) (citations omitted). In support of this proposition, Vice Chancellor Marvel relied on two leading "special facts" cases: Strong v. Repide, 213 U.S. 419 (1909), and Northern Trust Co. v. Essaness Theatres Corp., 108 N.E.2d 493 (Ill. App. 1957). On the facts alleged, he found that

      170
      the purchaser[ ] had no fiduciary or other duty in the transaction (there being no showing that the buyer had any special knowledge about the possibilities of appreciation in the market value of the purchased stock which was not basically available to the seller) other than to live up to its contract which it did. In other words, this is a case in which there is neither proof of fraud, nor of actionable willful concealment, but also no proof of a false statement innocently made.
      171

      Kors, 158 A.2d at 143 (citations omitted).

      172

      Six years later, in Lank, the Delaware Supreme Court identified Kors as "a decision which we expressly approve . . . ." Lank, 224 A.2d at 244. The high court then described Kors as holding that "the special circumstance rule applies only when a director is possessed of special knowledge of future plans or secret resources and deliberately misleads a stockholder who is ignorant of them." Id. (emphasis added). By making the test conjunctive, the Delaware Supreme Court combined the scienter requirement of the majority rule with a disclosure duty limited to "special facts."

      173

      Lank involved a privately held Delaware corporation in which two stockholder-directors were responsible for its "active management" while another stockholder, the plaintiff, was largely passive. Id. at 243. One of the directors learned that a third party had offered to acquire the company for $600 per share. Id. After learning of the offer, the director purchased an option to buy the minority stockholder's shares at $270 per share. Id. at 244. After the minority stockholder passed away, his heirs alleged the director breached his fiduciary duty by failing to disclose the offer to the minority stockholder when securing the option. Chancellor Seitz dismissed the complaint, finding that there was no breach of duty. See Lank v. Steiner, 213 A.2d 848, 851 (Del. Ch. 1965).

      174

      On appeal, the Delaware Supreme Court affirmed, relying on the trial court's finding that the minority stockholder "knew of the [third party] offer since he, along with all the stockholders, signed a resolution . . . authorizing the sale of corporate assets" for a price equal to the offer, prior to agreeing to the option contract. Lank, 224 A.2d at 244. The high court agreed that there was no evidence to "justify the conclusion that [the minority stockholder] was not aware of the difference" between the strike price of the option contract and the offer price, and therefore the director "had breached no duty to [the minority stockholder] as a corporate fiduciary." Id. (emphasis added). The reasoning of Lank suggests that without the finding of knowledge, the defendant's failure to disclose an offer for the whole company could have supported a claim for breach of fiduciary duty in connection with the option contract, although it appears that the plaintiff still would have had to show that the defendant took action or remained silent to deliberately mislead. See id. (stating Kors applies where a director fails to disclose special knowledge and "deliberately misleads" a stockholder).

      175

      Based on Lank and Kors, it appears to me that Delaware follows the special facts doctrine. Professor Hamermesh has argued that in Lynch v. Vickers Energy Corp., 383 A.2d 278 (Del. 1977), the Delaware Supreme Court reversed course and adopted the minority rule. See Hamermesh, supra, at 1121 ("Lynch . . . aligned Delaware with jurisdictions rejecting the `majority rule' in favor of a rule recognizing a fiduciary duty on the part of directors, officers and controlling stockholders to disclose material facts, learned through their position with the corporation, to outside stockholders when buying stock from them."). In Lynch, then-Chancellor Marvel, the author of Kors, held that a majority stockholder owed a fiduciary duty of "complete candor" when purchasing shares from the minority, and he equated that obligation with the duty owed by corporate directors:

      176
      [I]n situations in which the holder of a majority of the voting shares of a corporation, as here, seeks to impose its will upon minority stockholders, the conduct of such majority must be tested by those same standards of fiduciary duty which directors must observe in their relations with all their stockholders. I take this to mean that in a situation such as the one found in the case at bar that the majority stockholder here, namely Vickers, had a duty to exercise complete candor in its approach to the minority stockholders of TransOcean for a tender of their shares, namely a duty to make a full disclosure of all of the facts and circumstances surrounding the offer for tenders, including the consequence of acceptance and that of refusal . . . .
      177

      Lynch v. Vickers Energy Corp., 351 A.2d 570, 573 (Del. Ch. 1976) (citations omitted), aff'd in pertinent part, 383 A.2d 278 (Del. 1977). Applying this standard, Chancellor Marvel held that disclosure violations alleged by the plaintiffs were not material. Id. at 574-75. On appeal, the Delaware Supreme Court reversed on the factual application, but agreed with the legal standard and the existence of a "fiduciary duty . . . which required `complete candor.'" Lynch, 383 A.2d at 279. The high court explained that "[t]he objective, of course, is to prevent insiders from using special knowledge which they may have to their own advantage and to the detriment of the stockholders." Id. at 281. "Completeness, not adequacy, is both the norm and the mandate . . . ." Id.

      178

      Lynch did not expressly overrule either Lank or Kors, nor did it discuss the minority rule. The passage in the Court of Chancery decision that described the duty of disclosure owed by a controlling stockholder equated it with the "same standards of fiduciary duty which directors must observe in their relations with all their stockholders." 351 A.2d at 573 (emphasis added). It is not immediately apparent that this language refers to the duty that a director would owe when purchasing shares directly from a stockholder in a private transaction. It seems more likely to anticipate the duty of disclosure that directors owe to all stockholders when seeking stockholder action. In Stroud, the Delaware Supreme Court seemingly sought to clarify this very point by stating that the "duty of candor" described in Lynch did not import "a unique or special rule of disclosure" but rather represented "nothing more than the well-recognized proposition that directors of Delaware corporations are under a fiduciary duty to disclose fully and fairly all material information within the board's control when it seeks shareholder action." Stroud, 606 A.2d at 84. Subsequent Delaware Supreme Court decisions have treated the disclosure obligations of a controlling stockholder when making a tender offer or effecting a short-form merger as examples of the duty of disclosure in the context of stockholder action. See, e.g., Berger v. Pubco Corp., 976 A.2d 132, 145 (Del. 2009); Glassman v. Unocal Exploration Corp., 777 A.2d 242, 248 (Del. 2001); Shell Petroleum, Inc. v. Smith, 606 A.2d 112, 116 (Del. 1992).

      179

      Although I agree with the policy rationales that Professor Hamermesh advances for imposing an affirmative duty to disclose material information on a director who purchases shares from or sells shares to a stockholder in a private transaction, see Hamermesh, supra, at 1151-59, it does not appear to me that the Delaware Supreme Court has endorsed this rule. Absent further guidance from the high court, the "special facts" doctrine remains the standard in this context.

      180
      3. No "Special Facts"
      181

      Under the "special facts" doctrine, Trellis and NEA were free to purchase shares from other Wayport stockholders, without any fiduciary duty to disclose information about the Company or its prospects, unless the information related to an event of sufficient magnitude to constitute a "special fact." If they knew of a "special fact," then they had a duty to speak and could be liable if they deliberately misled the plaintiffs by remaining silent.

      182

      To satisfy the "special facts" requirement, a plaintiff generally must point to knowledge of a substantial transaction, such as an offer for the whole company. See Jordan v. Duff & Phelps, Inc., 815 F.2d 429, 435 (7th Cir. 1987) ("The `special facts' doctrine developed by several courts at the turn of the century is based on the principle that insiders in closely held firms may not buy stock from outsiders in person-to-person transactions without informing them of new events that substantially affect the value of the stock."); accord Lazenby v. Godwin, 253 S.E.2d 489, 495 (N.C. App. 1979) (third party purchase of corporation's assets at multiple of book value); Weatherby v. Weatherby Lumber Co., 492 P.2d 43, 45 (Idaho 1972) (ongoing negotiation over sale of assets "enhancing the value of the stock"); Lank v. Steiner, 213 A.2d 848, 851 (Del. Ch. 1965) (third party offer to purchase corporation's stock at multiple of book value), aff'd, 224 A.2d 242 (Del. 1966); Jacobson v. Yaschik, 155 S.E.2d 601, 605 (S.C. 1967) ("forthcoming assured sale of corporate assets," "an offer of purchase of the [corporation's] stocks," or a "fact or condition enhancing the value of the [corporation's] stocks); Fox v. Cosgriff, 159 P.2d 224, 229 (Idaho 1945) (liquidation "enhancing the value of the stock"); Nichol v. Sensenbrenner, 263 N.W. 650, 657 (Wis. 1935) (plan of reorganization generating "fair" value above price paid by insider); Buckley v. Buckley, 202 N.W. 955, 956 (Mich. 1925) ("assured sale, merger, or other fact or condition enhancing the value of the stock"); see generally Harold R. Smith, Purchase of Shares of a Corporation by a Director From a Shareholder, 19 Mich. L. Rev. 698, 712-17 (1921) (analyzing special facts cases).

      183

      Contrary to Lank, the plaintiffs argue that they need only show that the defendants failed to disclose material information. Under Delaware law, "[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important" such that "under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder." Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985). The standard "does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote" or (in more generalized terms) act differently. Id. The standard of materiality is thus lower than the standard for a "special fact."

      184

      The plaintiffs have identified three allegedly material omissions. Only one—the Cisco sale—is material. Even this omission does not rise to the level of a "special fact."

      185

      The plaintiffs first argue that the Company's efforts to monetize Wayport's patent portfolio constituted material information that the defendants failed to disclose. According to the plaintiffs, the Company's decision to take concrete steps towards monetizing its portfolio represented a substantial change in corporate direction, and its stockholders should have been told. I need not decide whether this information was material or special, because in either event it was not omitted. Through his communications with Long and other members of Wayport management, Stewart learned as early as 2005 that Wayport was evaluating its patent portfolio and taking steps to monetize it. The Company even asked for his help. Stewart discussed the Company's plans and expressed his views about them to his fellow plaintiffs. Stewart did not like Wayport's strategy and did not believe the Company would really execute it, but what matters for present purposes is that he fully understood its plan of action. The plaintiffs cannot maintain a claim for breach of the duty of loyalty in a direct stock sale based on information they actually knew. Lank, 224 A.2d at 244.

      186

      The plaintiffs next contend that the existence of the Intellectual Ventures proposal constituted material information that should have been disclosed. For purposes of Delaware law, the existence of preliminary negotiations regarding a transaction generally becomes material once the parties "have agreed on the price and structure of the transaction." Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 847 (Del. 1987); see also Alessi v. Beracha, 849 A.2d 939, 945-49 (Del. Ch. 2004). Under these standards, the plaintiffs did not prove that the Intellectual Ventures deal ever became material. After the Board meeting on June 14, 2007, the Intellectual Ventures transaction remained a Wayport counteroffer that was subject to a carve-out for "a large networking equipment manufacturer." JX 263. Intellectual Ventures never accepted. No agreement on price and structure was reached, and the Intellectual Ventures transaction was not otherwise sufficiently firm to be material. It therefore could not rise to the level of a "special fact."

      187

      By contrast, plaintiffs proved at trial that the Cisco sale was material. Wayport and Cisco agreed on a total price of $9.5 million on June 29, 2007, and the patent sale agreement was signed that day. Wayport's net sale proceeds of $7.6 million increased the Company's year-end cash position by 22%, and the gain on sale represented 77% of the Company's year-end operating income. Wayport's auditors concluded that the transaction was material to Wayport's financial statements and insisted that it be included over Williams's opposition because they "really didn't have an alternative . . . ." Williams Dep. Tr. 207-08.

      188

      The Cisco sale was a milestone in the Company's process of monetizing its patent portfolio, and it was sufficiently large to enter into the decisionmaking of a reasonable stockholder. But the plaintiffs did not prove at trial that the Cisco sale substantially affected the value of their stock to the extent necessary to trigger the special facts doctrine. Stewart admitted that the sale of the MSSID Patents did not necessarily imply anything about the market value of the remaining patents, and he himself believed— before and after learning of the Cisco sale—that the rest of the Company's patent portfolio was still worth hundreds of millions of dollars. Tr. 182-83, 261-65; Stewart Dep. Tr. 564-68, 576-78.

      189

      Because they did not know of any "special facts," Trellis and NEA did not have a fiduciary duty to speak when purchasing shares from the plaintiffs. Judgment is entered in their favor on the breach of fiduciary duty claim.

      190
      4. Williams Had No Greater Duty
      191

      Williams was an officer of Wayport, and the "fiduciary duties of officers are the same as those of directors." Gantler, 965 A.2d at 708-09. Although Williams did not purchase shares from the plaintiffs, I will assume for the sake of argument that Williams could have undertaken a duty to disclose based on his fiduciary status and substantial role in the transaction process. See Arnold v. Soc'y for Sav. Bancorp, Inc., 678 A.2d 533, 541 (Del. 1996); Shell Oil, 606 A.2d at 116. But even then, it does not seem to me that the scope of Williams's duty to speak as a transactional facilitator would exceed the duty imposed on the fiduciaries who were actual participants in the transaction. Trellis and NEA only had a duty to speak if they knew of a "special fact." For the reasons already discussed, although the Cisco sale was material information, it did not rise to the level of a special fact. Consequently, Williams did not have a duty to speak, and judgment is entered in his favor on the breach of fiduciary duty claim.[3]

      192
      5. The Claim Against Wayport
      193

      Wayport is not liable for breach of fiduciary duty. As a corporate entity, Wayport did not owe fiduciary duties to its stockholders. See A.W. Fin. Servs., S.A. v. Empire Res., Inc., 981 A.2d 1114, 1127 n.36 (Del. 2009); Arnold, 678 A.2d at 539. The plaintiffs asserted a separate claim against Wayport for aiding and abetting Williams's breach of fiduciary duty, but without an underlying breach, the aiding and abetting claim fails. See Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001). Judgment is entered in favor of Wayport.

      194
      B. The Common Law Fraud Claim
      195

      As an alternative to their breach of fiduciary duty claim, the plaintiffs alleged in Count III of their complaint and contended at trial that Trellis, NEA, and Williams were liable for common law fraud. To establish a claim for fraud, a plaintiff must prove (i) a false representation, (ii) a defendant's knowledge or belief of its falsity or his reckless indifference to its truth, (iii) a defendant's intention to induce action, (iv) reasonable reliance, and (v) causally related damages. See Stephenson v. Capano Dev., Inc., 462 A.2d 1069, 1074 (Del. 1983). The plaintiffs proved that Trellis committed fraud in connection with the September 27, 2007 stock sale. Otherwise judgment is entered in favor of defendants.

      196
      1. A False Representation
      197

      The plaintiffs do not ground their fraud claim on affirmative representations but rather on material omissions. "[F]raud does not consist merely of overt misrepresentations. It may also occur through deliberate concealment of material facts, or by silence in the face of a duty to speak." Stephenson, 462 A.2d at 1074. The plaintiffs rely on the same three omissions that were previously analyzed in the context of the breach of fiduciary duty claim. For the reasons already discussed, only one was a material omission: the Cisco sale.

      198
      2. A Duty To Speak
      199

      The plaintiffs next contend, as the Dismissal Opinion held, that "the duty of loyalty may give rise to a duty to speak . . . ." Dismissal Op. at *6. But under Lank, a corporate fiduciary has a duty to speak when buying or selling stock from a stockholder in a direct transaction "only when a director is possessed of special knowledge of future plans or secret resources and deliberately misleads a stockholder who is ignorant of them." 224 A.2d at 244. For the reasons discussed in Part II.A.3, none of the defendants knew about a "special fact" that gave rise to a duty to speak.

      200

      A duty to speak also can arise because of statements a party previously made. A "party to a business transaction is under a duty to . . . disclose to the other [party] before the transaction is consummated . . . subsequently acquired information that [the speaker] knows will make untrue or misleading a previous representation that when made was true . . . ." Restatement (Second) of Torts § 551 (1977) (emphasis added) [hereinafter Restatement of Torts]. The fact that a statement was true when made does not enable the speaker to stand silent if the speaker subsequently learns of new information that renders the earlier statement materially misleading.

      201
      [H]aving made a representation which when made was true or believed to be so, [one who] remains silent after he has learned that [the representation] is untrue and that the person to whom [the representation was] made is relying upon it in a transaction with him, is . . . in the same position as if he knew that his [representation] was false when made.
      202

      Id. cmt. h. Numerous cases apply this rule to claims of securities fraud.[4]

      203

      NEA never spoke, and hence had no duty to update an earlier statement. Williams never made any representation that subsequently became untrue. He and others at the Company consistently told Stewart to assume that the Company was actively exploring options for its patent portfolio and considering a number of different alternatives, any of which might come to fruition. Williams also informed Stewart that the Company believed the stock was worth more than the price reflected in the sale transactions.

      204

      Trellis, by contrast, chose to speak, and its representation later became untrue. On June 8, 2007, Trellis's managing partner, Broeker, represented in an email to Stewart that Trellis was "not aware of any bluebirds of happiness in the Wayport world right now . . .." JX 248. Long was included on the email chain and knew that his partner had made the representation. Heinen emailed Long contemporaneously to call his attention to the contentious negotiations between Broeker and Stewart. When the email was sent, the representation was true. But by speaking, Trellis assumed a duty to update its statement to the extent that subsequent events rendered its representation materially misleading. See Restatement of Torts § 551.

      205

      Trellis's statement became materially misleading on July 2, 2007, when Vucina informed the Board via email of the Cisco sale. On July 20, Board materials were distributed which described the Cisco sale in detail. On July 25, Greg Williams gave the Board a presentation about the Cisco sale. Long thus knew about Wayport's unexpected good news and the falsity of the "bluebirds" email. Broeker did as well, because he often spoke with Long about Wayport developments and had access to Board materials through Trellis's information rights. Their knowledge is imputed to Trellis. See Teachers' Ret. Sys. of La. v. Aidinoff, 900 A.2d 654, 671 n.23 (Del. Ch. 2006) ("[I]t is the general rule that knowledge of an officer or director of a corporation will be imputed to the corporation."); Albert v. Alex. Brown Mgmt. Servs., Inc., 2005 WL 2130607, at *11 (Del. Ch. Aug. 26, 2005) (imputing knowledge of member-employees to limited liability companies); Metro Commc'n Corp. BVI, v. Advanced Mobilecomm Techs. Inc., 854 A.2d 121, 153-55 (Del. Ch. 2004) (imputing fraud claims to corporation where it designated a manager of a limited liability company and where the manager made fraudulent statements); Nolan v. E. Co., 241 A.2d 885, 891 (Del. Ch. 1968) ("Knowledge of an agent acquired while acting within the scope of his authority is imputable to the principal."), aff'd, 249 A.2d 45 (Del. 1969); see also 3 William Meade Fletcher, Fletcher Cyc. Corp. § 790, at 16-20 (perm ed., rev. vol. 2011 & supp. 2013) ("[T]he general rule is well established that a corporation is charged with constructive knowledge . . . of all material facts of which its officer or agent receives notice or acquires knowledge [of] while acting in the course of employment within the scope of his or her authority, even though the officer or agent does not in fact communicate the knowledge to the corporation." (footnote omitted)).

      206

      Once the Cisco sale occurred and Trellis learned of it, the "no bluebird" representation became materially misleading, and Trellis therefore had a duty to speak. Instead, Trellis remained silent. For purposes of fraud, the decision to remain silent placed Trellis in the same position as if Trellis knowingly made a false representation in the first instance.

      207
      3. Inducement, Reliance, And Causation
      208

      At this point, only Trellis is potentially liable for fraud and only in connection with the September 27, 2007 purchase. But for liability to exist, Trellis must have made its misrepresentation "with the intent to induce action or inaction by the plaintiff." Stephenson, 462 A.2d at 1074. "A result is intended if the actor either acts with the desire to cause it or acts believing that there is a substantial certainty that the result will follow from his conduct." Restatement of Torts § 531, cmt. c. The party that was the recipient of the information "must in fact have acted or not acted in justifiable reliance on the representation." NACCO Indus., Inc. v. Applica Inc., 997 A.2d 1, 29 (Del. Ch. 2009) (internal quotation marks omitted). And the fraudulent misrepresentation must actually cause harm. Id. at 32; Restatement of Torts § 548A. Each of these requirements is met.

      209

      Broeker represented that he did not know of "any bluebirds of happiness in the Wayport world," JX 248, to induce Stewart to complete the sale transactions. At the time, Stewart was complaining about information asymmetry, and Broeker sought to mollify his concerns. Broeker intended for Stewart to rely on the statement, to no longer be suspicious about what Trellis knew, and to sell his shares. For his part, Stewart relied on Trellis's representation. Stewart was concerned about Trellis's insider knowledge, and Broeker's statement spoke directly to that issue. In response, Stewart emailed Broeker, saying that "[i]f you know of a Google deal in play, perhaps you ought to refrain from this transaction, or arrange for us to be on a level information playing field." JX 246. This email demonstrates that Stewart took Trellis's representation seriously and expected that if Trellis were aware of any unexpected good news, Trellis would either abstain from the transaction or disclose. After learning of the Cisco sale, Trellis did neither. Under the circumstances, Stewart's reliance on Trellis was justifiable. He knew that Broeker's partner, Long, was a member of the Board, and Stewart had spoken and emailed with Long about developments at the Company. Long received a copy of the Patent Strategy Memo and communicated extensively with Stewart about the Company's patent strategy. Stewart had reason to believe that Trellis would know if any unexpected good news was forthcoming.

      210

      Stewart also demonstrated causation. Trellis's representation and course of dealing caused Stewart to feel comfortable closing the transactions with Trellis. The defendants make much of the fact that, in their view, Stewart wanted liquidity and would have sold his shares to someone else, such as Millennium. I find that if Broeker had not made his representation, Stewart would not have sold to Trellis and would have suspected that something was afoot at the Company. Having already sold a significant number of shares, Stewart would not have sold additional shares until after he had requested and received Wayport's year-end financial statements. At that point, he would have seen the note about the patent sale and demanded additional information. Once he obtained it, he would have considered it thoroughly and used it to recalibrate his sense of the Company's value.

      211

      All this would have taken considerable time. Williams rarely responded quickly to Stewart's informational requests, except on the one occasion when Stewart asked for information when Williams knew Greg Williams was reengaging with Cisco. Williams was particularly resistant to providing Stewart with any information about the Cisco sale, going so far as to force Stewart to file a books and records action. Assuming one of the defendants provided some form of disclosure to Stewart about the Cisco sale, it would have taken months and potentially a Section 220 lawsuit before Stewart could be satisfied that he had obtained the information he needed. To the extent Stewart decided at some point to explore another sale, the process would take additional months, as demonstrated by the lengthy timeline required for each of the transactions at issue in this case. I find that Stewart still would have been holding his shares approximately one year later when Wayport announced that it would be acquired by AT&T; for $7.20 per share. Instead, because of the "no bluebirds" representation and Trellis's failure to correct it, Stewart sold 100,000 shares to Trellis on September 27, 2007 for $2.50 per share.

      212
      4. Scienter
      213

      The final hurdle for Stewart's common law fraud claim is scienter. Under Delaware law, scienter can be proven by establishing that the defendant acted with knowledge of the falsity of a statement or with reckless indifference to its truth. See Metro, 854 A.2d at 143. Stewart proved that Trellis acted with scienter by establishing that Long knew of the Cisco transaction by July 2, 2007 (via Vucina's email) and received detailed information on July 20 (via the distribution of Board materials) and on July 25 (via Board meeting). On June 8, less than a month earlier, Long read Broeker's "no bluebirds" representation. Yet despite repeated communications from Wayport management about the importance of the Cisco sale, which demonstrated that the "no bluebirds" representation was false, Long remained silent.

      214

      It would have been evident to Long that if Trellis disclosed the Cisco sale to Stewart, the stock purchase would not have gone forward as planned. Long knew from personal experience that Stewart was a volatile and combative fellow. He also knew that Stewart was deeply interested in the Company's patents and its monetization efforts, having been copied on the Patent Strategy Memo which suggested selling the MSSID Patents to Cisco. If Long told Stewart about the Cisco sale, Stewart would have demanded information and wanted to analyze its implications, just as he ultimately did when he saw a reference to a patent sale in Wayport's financial statements. The process would be unpleasant, and Stewart could be expected to indulge his penchant for eloquent accusations. But if Long and Trellis failed to mention the sale, there was a good chance that Stewart might never find out—or find out too late for it to matter. Wayport and Cisco had agreed to keep the sale confidential, and during approximately the same period, Williams was attempting to keep any mention of the sale out of the Company's financial statements. The evidence is circumstantial but sufficient to find that Long knew disclosure would place the stock sales at risk and therefore decided not to correct Trellis's earlier representation. Scienter is therefore met.

      215
      5. Damages for Fraud
      216

      "The recipient of a fraudulent misrepresentation is entitled to recover as damages. . . pecuniary loss suffered otherwise as a consequence of the recipient's reliance upon the misrepresentation." Restatement of Torts § 549. The best measure of the quantum of Stewart's damages is approximately $470,000, or $4.70 per share, calculated as the difference between the $7.20 per share Stewart would have received in the AT&T; merger and the $2.50 per share that Stewart received from Trellis in the final stock sale. I say "approximately $470,000" because to account for Stewart's use of the cash he received from Trellis, the parties will add interest to that amount at the legal rate, compounded quarterly, for the period from September 27, 2007 until December 11, 2008. See Lynch v. Vickers Energy Corp., 429 A.2d 497, 506 (Del. 1981). Trellis is liable to Stewart for the net amount, plus pre- and post-judgment interest at the legal rate, compounded quarterly, from December 11, 2008, until the date of payment.

      217
      C. The Equitable Fraud Claim
      218

      In addition to their common law fraud claim, the plaintiffs asserted that the defendants are liable for "equitable" or "constructive" fraud. "Constructive fraud is simply a term applied to a great variety of transactions, having little resemblance either in form or nature, which equity regards as wrongful, to which it attributes the same or similar effects as those which follow from actual fraud . . . ." 3 John Norton Pomeroy, A Treatise on Equity Jurisprudence § 922, at 626 (5th ed. 1941).

      219

      The principal factor distinguishing constructive fraud from actual fraud is the existence of a special relationship between the plaintiff and the defendant, such as where the defendant is a fiduciary for the plaintiff. See NACCO, 997 A.2d at 33. On the facts of this case, the breach of fiduciary duty count confronts directly the implications of the fiduciary relationship, rendering the constructive fraud count redundant and superfluous. See Parfi Hldg. AB v. Mirror Image Internet, Inc., 794 A.2d 1211, 1236-37 (Del. Ch. 2001), rev'd on other grounds, 817 A.2d 149 (Del. 2002).

      220

      Equitable fraud also has been described as a form of fraud having all of the elements of common law fraud except the requirement of scienter. See Zirn v. VLI Corp., 681 A.2d 1050, 1061 (Del. 1996) (explaining that equitable fraud "provides a remedy for negligent or innocent misrepresentations"); Stephenson, 462 A.2d at 1074 (noting that with equitable fraud, a "defendant [does] not have to know or believe that his statement was false or to have proceeded in reckless disregard of the truth"). To the extent this formulation is used, the outcome is no different. The plaintiffs failed on their common law fraud claims against NEA and Williams for reasons other than scienter, and hence their equitable fraud claims would fail as well. The plaintiffs succeeded on their common law fraud claim against Trellis.

      221
      III. CONCLUSION
      222

      Trellis is liable to Stewart for damages in accordance with this opinion. Otherwise judgment is entered in favor of the defendants and against the plaintiffs. All parties will bear their own costs. The plaintiffs will submit a form of Final Order and Judgment after consulting with the defendants as to form.

      223

      [1] Trellis Opportunity Fund is the only Trellis-affiliated defendant in the case. Non-party Trellis Partners Opportunity Management, LLC ("Trellis GP") is the general partner of Trellis Opportunity Fund, and non-party Alex Broeker is the managing member of Trellis GP. Non-parties Trellis Partners, L.P. and Trellis Partners II, L.P. were Trellis-affiliated funds also managed by Broeker through Trellis GP. Trellis Partners, L.P. acquired the Series A Preferred Stock. Trellis Partners II, L.P. and Trellis Opportunity Fund held later series of preferred stock. For simplicity, I refer only to "Trellis."

      224

      [2] New Enterprise Associates VIII L.P. and New Enterprise Associates 8A L.P. (jointly, the "NEA Funds") are the only NEA-affiliated defendants in the case. Non-parties NEA Partners VIII, L.P. and NEA Partners 10, L.P. were the general partners, respectively, of the two NEA Funds. Non-party Charles W. Newhall, III was the general partner of the two NEA Funds' general partners. For simplicity, I refer only to "NEA."

      225

      [3] By contrast, a non-fiduciary aider and abetter could face different liability exposure than the defendant fiduciaries if, for example, the non-fiduciary misled unwitting directors to achieve a desired result. See In re Del Monte Foods Co. S'holders Litig., 25 A.3d 813, 838 (Del. Ch. 2011). ("[U]nless 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 transaction-related profits may be available as an alternative remedy."). It is thus possible for a non-fiduciary to be liable for aiding and abetting "even if the Board breached only its duty of care" and is exculpated for that breach. In re Celera Corp. S'holder Litig., 2012 WL 1020471, at *28 (Del. Ch. Mar. 23, 2012), aff'd in part, rev'd in part, 59 A.3d 418 (Del. 2012); see Arnold v. Soc'y for Sav. Bancorp, Inc., 1995 WL 376919, at *8 (Del. Ch. June 15, 1995) (holding that plaintiffs could maintain a claim against acquirer for aiding and abetting a breach of the duty of disclosure, notwithstanding that defendant directors were protected by an exculpatory provision), aff'd, 678 A.2d 533, 541-542 (Del. 1996) (affirming analysis and remanding for further proceedings on aiding and abetting claim); see also In re Shoe-Town Inc. S'holders Litig., 1990 WL 13475, at *8 (Del. Ch. Feb. 12, 1990) (denying motion to dismiss aiding and abetting claim against financing advisor in going-private transaction where financial advisor "was closely involved with the management group, the special committee and the Shoe-Town board").

      226

      [4] See In re Int'l Bus. Machs. Corporate Sec. Litig., 163 F.3d 102, 110 (2d Cir. 1998) ("A duty to update may exist when a statement, reasonable at the time it is made, becomes misleading because of a subsequent event."); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997) ("[T]here may be room to read in an implicit representation by the company that it will update the public with news of any radical change in the company's plans" when it makes public disclosure.); Stransky v. Cummins Engine Co., Inc., 51 F.3d 1329, 1331 (7th Cir. 1995) ("The [duty to update] applies when a company makes a historical statement that, at the time made, the company believed to be true, but as revealed by subsequently discovered information actually was not. The company then must correct the prior statement within a reasonable time."); Backman v. Polaroid Corp., 910 F.2d 10, 16-17 (1st Cir. 1990) ("Obviously, if a disclosure is in fact misleading when made, and the speaker thereafter learns of this, there is a duty to correct it.").

  • 3 Intermediate Standard

    • 3.1 Air Products & Chemicals v. Airgas

      1
      16 A.3d 48 (2011)
      2
      AIR PRODUCTS AND CHEMICALS, INC., Plaintiff,
      v.
      AIRGAS, INC., Peter McCausland, James W. Hovey, Paula A. Sneed, David M. Stout, Ellen C. Wolf, Lee M. Thomas and John C. van Roden, Jr., Defendants.
      In re Airgas Inc. Shareholder Litigation.
      3
      Civil Action Nos. 5249-CC, 5256-CC.
      4

      Court of Chancery of Delaware.

      5
      Submitted: February 8, 2011.
      6
      Decided: February 15, 2011.
      7

      [53] Kenneth J. Nachbar, Jon E. Abramczyk, William M. Lafferty, John P. DiTomo, Eric S. Wilensky, John A. Eakins, Ryan D. Stottmann and S. Michael Sirkin, of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware; Of Counsel: Thomas G. Rafferty, David R. Marriott and Gary A. Bornstein, of Cravath, Swaine & Moore LLP, New York, New York, Attorneys for Plaintiff Air Products and Chemicals, Inc.

      8

      Pamela S. Tikellis, Robert J. Kriner, Jr., A. Zachary Naylor and Scott M. Tucker, of Chimicles & Tikellis LLP, Wilmington, Delaware; Of Counsel: Jeffrey W. Golan, M. Richard Komins and Julie B. Palley, of Barrack, Rodos & Bacine, Philadelphia, Pennsylvania; Mark Lebovitch, Amy Miller and Jeremy Friedman, of Bernstein Litowitz Berger & Grossman LLP, New York, New York; Randall J. Baron, A. Rick Atwood, Jr. and David T. Wissbroecker, of Robbins Geller Rudman & Dowd LLP, San Diego, California; Leslie R. Stern, of Berman Devalerio, Boston, Massachusetts; Joseph E. White III, of Saxena White P.A., Boca Raton, Florida, Attorneys for Shareholder Plaintiffs.

      9

      Donald J. Wolfe, Jr., Kevin R. Shannon, Berton W. Ashman, Jr. and Ryan W. Browning, of Potter Anderson & Corroon LLP, Wilmington, Delaware; Of Counsel: Kenneth B. Forrest, Theodore N. Mirvis, Eric M. Roth, Marc Wolinsky, George T. Conway III, Joshua A. Naftalis, Bradley R. Wilson, Jasand Mock and Charles D. Cording, of Wachtell, Lipton, Rosen & Katz, New York, New York, Attorneys for Defendants.

      10
      OPINION
      11
      CHANDLER, Chancellor.
      12
      TABLE OF CONTENTS
      INTRODUCTION.......................................................................... 55I.
      FACTS.............................................................................. 58
      BACKGROUND FACTS................................................................... 58
      A. The Parties..................................................................... 59
      1. Air Products................................................................. 59
      2. Shareholder Plaintiffs....................................................... 60
      3. Airgas Defendants ........................................................... 60
      B. Airgas's Anti-Takeover Devices.................................................. 62
      C. Airgas's Five-Year Plan......................................................... 62
      D. Air Products Privately Expresses Interest in Airgas............................. 63
      1. The $60 all-stock offer...................................................... 63
      2. Airgas Formally Rejects the Offer............................................ 65
      3. The $62 cash-stock offer..................................................... 66
      E. Air Products Goes Public........................................................ 68
      F. The $60 Tender Offer............................................................ 69
      G. The Proxy Contest............................................................... 71
      H. Airgas Delays Annual Meeting.................................................... 73
      I. The $63.50 Offer................................................................ 73
      J. Tension Builds Before the Annual Meeting........................................ 75
      K. The $65.50 Offer................................................................ 76
      L. "With $65.50 on the table, the stockholders wanted the parties to engage."...... 76
      M. The Annual Meeting.............................................................. 77
      N. The Bylaw Question ............................................................. 77
      O. The October Trial............................................................... 78
      FACTS DEVELOPED AT THE SUPPLEMENTAL EVIDENTIARY HEARING.......................................................................... 79
      P. Representatives from Airgas and Air Products Meet............................... 80
      [54]Q. More Post-Trial Factual Developments ........................................... 82
      1. The Air Products Nominees and the November 1-2 Airgas Board Meeting.................................................................... 82
      2. December 7-8 Airgas Board Letters............................................ 84
      R. The $70 "Best and Final" Offer 64 .............................................. 85
      S. The Airgas Board Unanimously Rejects the $70 Offer.............................. 88
      II. STANDARD OF REVIEW ............................................................... 91
      A. The Unocal Standard............................................................. 91
      B. Unocal—Not the Business Judgment Rule—Applies Here.................. 93
      C. A Brief Poison Pill Primer—Moran and its Progeny.......................... 94
      D. A Note on TW Services.......................................................... 101
      III. ANALYSIS........................................................................ 103
      A. Has the Airgas Board Established That It Reasonably Perceived the Existence of a Legally Cognizable Threat?...................................... 103
      1. Process..................................................................... 103
      2. What is the "Threat" ....................................................... 104
      B. Is the Continued Maintenance of Airgas's Defensive Measures Proportionate to the "Threat" Posed by Air Products' Offer?.................. 113
      1. Preclusive or Coercive...................................................... 113
      2. Range of Reasonableness..................................................... 122
      C. Pills, Policy and Professors (and Hypotheticals)............................... 126
      CONCLUSION........................................................................... 128
      13

      This case poses the following fundamental question: Can a board of directors, acting in good faith and with a reasonable factual basis for its decision, when faced with a structurally non-coercive, all-cash, fully financed tender offer directed to the stockholders of the corporation, keep a poison pill in place so as to prevent the stockholders from making their own decision about whether they want to tender their shares—even after the incumbent board has lost one election contest, a full year has gone by since the offer was first made public, and the stockholders are fully informed as to the target board's views on the inadequacy of the offer? If so, does that effectively mean that a board can "just say never" to a hostile tender offer?

      14

      The answer to the latter question is "no." A board cannot "just say no" to a tender offer. Under Delaware law, it must first pass through two prongs of exacting judicial scrutiny by a judge who will evaluate the actions taken by, and the motives of, the board. Only a board of directors found to be acting in good faith, after reasonable investigation and reliance on the advice of outside advisors, which articulates and convinces the Court that a hostile tender offer poses a legitimate threat to the corporate enterprise, may address that perceived threat by blocking the tender offer and forcing the bidder to elect a board majority that supports its bid.

      15

      In essence, this case brings to the fore one of the most basic questions animating all of corporate law, which relates to the allocation of power between directors and stockholders. That is, "when, if ever, will a board's duty to `the corporation and its shareholders' require [the board] to abandon concerns for `long term' values (and other constituencies) and enter a current share value maximizing mode?"[1] More to the point, in the context of a hostile tender offer, who gets to decide when and if the corporation is for sale?

      16

      [55] Since the Shareholder Rights Plan (more commonly known as the "poison pill") was first conceived and throughout the development of Delaware corporate takeover jurisprudence during the twenty-five-plus years that followed, the debate over who ultimately decides whether a tender offer is adequate and should be accepted—the shareholders of the corporation or its board of directors—has raged on. Starting with Moran v. Household International, Inc.[2] in 1985, when the Delaware Supreme Court first upheld the adoption of the poison pill as a valid takeover defense, through the hostile takeover years of the 1980s, and in several recent decisions of the Court of Chancery and the Delaware Supreme Court,[3] this fundamental question has engaged practitioners, academics, and members of the judiciary, but it has yet to be confronted head on.

      17

      For the reasons much more fully described in the remainder of this Opinion, I conclude that, as Delaware law currently stands, the answer must be that the power to defeat an inadequate hostile tender offer ultimately lies with the board of directors. As such, I find that the Airgas board has met its burden under Unocal to articulate a legally cognizable threat (the allegedly inadequate price of Air Products' offer, coupled with the fact that a majority of Airgas's stockholders would likely tender into that inadequate offer) and has taken defensive measures that fall within a range of reasonable responses proportionate to that threat. I thus rule in favor of defendants. Air Products' and the Shareholder Plaintiffs' requests for relief are denied, and all claims asserted against defendants are dismissed with prejudice.[4]

      18
      INTRODUCTION
      19

      This is the Court's decision after trial, extensive post-trial briefing, and a supplemental evidentiary hearing in this long-running takeover battle between Air Products & Chemicals, Inc. ("Air Products") and Airgas, Inc. ("Airgas"). The now very public saga began quietly in mid-October 2009 when John McGlade, President and CEO of Air Products, privately approached Peter McCausland, founder and CEO of Airgas, about a potential acquisition or combination. After McGlade's private advances were rebuffed, Air Products went hostile in February 2010, launching a public tender offer for all outstanding Airgas shares.

      20

      Now, over a year since Air Products first announced its all-shares, all-cash tender offer, the terms of that offer (other than price) remain essentially unchanged.[5] After several price bumps and extensions, the offer currently stands at $70 per share and is set to expire today, February 15, 2011—Air Products' stated "best and final" offer. The Airgas board unanimously rejected that offer as being "clearly inadequate."[6] The Airgas board has repeatedly [56] expressed the view that Airgas is worth at least $78 per share in a sale transaction—and at any rate, far more than the $70 per share Air Products is offering.

      21

      So, we are at a crossroads. Air Products has made its "best and final" offer—apparently its offer to acquire Airgas has reached an end stage. Meanwhile, the Airgas board believes the offer is clearly inadequate and its value in a sale transaction is at least $78 per share. At this stage, it appears, neither side will budge. Airgas continues to maintain its defenses, blocking the bid and effectively denying shareholders the choice whether to tender their shares. Air Products and Shareholder Plaintiffs now ask this Court to order Airgas to redeem its poison pill and other defenses that are stopping Air Products from moving forward with its hostile offer, and to allow Airgas's stockholders to decide for themselves whether they want to tender into Air Products' (inadequate or not) $70 "best and final" offer.

      22

      A week-long trial in this case was held from October 4, 2010 through October 8, 2010. Hundreds of pages of post-trial memoranda were submitted by the parties. After trial, several legal, factual, and evidentiary questions remained to be answered. In ruling on certain outstanding evidentiary issues, I sent counsel a Letter Order on December 2, 2010 asking for answers to a number of questions to be addressed in supplemental post-trial briefing. On the eve of the parties' submissions to the Court in response to that Letter Order, Air Products raised its offer to the $70 "best and final" number. At that point, defendants vigorously opposed a ruling based on the October trial record, suggesting that the entire trial (indeed, the entire case) was moot because the October trial predominantly focused on the Airgas board's response to Air Products' then-$65.50 offer and the board's decision to keep its defenses in place with respect to that offer. Defendants further suggested that any ruling with respect to the $70 offer was not ripe because the board had not yet met to consider that offer.

      23

      I rejected both the mootness and ripeness arguments.[7] As for mootness, Air Products had previously raised its bid several times throughout the litigation but the core question before me—whether Air Products' offer continues to pose a threat justifying Airgas's continued maintenance of its poison pill—remained, and remains, the same. And as for ripeness, by the time of the December 23 Letter Order the Airgas board had met and rejected Air Products' revised $70 offer. I did, however, allow the parties to take supplemental discovery relating to the $70 offer. A supplemental evidentiary hearing was held from January 25 through January 27, 2011, in order to complete the record on the $70 offer. Counsel presented closing arguments on February 8, 2011.

      24

      Now, having thoroughly read, reviewed, and reflected upon all of the evidence presented to me, and having carefully considered the arguments made by counsel, I conclude that the Airgas board, in proceeding as it has since October 2009, has not breached its fiduciary duties owed to the Airgas stockholders. I find that the board has acted in good faith and in the honest belief that the Air Products offer, at $70 per share, is inadequate.

      25

      Although I have a hard time believing that inadequate price alone (according to the target's board) in the context of a nondiscriminatory, all-cash, all-shares, fully financed offer poses any "threat"—particularly given the wealth of information available to Airgas's stockholders at this point [57] in time—under existing Delaware law, it apparently does. Inadequate price has become a form of "substantive coercion" as that concept has been developed by the Delaware Supreme Court in its takeover jurisprudence. That is, the idea that Airgas's stockholders will disbelieve the board's views on value (or in the case of merger arbitrageurs who may have short-term profit goals in mind, they may simply ignore the board's recommendations), and so they may mistakenly tender into an inadequately priced offer. Substantive coercion has been clearly recognized by our Supreme Court as a valid threat.

      26

      Trial judges are not free to ignore or rewrite appellate court decisions. Thus, for reasons explained in detail below, I am constrained by Delaware Supreme Court precedent to conclude that defendants have met their burden under Unocal to articulate a sufficient threat that justifies the continued maintenance of Airgas's poison pill. That is, assuming defendants have met their burden to articulate a legally cognizable threat (prong 1), Airgas's defenses have been recognized by Delaware law as reasonable responses to the threat posed by an inadequate offer—even an all-shares, all-cash offer (prong 2).

      27

      In my personal view, Airgas's poison pill has served its legitimate purpose. Although the "best and final" $70 offer has been on the table for just over two months (since December 9, 2010), Air Products' advances have been ongoing for over sixteen months, and Airgas's use of its poison pill—particularly in combination with its staggered board—has given the Airgas board over a full year to inform its stockholders about its view of Airgas's intrinsic value and Airgas's value in a sale transaction. It has also given the Airgas board a full year to express its views to its stockholders on the purported opportunistic timing of Air Products' repeated advances and to educate its stockholders on the inadequacy of Air Products' offer. It has given Airgas more time than any litigated poison pill in Delaware history—enough time to show stockholders four quarters of improving financial results,[8] demonstrating that Airgas is on track to meet its projected goals. And it has helped the Airgas board push Air Products to raise its bid by $10 per share from when it was first publicly announced to what Air Products has now represented is its highest offer. The record at both the October trial and the January supplemental evidentiary hearing confirm that Airgas's stockholder base is sophisticated and well-informed, and that essentially all the information they would need to make an informed decision is available to them. In short, there seems to be no threat here—the stockholders know what they need to know (about both the offer and the Airgas board's opinion of the offer) to make an informed decision.

      28

      That being said, however, as I understand binding Delaware precedent, I may not substitute my business judgment for that of the Airgas board.[9] The Delaware Supreme Court has recognized inadequate price as a valid threat to corporate policy and effectiveness.[10] The Delaware Supreme Court has also made clear that the [58] "selection of a time frame for achievement of corporate goals . . . may not be delegated to the stockholders."[11] Furthermore, in powerful dictum, the Supreme Court has stated that "[d]irectors are not obliged to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy."[12] Although I do not read that dictum as eliminating the applicability of heightened Unocal scrutiny to a board's decision to block a non-coercive bid as underpriced, I do read it, along with the actual holding in Unitrin, as indicating that a board that has a good faith, reasonable basis to believe a bid is inadequate may block that bid using a poison pill, irrespective of stockholders' desire to accept it.

      29

      Here, even using heightened scrutiny, the Airgas board has demonstrated that it has a reasonable basis for sustaining its long term corporate strategy—the Airgas board is independent, and has relied on the advice of three different outside independent financial advisors in concluding that Air Products' offer is inadequate. Air Products' own three nominees who were elected to the Airgas board in September 2010 have joined wholeheartedly in the Airgas board's determination, and when the Airgas board met to consider the $70 "best and final" offer in December 2010, it was one of those Air Products Nominees who said, "We have to protect the pill."[13] Indeed, one of Air Products' own directors conceded at trial that the Airgas board members had acted within their fiduciary duties in their desire to "hold out for the proper price,"[14] and that "if an offer was made for Air Products that [he] considered to be unfair to the stockholders of Air Products . . . [he would likewise] use every legal mechanism available" to hold out for the proper price as well.[15] Under Delaware law, the Airgas directors have complied with their fiduciary duties. Thus, as noted above, and for the reasons more fully described in the remainder of this Opinion, I am constrained to deny Air Products' and the Shareholder Plaintiffs' requests for relief.

      30
      I. FACTS
      31

      These are the facts as I find them after trial, several rounds of post-trial briefing, and the supplemental evidentiary hearing.[16] Because facts material to this dispute continued to unfold after the October trial had ended, I first describe the general background facts leading up to Air Products' $70 "best and final" offer. The facts developed in the supplemental evidentiary hearing specifically necessary to determine whether Air Products' $70 offer presents a cognizable threat and whether Airgas's defensive measures are reasonable in relation to that threat are set forth beginning in Section I.P (under the heading "Facts Developed at the Supplemental Evidentiary Hearing").

      32
      BACKGROUND FACTS
      33

      For ease of understanding, I begin with a list of some of the key players with [59] leading roles at the October trial.[17]

      34

      From Air Products:

      35
      • John McGlade: Air Products' CEO, President, and Chairman of the board.
      36
      • Paul Huck: Air Products' CFO and Senior Vice President.
      37
      From Airgas:
      38
      • Peter McCausland: Airgas's founder and CEO. McCausland also served as Chairman of the Airgas board from May 1987 until September 15, 2010.
      39
      • Robert McLaughlin: Airgas's CFO and Senior Vice President.
      40
      • Michael Molinini: Airgas's Chief Operating Officer and Executive Vice President.
      41
      • Lee Thomas: Airgas director.
      42
      • Richard Ill: Airgas former director who lost his board seat at the September 15, 2010 annual meeting.
      43
      The Financial Advisors:
      44
      • Filip Rensky: Investment banker from Bank of America Merrill Lynch, one of Airgas's outside financial advisors.
      45
      • Michael Carr: Investment banker from Goldman Sachs, Airgas's other outside financial advisor.
      46

      With those players in mind,[18] here are the facts as I find them after trial.

      47
      A. The Parties
      48
      1. Air Products
      49

      Plaintiff Air Products is a Delaware corporation headquartered in Allentown, Pennsylvania that serves technology, energy, industrial and healthcare customers globally. It offers a unique portfolio of products, services and solutions that include [60] atmospheric gases, process and specialty gases, performance materials, equipment and services.[19] Air Products is the world's largest supplier of hydrogen and helium, and it has also built leading positions in growth markets.[20] Founded in 1940 on the concept of "on-site" production and sale of industrial gases, Air Products revolutionized the sale of industrial gases by building gas generating facilities adjacent to large-volume gas users, thereby reducing distribution costs.[21] Today, with annual revenues of $8.3 billion and approximately 18,900 employees, the company provides a wide range of services and operates in over forty countries around the world.[22] Air Products currently owns approximately 2% of Airgas's outstanding common stock.

      50
      2. Shareholder Plaintiffs
      51

      The Shareholder Plaintiffs are Airgas stockholders. Together, they own 15,159 shares of Airgas common stock,[23] and purport to represent all other stockholders of Airgas who are similarly situated.

      52
      3. Airgas Defendants
      53

      Airgas is a Delaware corporation headquartered in Radnor, Pennsylvania. Founded in 1982 by Chief Executive Officer Peter McCausland, it is a domestic supplier and distributor of industrial, medical and specialty gases and related hardgoods.[24] Built on an aggressive acquisition strategy (over 400 acquisitions in twenty-seven years), Airgas today operates in approximately 1,100 locations with over 14,000 employees and is the premier packaged gas company in the U.S.[25] The core of Airgas's business is "packaged" gas—delivering small volumes of gas in cylinders or bottles.[26] In the last five years or so, Airgas has been moving more into the bulk business as well.[27] In addition to the gas supply business, about 35% of Airgas's business is comprised of "hardgoods," which includes the products and equipment necessary to consume the gases, as well as welding and safety materials.[28]

      54

      Before its September 15, 2010 annual meeting, Airgas was led by a nine-member staggered board of directors, divided into three equal classes with one class (three directors) up for election each year.[29] Other than McCausland, the rest of the board members are independent outside directors.[30] At the time of the September 15 annual meeting (and at the time this [61] lawsuit was initiated), the eight outside directors were: W. Thacher Brown; James W. Hovey; Richard C. Ill; Paula A. Sneed; David M. Stout; Lee M. Thomas; John C. van Roden, Jr. and Ellen C. Wolf[31] (together with McCausland, "director defendants," and collectively with Airgas, "defendants").[32]

      55

      At the 2010 annual meeting, three Airgas directors (McCausland, Brown, and Ill) lost their seats on the board when three Air Products nominees were elected.[33] On September 23, 2010, Airgas expanded the size of its board to ten members and reappointed McCausland to fill the new seat.[34] Thus, Airgas is now led by a ten-member staggered board of directors, nine of whom are independent. To be clear, references to the Airgas board in the section of this Opinion discussing the factual background from October 2009 through September 15, 2010 means the entire Airgas board as it was constituted before the September 15 annual meeting. After the September 15, 2010 meeting, I will discuss in detail the facts relating to Air Products' $70 offer and the actions of the "new" Airgas board, including the three Air Products nominees.

      56

      As of the record date for the 2010 annual meeting, Airgas had 83,629,731 shares outstanding. From October 2009 (when Air Products privately approached Airgas about a potential deal) until today, Airgas's stock price has ranged from a low of $41.64[35] to a high of $71.28.[36] For historical perspective, before then it had been trading in the $40s and $50s (with a brief stint in the $60s) through most of 2007-2008, until the financial crisis hit in late 2008. The stock price dropped as low as $27 per share in March of 2009, but quickly recovered and jumped back into the mid-$40s. In the board's unanimous view, the company is worth at least $78 in a sale transaction at this time ($60-ish unaffected stock price plus a 30% premium), and left alone, most of the Airgas directors "would say the stock will be worth north of $70 by next year."[37] In the professional opinion of one of Airgas's independent financial advisors, the fair value of Airgas as of January 26, 2011 is "in the mid to high seventies, and well into the mid eighties."[38] McCausland currently owns approximately 9.5% of Airgas common stock. The other directors collectively own less than 2% of the outstanding Airgas stock. Together, the ten current Airgas directors own approximately 11% of Airgas's outstanding stock.

      57
      [62] B. Airgas's Anti-Takeover Devices
      58

      As a result of Airgas's classified board structure, it would take two annual meetings to obtain control of the board. In addition to its staggered board, Airgas has three main takeover defenses: (1) a shareholder rights plan ("poison pill") with a 15% triggering threshold,[39] (2) Airgas has not opted out of Delaware General Corporation Law ("DGCL") § 203, which prohibits business combinations with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, unless certain conditions are met,[40] and (3) Airgas's Certificate of Incorporation includes a supermajority merger approval provision for certain business combinations. Namely, any merger with an "Interested Stockholder" (defined as a stockholder who beneficially owns 20% or more of the voting power of Airgas's outstanding voting stock) requires the approval of 67% or more of the voting power of the then-outstanding stock entitled to vote, unless approved by a majority of the disinterested directors or certain fair price and procedure requirements are met.[41]

      59

      Together, these are Airgas's takeover defenses that Air Products and the Shareholder Plaintiffs challenge and seek to have removed or deemed inapplicable to Air Products' hostile tender offer.

      60
      C. Airgas's Five-Year Plan
      61

      In the regular course of business, Airgas prepares a five-year strategic plan approximately every eighteen months, forecasting the company's financial performance over a five year horizon.[42] In the fall of 2007, Airgas developed a five-year plan predicting the company's performance through fiscal year 2012. The 2007 plan included two scenarios: a strong economy case and a weakening economy case.[43] Airgas generally has a history of meeting or beating its strategic plans, but it fell behind its 2007 plan when the great recession hit.[44] At the time of the October trial, Airgas was running about six months behind the weakening economy case, and about a year and a half behind the strong economy case.[45]

      62

      In the summer of 2009, Airgas management was already working on an updated five-year plan.[46] The 2009 plan included only a single scenario: a "base" case or "slow and steady recovery in the economy."[47] The 2009 five-year plan was completed [63] and distributed to the Airgas directors before November 2009, and the plan was formally presented to the board at its November 2009 strategic planning retreat.[48]

      63
      D. Air Products Privately Expresses Interest in Airgas
      64
      1. The $60 all-stock offer
      65

      Air Products first became interested in a transaction with Airgas in 2007,[49] but did not pursue a transaction at that time because Airgas's stock price was too high.[50] Then the global recession hit, and in the spring or summer of 2009, Air Products' interest in Airgas was reignited.[51] On September 17, 2009, the Air Products board of directors authorized McGlade to approach McCausland and discuss a possible transaction between the two companies.[52] The codename for the project was "Flashback," because Air Products had previously been in the packaged gas business and wanted to "flash back" into it.[53]

      66

      On October 15, 2009, McGlade and McCausland met at Airgas's headquarters.[54] At the meeting, McGlade conveyed Air Products' interest in a potential business combination with Airgas and proposed a $60 per share all equity deal.[55] After the meeting, McCausland reported the substance of his conversation with McGlade to Les Graff, Airgas's Senior Vice President for Corporate Development, who took typewritten notes which he called "Thin Air."[56] As Graff's notes corroborate, during the meeting McGlade communicated Air Products' views on the strategic benefits and synergies that a transaction could yield, noting that a combination would be immediately accretive.[57] [64] McCausland told McGlade that it was "not a good time" to sell the company[58] but that he would nevertheless convey the proposal to the Airgas board.[59]

      67

      Shortly thereafter, McCausland telephoned Thacher Brown, Airgas's then-presiding director, to inform him of the offer and ask whether he thought it was necessary to call a special meeting of the board to consider Air Products' proposal.[60] Brown said he did not think so, since the entire board was already scheduled to meet a few weeks later for its strategic planning retreat.[61] McCausland suggested that he would reach out to Airgas's legal and financial advisors to solicit their advice, which Brown thought was a good idea.[62]

      68

      At its three-day strategic planning retreat from November 5-7, 2009, in Kiawah, South Carolina, the full board first learned of Air Products' proposal.[63] In advance of the retreat, the board had received copies of the five-year strategic plan, which served as the basis for the board's consideration of the $60 offer.[64] The board also relied on a "discounted future stock price analysis" (the "McCausland Analysis") that had been prepared by management at McCausland's request to show the value of Airgas in a change-of-control transaction.[65]

      69

      After reviewing the numbers, the board's view on the inadequacy of the offer was not even a close call. The board agreed that $60 was "just so far below what we thought fair value was" that it would be harmful to Airgas's stockholders [65] if the board sat down with Air Products.[66] In the board's view, the offer was so "totally out of the range" of what might be reasonable that beginning negotiations at that price would send the wrong message—that Airgas would be willing to sell the company at a price that is well below its fair value.[67] Thus, the board unanimously concluded that Airgas was "not interested in a transaction."[68] No one on the Airgas board thought it made sense to have any further discussions with Air Products at that point.[69] On November 11, McCausland called McGlade to inform him of the board's decision.[70]

      70

      On November 20, 2009, McGlade sent a letter to McCausland essentially putting in writing the offer they had been discussing over the last month—that is, Air Products offered to acquire all of Airgas's outstanding shares for $60 per share on an all-stock basis.[71] The letter suggested that the $60 offer was negotiable and requested a meeting with Airgas to explore additional sources of value.[72] The letter also requested a "formal response."[73]

      71
      2. Airgas Formally Rejects the Offer
      72

      Perhaps annoyed at the request for a formal response to the same offer the board had already rejected, McCausland had his secretary circulate to the Airgas board and its advisors and management team his response letter to McGlade, written with a derogatory salutation.[74] This letter was not sent, but McCausland did send a real letter to McGlade that day informing him that the Airgas board would meet in early December to consider the proposal.[75]

      73

      The board held a special telephonic meeting on December 7, 2009.[76] In the hour-long call, Graff presented a detailed [66] financial analysis of the offer.[77] McCausland advised the board that management had "spent a great deal of time . . . meeting with [Airgas's] financial advisors and legal team, studying valuation and related issues," and that the management team recommended that the board reject the offer.[78] Brown stated his belief that "nothing had changed since November, that the proposal should be rejected and that attention should be turned to next steps."[79] The board then unanimously supported management's recommendation to reject the offer and to decline Air Products' request for a meeting.[80]

      74

      Accordingly, McCausland sent a letter to McGlade the following day conveying the board's formal response to the November 20 proposal: "We are not interested in pursuing your company's proposal and do not believe that any purpose would be served by a meeting."[81]

      75
      3. The $62 cash-stock offer
      76

      On December 17, 2009, McGlade sent McCausland a revised proposal, raising Air Products' offer to an implied value of $62 per share in a cash-and-stock transaction, and reiterating Air Products' "continued strong interest in a business combination with Airgas."[82] McGlade explained that Air Products' original proposal of structuring a potential combination as an all-stock deal was intended to allow Airgas's stockholders to share in the "expected appreciation of Air Products' stock as the synergies of the combined companies are realized."[83] Nonetheless, to address Airgas's concern that Air Products' stock was an "unattractive currency" for a potential transaction, Air Products was "prepared to offer cash for up to half of the $62 per share" they were offering.[84]

      77

      McGlade again expressed Air Products' willingness to try to negotiate with Airgas on price and requested a meeting between the two companies, writing:

      78
      If you believe there is incremental value above and beyond our increased offer, we stand willing to listen and to understand your points on value with a view to sharing increased value appropriately with the Airgas shareholders . . . . Our teams should meet at this point in the process to move forward in a manner that best serves the interest of our respective shareholders. To that end, we and our advisors are formally requesting to meet with you and your advisors as soon as possible to explore additional sources of value in Airgas and to move expeditiously to consummate a transaction.[85]
      79

      The Airgas board held a two-part meeting to consider this revised proposal. First, a special telephonic meeting was [67] held on December 21, 2009.[86] Graff discussed the financial aspects of the $62 offer.[87] He noted that the offer price remained low,[88] and explained that with a 50/50 cash-stock split, Air Products could bid well into the $70s and still maintain its credit rating.[89] The call lasted about thirty-five minutes.[90] The board reconvened (again, by telephone) on January 4, 2010 and the discussion resumed.[91] Again, Graff presented financial analyses of the December 17 proposal based on discussions he and other members of management had had with Airgas's investment bankers.[92] He advised the board that the bankers agreed the offer was inadequate and well below the company's intrinsic value,[93] and the board unanimously agreed with management's recommendation to reject the offer.[94]

      80

      On January 4, 2010, McCausland sent a letter to McGlade communicating the Airgas board's view that Air Products' offer "grossly undervalues Airgas."[95] The letter continued: "[T]he [Airgas] Board is not interested in pursuing your company's proposal and continues to believe there is no reason to meet."[96]

      81

      On January 5, 2010, McCausland exercised 300,000 stock options, half of which were set to expire in May 2010, and half of which were set to expire in May 2011.[97]

      82
      [68] E. Air Products Goes Public
      83

      By late January 2010, it was becoming clear that Air Products' private attempts to negotiate with the Airgas board were going nowhere. The Airgas board felt that it was "precisely the wrong time"[98] to sell the company and thus it continued to reject Air Products' advances. So, Air Products decided to take its offer directly to the Airgas stockholders. On January 20, 2010, McGlade sent a letter to the Air Products board expressing his belief that:

      84
      [N]ow is the time to acquire Flashback—their business has yet to recover, the pricing window is favorable, and our ability (should we so choose) to offer an all-cash deal would be viewed very favorably in this market. To take advantage of the situation, we believe we will have to go public with our intentions if we are to get serious consideration by Flashback's board.[99]
      85

      Shortly thereafter, Air Products did just that. On February 4, 2010, Air Products sent a public letter to the Airgas board announcing its intention to proceed with a fully-financed, all-cash offer to acquire all outstanding shares of Airgas for $60 per share.[100] The letter closed with McGlade again reiterating Air Products' full commitment to completing a transaction with Airgas, and emphasizing Air Products' "willingness to reflect in our offer any incremental value you can demonstrate."[101]

      86

      On February 8-9, 2010, the Airgas board met in Philadelphia, Pennsylvania.[102] [69] The board's financial advisors from Goldman Sachs and Bank of America Merrill Lynch provided written materials and made presentations to the board regarding Air Products' proposal.[103] The bankers reviewed Airgas management's financial projections, research analysts' estimates for Airgas, discounted cash flow valuations of Airgas using various EBITDA multiples and discount rates, historical stock prices, and the fact that Airgas generally emerges later from economic recessions than Air Products.[104] At the meeting, the board unanimously agreed that the $60 price tag was too low, and that it "significantly undervalued Airgas and its future prospects."[105] The board also unanimously authorized McCausland to convey the board's decision to reject the offer to McGlade,[106] which he did the following day.[107]

      87
      F. The $60 Tender Offer
      88

      On February 11, 2010, Air Products launched its tender offer for all outstanding shares of Airgas common stock on the terms announced in its February 4 letter—$60 per share, all-cash, structurally noncoercive, non-discriminatory, and backed by secured financing.[108] The tender offer is conditioned, among other things, upon the following:

      89
      (1) a majority of the total outstanding shares tendering into the offer;
      90
      (2) the Airgas board redeeming its rights plan or the rights otherwise having been deemed inapplicable to the offer;
      91
      (3) the Airgas board approving the deal under DGCL § 203 or DGCL § 203 otherwise having been deemed inapplicable to the offer;
      92
      (4) the Airgas board approving the deal under Article VI of Airgas's charter or Article VI otherwise being inapplicable to the offer;
      93
      (5) certain regulatory approvals having been met;[109] and
      94
      [70] (6) the Airgas board not taking certain action (i.e., entering into a third-party agreement or transaction) that would have the effect of impairing Air Products' ability to acquire Airgas.[110]
      95

      Air Products' stated purpose in commencing its tender offer is "to acquire control of, and the entire equity interest in, Airgas."[111] To that end, it is Air Products' current intention, "as soon as practicable after consummation of the Offer," to seek to have Airgas consummate a proposed merger with Air Products valued at an amount in cash equal to the highest price per share paid in the offer.[112] Air Products also announced its intention to run a proxy contest to nominate a slate of directors for election to Airgas's board at the Airgas 2010 annual meeting.[113]

      96

      On February 20, 2010, the Airgas board held another special telephonic meeting to discuss Air Products' tender offer.[114] Airgas's financial advisors from Goldman Sachs and Bank of America Merrill Lynch reviewed the bankers' presentations with the board,[115] which were similar to the presentations that had been made to the board on February 8, and concluded that the offer "was inadequate from a financial point of view."[116]

      97

      In a 14D-9 filed with the SEC on February 22, 2010, Airgas recommended that its shareholders not tender into Air Products' offer because it "grossly undervalues Airgas."[117] In explaining its reasons for recommending that shareholders not accept Air Products' offer, Airgas's filing stated that the timing of the offer was "extremely opportunistic . . . in light of the depressed value of the Airgas Common shares prior to the announcement of the Offer," so while the timing was excellent for Air Products, it was disadvantageous to Airgas.[118] The filing went on to explain that Airgas had received inadequacy opinions from its financial advisors, Goldman Sachs and Bank of America Merrill Lynch.[119] In addition, Airgas expressed its view that the offer was highly uncertain and subject to significant regulatory concerns.[120] Finally, attached to the filing was a fifty-page slide presentation entitled "Our Rejection of Air Products' Proposals."[121]

      98
      [71] G. The Proxy Contest
      99

      On March 13, 2010, Air Products nominated its slate of three independent directors for election at the Airgas 2010 annual meeting.[122] The three Air Products nominees were:

      100
      • John P. Clancey;[123]
      101
      • Robert L. Lumpkins;[124] and
      102
      • Ted B. Miller, Jr.[125] (together, the "Air Products Nominees").
      103

      [72] Air Products made clear in its proxy materials that its nominees to the Airgas board were independent and would act in the Airgas stockholders' best interests. Air Products told the Airgas stockholders that "the election of the Air Products Nominees . . . will establish an Airgas Board that is more likely to act in your best interests."[126] Air Products actively promoted the independence of its slate, saying that its three nominees:

      104
      • "are independent and do not have any prior relationship with Airgas or its founder, Chairman and Chief Executive Officer, Peter McCausland:"[127]
      105
      • "will consider without any bias [the Air Products] Offer;"[128]
      106
      • "will be willing to be outspoken in the boardroom about their views on these issues;"[129] and
      107
      • "are highly qualified to serve as directors on the Airgas Board."[130]
      108

      In addition to its proposed slate of directors, Air Products also announced that it was seeking approval by Airgas stockholders of three bylaw proposals that would:

      109
      (1) Amend Airgas's bylaws to require Airgas to hold its 2011 annual meeting and all subsequent annual shareholder meetings in the month of January;
      110
      (2) Amend Airgas' bylaws to limit the Airgas Board's ability to reseat directors not elected by Airgas shareholders at the annual meeting (excluding the CEO); and
      111
      (3) Repeal all bylaw amendments adopted by the Airgas Board after April 7, 2010.[131]
      112

      Over the next several months leading up to Airgas's 2010 annual meeting, both Air Products and Airgas proceeded to engage in a protracted "high-visibility proxy contest widely covered by the media,"[132] during which the parties aggressively made their respective cases to the Airgas stockholders. Both Airgas and Air Products made numerous SEC filings, press releases and public statements regarding their views on the merits of Air Products' offer.[133]

      113
      [73] H. Airgas Delays Annual Meeting
      114

      In April 2010, the Airgas board amended Article II of the company's bylaws (which addressed the timing of Airgas's annual meetings), giving the board the ability to push back Airgas's 2010 annual meeting.[134] Previously, the bylaws required that the annual meeting be held within five months of the end of Airgas's fiscal year—March—which would make August the annual meeting deadline. The amendment allowed the meeting to be held "on such date as the Board of Directors shall fix."[135] In other words, the board gave itself full discretion to set the date of the annual meeting as it saw fit.[136] As it turns out, the reason the board pushed back the meeting date was to buy itself more time to "provide information to stockholders" before the annual meeting, as well as more time to "demonstrate performance of the company."[137] The annual meeting was scheduled for September 15, 2010.[138]

      115
      I. The $63.50 Offer
      116

      On July 8, 2010, Air Products raised its offer to $63.50.[139] Other than price, all other material terms of the offer remained unchanged.[140] The following day, McGlade sent a letter to the Airgas board reiterating (once again) Air Products' willingness to negotiate, and inviting the Airgas board and its advisors to sit down with Air Products "to discuss completing the transaction in the best interests of the shareholders of [74] both companies."[141]

      117

      The Airgas board held two special telephonic meetings to consider the revised $63.50 offer. The first was held on July 15, 2010.[142] McLaughlin updated the board on Airgas's performance for the first quarter of fiscal year 2011[143] and the financial advisors provided updated financial analyses.[144] On the second call, held on July 20, 2010, Rensky and Carr each described their respective opinions that the $63.50 offer was "inadequate to the [Airgas] stockholders from a financial point of view,"[145] and the financial advisors issued written inadequacy opinions to that effect.

      118

      The next day, McCausland sent a public letter to McGlade rejecting Air Products' revised offer and invitation to meet because $63.50 "is not a sensible starting point for any discussions or negotiations."[146] Also on July 21, 2010, Airgas filed an amendment to its 14D-9, rejecting the $63.50 offer as "grossly inadequate" and recommending that Airgas stockholders not tender their shares.[147] In this filing, Airgas set out many of the reasons for its recommendation, including its view that the offer "grossly undervalue[d]" Airgas because it did not reflect the value of Airgas's future prospects and strategic plans, the fact that Airgas tends to lag in entering into, and emerging from, economic recessions, Airgas's extraordinary historical results, Airgas's unrivaled platform in the packaged gas business, the "extremely opportunistic" timing of Air Products' offer, the inadequacy opinions provided to the board by Airgas's financial advisors, and many other reasons.[148] The financial advisors' written inadequacy opinions were attached to the filing.[149] Airgas also released another slide presentation (33 pages this time), entitled "It's All About Value," containing (among other things) updated projections and earnings guidance, board plans for cost savings, and information about Airgas's implementation of its SAP system,[150] and explaining [75] why Airgas presents "significant strategic value" to a potential acquiror.[151] Two days later, on July 23, 2010, Airgas filed its definitive proxy statement for the September annual meeting, urging stockholders to vote against the three Air Products Nominees and the bylaw amendments and to wait until "Airgas's growth potential can be fully demonstrated and reflected in its results."[152]

      119
      J. Tension Builds Before the Annual Meeting
      120

      Air Products filed its definitive proxy statement on July 29, 2010.[153] Air Products was explicit in its proxy materials that its proposed bylaws were directly related to its pending tender offer, telling stockholders that by voting in favor of its nominees and bylaw proposals, they would be "send[ing] a message to the Airgas Board and management that . . . Airgas stockholders want the Airgas Board to take action to eliminate the obstacles to the consummation of the [Air Products] Offer."[154] At the same time, Airgas heavily lobbied its stockholders to vote against the proposed bylaws, urging them not to fall for Air Products' "tactics," and telling them that the Air Products offer was well below the fair value of their shares and that, by shortening the time it would take for Air Products to gain control of the board, voting in favor of the January meeting bylaw would help facilitate Air Products' grossly inadequate offer.[155] As part of its efforts to dissuade stockholders from voting for Air Products' nominees and the proposed bylaw requiring annual meetings to be held in January, Airgas promised its stockholders that it would hold a special meeting on June 21, 2011 where the stockholders would have the opportunity to elect a majority of the Airgas board by a plurality vote—but only if Air Products' bylaw proposal did not receive a majority of votes at the 2010 annual meeting.[156]

      121
      [76] K. The $65.50 Offer
      122

      On September 6, 2010, Air Products further increased its offer to $65.50 per share.[157] Again, the rest of the terms and conditions of the February 11, 2010 offer remained the same.[158] In connection with this increased offer, Air Products threatened to walk if the Airgas stockholders did not elect the three Air Products Nominees to the Airgas board and vote in favor of Air Products' proposed bylaw amendments at the 2010 annual meeting.[159]

      123

      The next day, the Airgas board met to consider Air Products' revised offer.[160] The board received updated analyses from McLaughlin and inadequacy opinions from its bankers.[161] The board unanimously rejected the $65.50 offer as inadequate,[162] saying that it was "not an appropriate value or a sensible starting point for negotiations to achieve such a value."[163] Airgas also filed an amendment to its Schedule 14D-9 on September 8, 2010, recommending that stockholders reject the offer and not tender their shares.[164]

      124
      L. "With $65.50 on the table, the stockholders wanted the parties to engage."[165]
      125

      On September 10, in advance of the annual meeting, McCausland, Thomas, and Brown (along with Airgas's financial advisors, Rensky and Carr, and representatives of Airgas's proxy solicitor, Innisfree) held a series of meetings with about 25-30 Airgas stockholders—mostly arbs, hedge funds, and institutional holders.[166] At every meeting, the sentiment was the same, "Why don't you guys go negotiate, sit down with Air Products."[167] The answer was simple: the offer was unreasonably low; it was not a place to begin any serious negotiations about fair value. If Air Products "were to offer $70, with an indication that they were ready to sit down and have a full and fair discussion about real value and negotiate from that, what we both could agree was fair value for the company, [Thomas], for one, would be prepared to have that sit-down discussion."[168] Brown and McCausland said the same thing.[169] During the course of two days of meetings with stockholders, McCausland expressed this view to "[m]aybe a hundred" [77] people—he expected word to get back to Air Products.[170]

      126

      Although none of the stockholders attending these meetings said that they wanted Airgas to do a deal with Air Products at $65.50,[171] the general sentiment was not, "Hell, no, we don't want you to even talk to these people if they're at 65.50"—rather, the "clear message [was:] With 65.50 on the table, the stockholders wanted the parties to engage."[172]

      127

      Rather than engaging with each other directly (i.e. McGlade and McCausland), Air Products' financial advisors at J.P Morgan (Rodney Miller) and Perella Weinberg (Andrew Bednar) called Airgas's financial advisors (Rensky and Carr). Word had gotten back to Bednar and Miller that some Airgas board members had indicated that there might be "reason to sit down together" if Air Products made an offer at "$70 with the willingness to negotiate upwards from there."[173] Airgas's advisors welcomed a revised offer, but over that weekend before the annual meeting, none came. Air Products' bankers at that point "could not get to $70 a share . . . Air Products was not at that number."[174]

      128

      Counsel for Air Products (James Woolery) met with Carr and Rensky during Airgas's annual meeting on September 15. Woolery asked for assurance that if Air Products offered $70 per share, Airgas would agree to a deal at that price.[175] Airgas's bankers could not give Woolery the assurance he was looking for, and discussions stalled.[176]

      129
      M. The Annual Meeting
      130

      On September 15, 2010, Airgas's 2010 annual meeting was held. The Airgas stockholders elected all three of the Air Products Nominees to the board, and all three of Air Products' bylaw proposals were adopted by a majority of the shares voted.[177] On September 23, 2010, John van Roden was unanimously appointed Chairman of the Airgas board, and McCausland was unanimously reappointed to the board.[178]

      131
      N. The Bylaw Question
      132

      After the annual meeting results were preliminarily calculated, Airgas immediately filed suit against Air Products in the Delaware Court of Chancery to invalidate the January meeting bylaw. Briefing was completed on an expedited basis, and oral arguments on cross-motions for summary judgment were heard on October 8, 2010. That afternoon, the Court issued its decision upholding the validity of the January meeting bylaw.[179] Airgas appealed, and ultimately the Delaware Supreme Court reversed the decision, invalidating the bylaw and holding that annual meetings must be spaced "approximately" one year [78] apart.[180] Airgas's current expectation is that its 2011 annual meeting will be held in August or early September 2011.[181]

      133
      O. The October Trial
      134

      As a result of both sides having aggressively campaigned for months leading up to Airgas's 2010 annual meeting, the evidence presented at the October trial made clear that, at the time of the September annual meeting, the Airgas stockholders had all of the information they needed to evaluate Air Products' $65.50 offer. The testimony from Airgas's own directors and management demonstrated as much:

      135
      McCausland:
      136
      Q. You believe the stockholders have enough information to decide whether to accept the $65.50 offer; right?
      137
      A. Yes.[182]
      138
      * * *
      139
      Q. Are you aware, as you sit here today, Mr. McCausland, of any information that you would like to impart or present to the shareholders that they don't already have?
      140
      A. [N]o, I'm not aware of any, except there could be some business strategy things that it would damage the company to present them to the shareholders.
      141
      Q. But you feel you have met your duty in providing all the information necessary for the shareholders to make a decision; right?
      142
      A. Yes.[183]
      143
      McLaughlin:
      144
      Q. Now, you would also agree with me that prior to the recent meeting of Airgas'[s] stockholders, stockholders have all the information they needed to make an informed decision about whether to accept or reject Air Products' offer; right?
      145
      A. That is correct.[184]
      146
      Thomas:
      147
      Q. In your mind, do [the Airgas stockholders] have every piece of information that's available that's necessary for a reasonable stockholder to decide whether to tender?
      148
      A. I think they do.
      149
      * * *
      150
      Q. And the market knows what the Airgas board thinks Airgas can achieve over the course of the next 18 months or two years or so, isn't that right?
      151
      A. I think they do.
      152
      * * *
      153
      Q. And you believe that the average Airgas stockholder is competent to understand the available information that's been publicly disseminated regarding the tender offer, as well as Airgas and its business and the Airgas board's view as to value; correct?
      154
      A. I do.[185]
      155
      [79] Ill: Q. [O]ver the last year Airgas has given its shareholders the information necessary to make an informed judgment about Air Products' offers; correct?
      156
      A. That's correct.[186]
      157
      * * *
      158
      Q. You would agree with me that Airgas has not failed to provide shareholders anything that shareholders need in order to make an informed decision with respect to the Air Products' offer; correct?
      159
      A. In my opinion, that information has been forthcoming from Airgas.[187]
      160
      Molinini:
      161
      Q. With this disclosure [JX 499 (the August 31, 2010 Airgas press release regarding SAP implementation[188])], you believe that the stockholders have all the information they would need to make a decision on anything they wanted to make a decision on. Isn't that correct, sir?
      162
      A. That is correct[189]
      163

      The evidence at trial also incontrovertibly demonstrated that $65.50 was not as high as Air Products was willing to go. As Huck unequivocally stated, "65.50 is not our best and final offer."[190] And as McGlade testified:

      164
      Q. Now, the current 65.50 offer is not Air Products' best and final offer; correct?
      165
      A. We've been clear about that.
      166
      Q. That it's not the best?
      167
      A. It is not.
      168

      In addition, Air Products made clear that if Airgas were stripped of its defenses at that point, Air Products would seek to close on that $65.50 offer.[191] So Air Products was moving forward with an offer that admittedly was not its highest and aggressively seeking to remove Airgas's defensive impediments standing in its way. At the same time, Airgas's stockholders arguably knew all of this, and knew whatever information they needed to know in order to make an informed decision on whether they wanted to tender into Air Products' "grossly inadequate" and not-yet-best offer.[192]

      169
      FACTS DEVELOPED AT THE SUPPLEMENTAL EVIDENTIARY HEARING
      170

      I pause briefly to introduce some additional players who joined the story mid-game. In addition to McGlade and Huck (Air Products), and McCausland (Airgas), the following individuals featured prominently in the supplemental evidentiary hearing.

      171

      [80] From Air Products: William L. Davis, Air Products' Presiding Director. From Airgas: John Clancey and Ted Miller, two of the Air Products Nominees elected to the Airgas board at the September 15, 2010 annual meeting. The new financial advisor: David DeNunzio, the investment banker from Credit Suisse, Airgas's recently-retained third outside financial advisor. Finally, the experts: Peter Harkins resumed his role as Airgas's "proxy expert,"[193] and Joseph J. Morrow was put on as Air Products' rebuttal "proxy expert."[194] I will discuss the expert testimony in the analysis section of this Opinion.

      172
      P. Representatives from Airgas and Air Products Meet
      173

      On October 26, 2010, after announcing strong second-quarter earnings earlier that day,[195] Airgas Chairman John van Roden sent a letter to McGlade. In the letter, van Roden reiterated that each of Airgas's ten directors—including the three newly-elected Air Products Nominees—"is of the view that the current Air Products offer of $65.50 per share is grossly inadequate."[196] Indeed, the board viewed the current offer price as not even close to the right price for a sale of the company.[197] Nevertheless, the letter showed signs that the Airgas board was willing to negotiate with Air Products:

      174
      [The Airgas] Board is also unanimous in its views regarding negotiations between Air Products and Airgas . . . . Each member of our Board believes that the value of Airgas in any sale is meaningfully in excess of $70 per share. We are writing to let you know that our Board is unanimous in its willingness to authorize negotiations with Air Products if Air Products provides us with sufficient reason to believe that those negotiations will lead to a transaction at a price that is consistent with that valuation.[198]
      175

      McGlade responded enthusiastically to the letter, writing back to van Roden in a letter dated October 29, 2010:

      176
      Dear John:
      177
      We appreciate your letter of earlier this week. We are prepared to negotiate in good faith immediately. We welcome any information Airgas may wish to provide us on value in any meeting between our two teams.[199]
      178

      Finally, the companies seemed to be making progress toward a potential friendly transaction. Airgas's board authorized van Roden to respond to McGlade's letter, which he did on November 2, 2010.[200] The letter opened by saying that the Airgas board was "certainly prepared to meet with [Air Products] if there is a reasonable [81] opportunity to obtain an appropriate value for the Airgas shareholders."[201] Van Roden continued:

      179
      In our last letter, we indicated that our board of directors was of the unanimous view that the value of Airgas in any sale is meaningfully in excess of $70 per share. To provide greater clarity, the board has unanimously concluded that it believes that the value of Airgas in a sale is at least $78 per share, in light of our view of relevant valuation metrics.
      180
      We would like to meet with you to provide our perspective on the value of Airgas and are prepared to do so at any time.[202]
      181

      Later that day, Air Products accepted the invitation to meet despite its view that $78 per share is not "a realistic valuation for Airgas, nor ... anywhere near what [Air Products is] prepared to pay," because it nevertheless viewed any meeting to be "in the best interest of both companies."[203] On November 4, 2010, principals from both companies met in person to discuss their views on the value of Airgas.[204] The Airgas representatives and the Air Products representatives had differences of opinion regarding some of the assumptions each other had made underlying their respective valuations of Airgas.[205] The meeting lasted for an hour and a half.[206] At the conclusion of the meeting, the parties issued a disclosure stating that "no further meetings are planned."[207] Although perhaps not the result the parties had hoped for, I conclude based on the evidence presented at the supplemental hearing that the November 4 meeting was in fact a legitimate attempt between the parties to reach some sort of meeting of the minds despite their disagreements over Airgas's value (as opposed to a litigation sham designed by defendants), and that both sides acted in good faith.[208]

      182
      [82] Q. More Post-Trial Factual Developments
      183

      On November 23, 2010, the Supreme Court issued its decision on the bylaw issue, reversing the ruling of this Court that Airgas's next annual meeting could take place in January 2011.[209] In a December 2 Letter Order ruling on certain outstanding evidentiary issues, I asked the parties if, in light of the Supreme Court's decision and the fact that now Airgas's 2011 annual meeting would under Delaware law be held approximately eight months later than it would have been had the January meeting bylaw been upheld, counsel believed the ruling had any effect on the fundamental issue remaining to be decided.[210] I also asked counsel to provide supplemental briefing responding to several questions.[211]

      184

      Counsel's responses were due on or before December 10, 2010. Meanwhile, there had been a flurry of recent activity on the boards of both Airgas and Air Products that subsequently came to light, as the newly-elected Air Products Nominees acquainted themselves with the Airgas board, and as Air Products continued to pursue a deal and consider its strategic options.

      185
      1. The Air Products Nominees and the November 1-2 Airgas Board Meeting
      186

      At the supplemental evidentiary hearing, John Clancey, one of the Air Products Nominees, explained his views coming onto the Airgas board following the 2010 annual meeting.[212] Without any other information, his initial impression of Airgas's position with respect to Air Products' offer was that, quite simply, "[i]t was no."[213] Back during the course of the proxy contest, Clancey had met with ISS, who had asked what he would do if elected to the Airgas board, focusing on who he thought he would represent and what skills he would bring to the table.[214] "[I]f I was elected," he told them, "I would immediately represent all the shareholders of Airgas."[215] His perspective from the outset [83] was that there was a lot of information he wanted to drill down on. He wanted the benefit of meeting with management and hearing from the financial advisors working on the situation to inform his understanding, but he came to the board with no agenda other than wanting to see if a deal could be done.[216]

      187

      A new-director orientation session for Clancey was held on November 1, 2010. New director orientation for Lumpkins and Miller was held on September 23, 2010. The newly-elected Air Products Nominees were given written materials in advance of their orientation sessions.[217] Clancey came at the board at all different angles at the November 1 orientation.[218] He challenged the board's economic assumptions in its five-year plan, probed Molinini about the SAP implementation, and asked other questions he felt were important to fully understand the situation.[219] In the end, he was "very impressed."[220] He concluded:

      188
      I was very impressed with the depth that [the Airgas board] could go to in answering the questions.... [T]hey knew their business. They had achieved their numbers consistently. I thought they were very conservative, looking out.[221]
      189

      With respect to the SAP implementation, he said:

      190
      The benefits of SAP are enormous, and you'll finally get there.... I was very impressed with Airgas's approach. It is slow and it's prodigious in terms of what they have to get their arms around, but they're taking it step by step. They've used every best practice ... and I am very optimistic that they'll be very successful.[222]
      191

      And as far as the reasonableness of the macroeconomic assumptions in the Airgas plan, in Clancey's view, "[t]hey were reasonable."[223] As noted above, at the November 1-2, 2010 meeting, the board agreed to reach out to Air Products to see if they could get a deal done. Also at that meeting, the Air Products Nominees discussed with the board the possibility of forming a special negotiating committee, and they raised the subject of obtaining independent legal counsel and getting a third independent financial advisor to take a fresh look at the valuation and five-year plan, but no such action was taken at that time.[224]

      192
      [84] 2. December 7-8 Airgas Board Letters
      193

      On December 7, 2010, the three new directors sent a letter to van Roden formally requesting the Airgas board to authorize their retention of independent outside legal counsel and financial advisors of their choice to assist them in the event Air Products raised its offer.[225] The letter also suggested that statements about the "unanimous" views of the board on issues relating to Air Products' offer may have "become misleading."[226]

      194

      Specifically, the three Air Products Nominees sought to clarify their view regarding the statement in the November 2, 2010 letter from van Roden to McGlade that "the [Airgas] board has unanimously concluded that it believes that the value of Airgas in a sale is at least $78 per share."[227] The Air Products Nominees explained:

      195
      We do not believe that such an unequivocal statement is accurate. Any discussion about the $78 valuation must be framed in the context in which that number was actually discussed at the November, 2010 board meeting. Specifically, in the context of a board discussion about what should be the next steps in responding to Air Products, we expressed our beliefs that proposing a price (any price, within reason) would be more likely to generate a constructive dialogue between the two companies and potentially result in an increased offer from Air Products than would a figurative "stiff arm." It was in that context, and only in that context, that we agreed to communicate a $78 price to Air Products.
      196
      To be clear, at no time did any of us take the position that a $78 offer price was the price of admission to having any discussions with Air Products, nor did we agree that $78 was the minimum per share price at which Airgas might be purchased, and it would be wrong for you to insinuate otherwise to the Court.[228]
      197

      Van Roden responded by letter to the three Air Products Nominees the next day, stating that all of the statements that Airgas has made to the Court and publicly have been accurate.[229] The letter also stated that while all of the other directors were satisfied with the analyses performed by Airgas's two outside financial advisors, the board agreed to the retention of a third independent financial advisor to advise the Airgas board, to be selected by the nine independent directors.[230]

      198

      The evidence at the supplemental evidentiary hearing revealed that the December 7 letter from the three newly-elected board members was "meant as leverage" in their efforts to prompt the rest of the board to act on their request for a third independent financial advisor.[231] Clancey explained, "We wanted a financial advisor and [] we were trying to induce [the other directors]. It's like playing poker. We put our chips up on the table, everything [85] we had."[232]

      199

      The play worked—on December 10, the Airgas board (minus McCausland) held a telephonic meeting. The nine independent directors unanimously agreed to retain Credit Suisse as a third independent financial advisor to represent the full board.[233] The three new directors were satisfied with the choice of Credit Suisse,[234] and Air Products' own representatives harbored no reason to doubt Credit Suisse's qualifications or independence.[235] In addition, the Air Products Nominees retained their own independent counsel—Skadden, Arps, Slate, Meagher & Flom, LLP—and the board agreed to reimburse the reasonable costs of Skadden's past work for the new directors and to pay Skadden's fees going forward.[236]

      200

      Moreover, the Air Products Nominees publicly disavowed any real disagreement that may have allegedly existed on the board before the November 2, 2010 letter to Air Products. The December 7 and December 8 letters were made publicly available on December 13, 2010, along with a statement by the three new directors:

      201
      In response to reports of division on the Airgas Board of Directors, we the newly elected directors of Airgas, affirm that the Board is functioning effectively in the discharge of its duties to Airgas stockholders. We deny the charges of division on the Board, we condemn the spread of unproductive rumors, and we strongly disagree with the notion that we were unaware of the November 2nd letter to Air Products.[237]
      202

      In any event, as will be explained in greater detail below, by December 21, 2010 the new Air Products Nominees seem to have changed their tune and fully support the view that Airgas is worth at least $78 in a sale transaction.[238]

      203
      R. The $70 "Best and Final" Offer
      204

      Meanwhile, over at Air Products, the board was considering its position with respect to its outstanding tender offer, and on December 9, 2010, the board met to discuss its options.[239] Specifically, question 1 in the Court's December 2 Letter asked: "Is $65.50 per share the price that Air Products wants this Court to rely upon in addressing the `threat' analysis under Unocal?" The Court also recognized that Air Products had made clear that $65.50 was not its best offer—it was a "floor" from which Air Products was willing to negotiate higher.[240]

      205

      [86] After reviewing recent events with the board (including the Supreme Court's reversal on the bylaw issue) and noting the looming December 10 response deadline to my December 2 letter, Huck explained Air Products' options at that point:

      206
      (1) withdraw the tender offer and walk away;
      207
      (2) seek to call a special meeting of the Airgas stockholders to remove the board; or
      208
      (3) "[b]ring the issues around removal of the poison pill to a head by making the Company's best and final offer."[241]
      209

      Huck walked the board through each of the three alternatives, noting that the first would effectively eliminate any possibility of a transaction, and the second was "as a practical matter impossible" (and could take several months as well).[242] As for the third, Huck said that "while most of the record [in this case] was fully developed, increasing the offer to the Company's best and final price could strengthen the case for removal of the poison pill."[243] Accordingly, on December 9, 2010—the day before the parties filed their Supplemental Post-Trial Briefs in response to the Court's December 2 Letter—Air Products made its "best and final" offer for Airgas, raising its offer price to $70 per share.[244]

      210

      In its filing and related press release, Air Products said:

      211
      This is Air Products' best and final offer for Airgas and will not be further increased. It provides a 61% premium to Airgas' closing price on February 4, 2010, the day before Air Products first announced an offer to acquire Airgas.
      212
      John E. McGlade, Air Products chairman, president and chief executive officer, said, "It is time to bring this matter to a conclusion, and we are today making our best and final offer for Airgas. The Air Products Board has determined that it is not in the best interests of Air Products shareholders to pursue this transaction indefinitely, and Airgas shareholders should be aware that Air Products will not pursue this offer to another Airgas shareholder meeting, whenever it may be held."[245]
      213

      The Airgas board, in initially considering the $70 offer, did not really believe that $70 was actually Air Products' "best and final" offer, despite Air Products' public statements saying as much.[246] Accordingly, in the post-trial discovery window before the supplementary evidentiary hearing, defendants tried to take discovery into Air Products' internal valuations and analyses of Airgas to determine whether Air Products might in fact be willing to pay higher than $70 per share. Relying on [87] business strategy privilege, Air Products refused to produce its internal analyses.[247] In light of that, defendants filed a motion in limine several days before the supplementary evidentiary hearing began to preclude Air Products from offering testimony or documentary evidence in support of its assertion that $70 is its "best and final" offer. In denying that request, I held:

      214
      Air Products is not required to demonstrate the fairness of its offer; nor is it required to demonstrate that its offer is less than, equal to, or greater than what it has independently and internally determined is the value of Airgas. Having publicly announced that its $70 offer is its "final" offer, however, Air Products has now effectively and irrevocably represented to this Court that there will be no further requests for judicial relief with respect to any other offer (should there ever be one).[248]
      215

      Air Products has repeatedly represented, both in publicly available press releases, public filings with the SEC, and submissions to this Court, that $70 per share is its "best and final" offer.[249] The testimony offered by representatives of Air Products at the supplementary evidentiary hearing regarding the $70 offer provides further evidence to this Court that Air Products' offer is now, as far as this Court is concerned, at its end stage.[250]

      216

      When asked what Air Products meant by "best and final," McGlade responded, "$70 is the maximum number that we're prepared to pay."[251] Huck concurred: "It is the best and final price which we're willing to offer in this deal"[252] and "[t]here is no other offer to come."[253] McGlade further explained:

      217
      I wanted to be very clear [to the Air Products board at the December 9 meeting] that best and final meant best and final. We had a discussion around our other alternatives and ... our need to move forward on behalf of our shareholders, 15 months into this or 14 months into this at this time. It was really time to get a decision, positive or negative, and then take the outcome of what that decision was.[254]
      218

      In response to questioning by defendants' counsel as to why, at the December 9 meeting, there was no discussion as to specifically what the words "best and final" meant, Huck responded, "Right. I trust our board can understand words."[255] The message had resonated. In Davis's words, it was "made clear" at the December 9 [88] meeting that $70 was Air Products' best and final offer for Airgas.[256] All of the Air Products board members were equally supportive of the decision to make the best and final offer.[257]

      219

      Huck testified that the board's decision to make its best and final offer was based on a cash flow analysis along with the board's judgment of the risks and rewards with respect to this deal.[258] Whether or not Air Products has the financial ability to pay more is not what the board based its "best and final" price on—nor does it have to be.

      220

      In fact, Airgas itself has argued in this litigation that "Air Products' own internal DCF analysis is not relevant to evaluating the reasonableness of the Airgas Board's determination. Rather, the appropriate focus should be on the analyses and opinions of Airgas' financial advisors."[259] I agree. Thus, for purposes of my analysis and the context of this litigation, based on the representations made in public filings and under oath to this Court, I treat $70, as a matter of fact, as Air Products' "best and final" offer.

      221
      S. The Airgas Board Unanimously Rejects the $70 Offer
      222

      As noted above, the Airgas board met on December 10, 2010 to discuss the Air Products Nominees' request for independent legal advisors and a third outside financial advisor. The board did not discuss or make a determination with respect to Air Products' revised $70 offer at the December 10 meeting.

      223

      On December 21, the Airgas board met to consider Air Products' "best and final" offer.[260] Management kicked off the meeting by presenting an updated five-year plan to the board. McCausland gave an overview of the refreshed plan, and then McLaughlin addressed key financial highlights.[261] Molinini and Graff discussed other aspects of the company's growth.[262] This was followed by presentations by the three financial advisors.[263] Carr went first, then Rensky. Both Bank of America Merrill Lynch and Goldman Sachs "were of the opinion that the Air Products' $70 offer was inadequate from a financial point of view."[264]

      224

      Then they turned the floor over to David DeNunzio of Credit Suisse, Airgas's newly-retained third independent financial advisor. DeNunzio explained how Credit Suisse had performed its analysis, and how its analysis differed from that of Goldman Sachs and Bank of America Merrill Lynch. He observed that "Airgas's SAP plan is the most detailed plan he and his team had come across in 25-30 years."[265] In summary, DeNunzio said that Air Products' offer "was only slightly above what [Airgas] should trade at, was below most selected transactions and was well below the value of the Company on the basis of a DCF analysis, which was the analysis to which Credit Suisse gave the most [89] weight."[266] In the end, Credit Suisse "easily concluded that the $70 offer was inadequate from a financial point of view."[267]

      225

      After considering Airgas's updated five-year plan and the inadequacy opinions of all three of the company's financial advisors, the Airgas board unanimously—including the Air Products Nominees—rejected the $70 offer.[268] Interestingly, the Air Products Nominees were some of the most vocal opponents to the $70 offer. After the bank presentations, John Clancey, one of the three Air Products Nominees concluded that "the offer was not adequate,"[269] and that even "an increase to an amount which was well below a $78 per share price was not going to `move the needle.'"[270] He said to the rest of the board, "We have to protect the pill."[271] When asked what he meant by that comment, Clancey testified:

      226
      That we have a company ... that is worth, in my mind, worth in excess of 78, and I wanted, as a fiduciary, I wanted all shareholders to have an opportunity to realize that. [Protecting the pill was important to achieve that objective because] I don't believe 70 is the correct number. And if there was no pill, it is always feasible, possible, that 51 percent of the people tender, and the other 49 percent don't have a lot of latitude.
      227

      This was Air Products' own nominee saying this. The other two Air Products Nominees—Lumpkins and Miller—have expressed similar views on what Airgas would be worth in a sale transaction.[272] So what changed their minds? Why do they now all believe that the $70 offer is so inadequate? In McCausland's words:

      228
      [I]t doesn't reflect the fundamental value—intrinsic value of the company. Airgas can create tremendous value for its shareholders through executing its management plan—value that's far superior to the offer on the table. That's one. I would say that I also, you know, listened to three investment bankers, including Credit Suisse, who came in and took a fresh look. And every one of those bankers has opined that the offer is inadequate. The undisturbed stock price that we just talked about in the low to mid sixties—and that's not some wishful thinking, that's just applying our average five-year multiples, comparing what other companies in our peer group are doing vis-a-vis their five-year multiples. And if you were to apply an appropriate premium for a strategic acquisition like this, in the 35 to 40 percent range, you would end up with a price in the mid to high eighties. There's the DCF valuations that the bankers presented to us. I mean, there's a lot of [90] reasons why this bid is inadequate.[273]
      229

      McCausland testified that he and the rest of the board are "[a]bsolutely not" opposed to a sale of Airgas—but they are opposed to $70 because it is an inadequate bid.[274]

      230

      The next day, December 22, 2010, Airgas filed another amendment to its 14D-9, announcing the board's unanimous rejection of Air Products' $70 offer as "clearly inadequate" and recommending that Airgas stockholders not tender their shares.[275] The board reiterated once more that the value of Airgas in a sale is at least $78 per share.[276] In this filing, Airgas listed numerous reasons for its recommendation, in two pages of easy-to-read bullet points.[277] These reasons included the Airgas board's knowledge and experience in the industry; the board's knowledge of Airgas's financial condition and strategic plans, including current trends in the business and the expected future benefits of SAP and returns on other substantial capital investments that have yet to be realized; Airgas's historical trading prices and strong position in the industry; the potential benefits of the transaction for Air Products, including synergies and accretion; the board's consideration of views expressed by various stockholders; and the inadequacy opinions of its financial advisors.[278] All three of the outside financial advisors' written inadequacy opinions were attached to the filing.[279]

      231

      Once again, the evidence presented at the supplemental evidentiary hearing was that the Airgas stockholders are a sophisticated group,[280] and that they had an extraordinary amount of information available to them with which to make an informed decision about Air Products' offer. Although a few of the directors expressed the view that they understood the potential benefits of SAP and the details of the five-year plan better than stockholders could, the material information underlying management's assumptions has been released to stockholders through SEC filings and is reflected in public analysts' reports as well.[281] Airgas has issued four earnings releases since the time Air Products first announced its tender offer in February 2010.[282] McCausland has appeared in print, on the radio, and on television, and has met with numerous stockholders individually[283] to tell them that Air Products' offer is inadequate:

      232
      [91] Q. You've said that [the $70 offer is inadequate] hundreds, if not thousands of times. You've said it in print. You've said it on radio, on television. Is there any place you haven't said it, sir?
      233
      A. I can't think of any.
      234
      Q. Is there any doubt in your mind that an Airgas shareholder, who cares to know what you and your board and your management think, is by now fully aware of your position that $70 is inadequate? ... Do you have any doubt that your shareholders know that Peter McCausland, his fellow directors, all ten of them, the management team at Airgas and their outside advisors all believe that this offer is inadequate?
      235
      A. [I] think that we've gotten the point across.
      236
      Q. Is there anything you could think of that you've neglected to do to convey that message to the shareholders?
      237
      A. [...] We've made that clear, that the offer is inadequate and that our shareholders should not tender.[284]
      238

      The testimony of other Airgas directors and financial advisors provides further support. John van Roden could not think of any other information he believed Airgas could provide to its stockholders to convince them as to the accuracy of the board's view on value that the stockholders don't already know.[285] Miller could not think of any facts about Airgas's business strategy or Air Products' offer that would make Airgas's stockholders incapable of properly making an economic judgment about the tender offer.[286] When I asked David DeNunzio, Airgas's financial advisor from Credit Suisse, what more an Airgas stockholder needs to know than they already do know in order to make an informed judgment about accepting an offer at $70 or some other price, he responded "I think you have to conclude that this shareholder base is quite well-informed."[287]

      239

      In addition, numerous independent analysts' reports on Airgas are publicly available (and the numbers are very similar to Airgas's projections). Stockholders can read those reports; they can read the testimony presented during the October trial and the January supplementary hearing. They can read DeNunzio's testimony that in his professional opinion, the fair value of Airgas is in the "mid to high seventies, and well into the mid eighties."[288] They can read Robert Lumpkins' opinion (one of the Air Products Nominees) that Airgas, "on its own, its own business will be worth $78 or more in the not very distant future because of its own earnings and cash flow prospects ... as a standalone company."[289] They can read the three inadequacy opinions of the independent financial advisors. In short, "[a]ll the information they could ever want is available."[290]

      240
      II. STANDARD OF REVIEW
      241
      A. The Unocal Standard
      242

      Because of the "omnipresent specter" of entrenchment in takeover situations, [92] it is well-settled that when a poison pill is being maintained as a defensive measure and a board is faced with a request to redeem the rights, the Unocal standard of enhanced judicial scrutiny applies.[291] Under that legal framework, to justify its defensive measures, the target board must show (1) that it had "reasonable grounds for believing a danger to corporate policy and effectiveness existed" (i.e., the board must articulate a legally cognizable threat) and (2) that any board action taken in response to that threat is "reasonable in relation to the threat posed."[292]

      243

      The first hurdle under Unocal is essentially a process-based review: "Directors satisfy the first part of the Unocal test by demonstrating good faith and reasonable investigation."[293] Proof of good faith and reasonable investigation is "materially enhanced, as here, by the approval of a board comprised of a majority of outside independent directors."[294]

      244

      But the inquiry does not end there; process alone is not sufficient to satisfy the first part of Unocal review— "under Unocal and Unitrin the defendants have the burden of showing the reasonableness of their investigation, the reasonableness of their process and also of the result that they reached."[295] That is, the "process" has to lead to the finding of a threat. Put differently, no matter how exemplary the board's process, or how independent the board, or how reasonable its investigation, to meet their burden under the first prong of Unocal defendants must actually articulate some legitimate threat to corporate policy and effectiveness.[296]

      245

      Once the board has reasonably perceived a legitimate threat, Unocal prong 2 engages the Court in a substantive review of the board's defensive actions: Is the board's action taken in response to that threat proportional to the threat posed?[297] In other words, "[b]ecause of the omnipresent specter that directors could use a rights plan improperly, even when acting subjectively in good faith, Unocal and its progeny require that this Court also review the use of a rights plan objectively."[298] This proportionality review asks first whether the board's actions were "draconian, by being either preclusive or coercive."[299] If the board's response was not draconian, the Court must then determine whether it fell "within a range of [93] reasonable responses to the threat" posed.[300]

      246
      B. Unocal—Not the Business Judgment Rule—Applies Here
      247

      Defendants argue that "Unocal does not apply in a situation where the bidder's nominees agree with the incumbent directors after receiving advice from a new investment banker."[301] This, they say, is because the "sole justification for Unocal's enhanced standard of review is the `omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders,'"[302] and that in "the absence of this specter, a board's `obligation to determine whether [a takeover] offer is in the best interests of the corporation and its shareholders ... is no different from any other responsibility it shoulders, and its decisions should be no less entitled to the respect they otherwise would be accorded in the realm of business judgment.'"[303] Thus, they argue, because Airgas has presented overwhelming evidence that the directors—particularly now including the three new Air Products Nominees—are independent and have acted in good faith, the "theoretical specter of disloyalty does not exist" and therefore "Unocal's heightened standard of review does not apply here."[304]

      248

      That is simply an incorrect statement of the law. What the Supreme Court actually said in Unocal, without taking snippets of quotes out of context, was the following:

      249
      When a board addresses a pending takeover bid it has an obligation to determine whether the offer is in the best interests of the corporation and its shareholders. In that respect a board's duty is no different from any other responsibility it shoulders, and its decisions should be no less entitled to the respect they otherwise would be accorded in the realm of business judgment. There are, however, certain caveats to a proper exercise of this function. Because of the omnipresent specter that a board may be acting primarily in its own interests, rather than those of the corporation and its shareholders, there is an enhanced duty which calls for judicial examination at the threshold before the protections of the business judgment rule may be conferred.[305]
      250

      Because the Airgas board is taking defensive action in response to a pending takeover bid, the "theoretical specter of disloyalty" does exist— indeed, it is the very reason the Delaware Supreme Court in Unocal created an intermediate standard of review applying enhanced scrutiny to board action before directors would be entitled to the protections of the business judgment rule. In articulating this intermediate standard, the Supreme Court in Unocal continued:

      251
      [Even when] a defensive measure to thwart or impede a takeover is indeed motivated by a good faith concern for the welfare of the corporation and its stockholders, which in all circumstances must be free of any fraud or other misconduct... this does not end the inquiry. A further aspect is the element of balance. If a defensive measure is to come within the ambit of the business [94] judgment rule, it must be reasonable in relation to the threat posed.[306]
      252

      The idea that boards may be acting in their own self-interest to perpetuate themselves in office is, in and of itself, the "omnipresent specter" justifying enhanced judicial scrutiny. There is "no doubt that the basis for the omnipresent specter is the interest of incumbent directors, both insiders and outsiders, in retaining the `powers and perquisites' of board membership."[307] To pass muster under this enhanced scrutiny, those directors bear the burden of proving that they were acting in good faith and have articulated a legally cognizable threat and that their actions were reasonable in response to that perceived threat—not simply that they were independent and acting in good faith.[308] To wit:

      253
      In Time, [the Delaware Supreme Court] expressly rejected the proposition that `once the board's deliberative process has been analyzed and found not to be wanting in objectivity, good faith or deliberativeness, the so-called `enhanced' business judgment rule has been satisfied and no further inquiry is undertaken.[309]
      254

      Accordingly, defendants are wrong. The Unocal standard of enhanced judicial scrutiny—not the business judgment rule—is the standard of review that applies to a board's defensive actions taken in response to a hostile takeover. This is how Delaware has always interpreted the Unocal standard. There has never been any doubt about this, and as recently as four months ago the Delaware Supreme Court reaffirmed this understanding in Selectica.[310]

      255
      C. A Brief Poison Pill Primer—Moran and its Progeny
      256

      This case unavoidably highlights what former-Chancellor Allen has called "an anomaly" in our corporation law.[311] The [95] anomaly is that "[p]ublic tender offers are, or rather can be, change in control transactions that are functionally similar to merger transactions with respect to the critical question of control over the corporate enterprise."[312] Both tender offers and mergers are "extraordinary" transactions that "threaten[] equivalent impacts upon the corporation and all of its constituencies including existing shareholders."[313] But our corporation law statutorily views the two differently—under DGCL § 251, board approval and recommendation is required before stockholders have the opportunity to vote on or even consider a merger proposal, while traditionally the board has been given no statutory role in responding to a public tender offer.[314] The poison pill was born "as an attempt to address the flaw (as some would see it) in the corporation law" giving boards a critical role to play in the merger context but no role to play in tender offers.[315]

      257

      These "functionally similar forms of change in control transactions," however, have received disparate legal treatment— on the one hand, a decision not to pursue a merger proposal (or even a decision not to engage in negotiations at all) is reviewed under the deferential business judgment standard, while on the other hand, a decision not to redeem a poison pill in the face of a hostile tender offer is reviewed under "intermediate scrutiny" and must be "reasonable in relation to the threat posed" by such offer.[316]

      258

      In Moran v. Household International, Inc., written shortly after the Unocal decision in 1985, the Delaware Supreme Court first upheld the legality of the poison pill as a valid takeover defense.[317] Specifically, in Moran, the Household board of directors "react[ed] to what it perceived to be the threat in the market place of coercive two-tier tender offers" by adopting a stockholder rights plan that would allow the corporation to protect stockholders by issuing securities as a way to ward off a hostile bidder presenting a structurally coercive offer.[318] The Moran Court held that the adoption of such a rights plan was within the board's statutory authority and thus was not per se illegal under Delaware law. But the Supreme Court cabined the use of the rights plan as follows:

      259
      [T]he Rights Plan is not absolute. When the Household Board of Directors is faced with a tender offer and a request to redeem rights, they will not be able to arbitrarily reject the offer. They will be held to the same fiduciary standards any other board of directors would be held to in deciding to adopt a defensive mechanism, the same standard they were held to in originally approving the Rights Plan.[319]
      260

      The Court went on to say that "[t]he Board does not now have unfettered discretion in refusing to redeem the Rights. [96] The Board has no more discretion in refusing to redeem the Rights than it does in enacting any defensive mechanism."[320] Accordingly, while the Household board's adoption of the rights plan was deemed to be made in good faith, and the plan was found to be reasonable in relation to the threat posed by the "coercive acquisition techniques" that were prevalent at the time, the pill at that point was adopted merely as a preventive mechanism to ward off future advances. The "ultimate response to an actual takeover," though, would have to be judged by the directors' actions taken at that time, and the board's "use of the Plan [would] be evaluated when and if the issue [arose]."[321]

      261

      Notably, the pill in Moran was considered reasonable in part because the Court found that there were many methods by which potential acquirors could get around the pill.[322] One way around the pill was the "proxy out"—bidders could solicit consents to remove the board and redeem the rights. In fact, the Court did "not view the Rights Plan as much of an impediment on the tender offer process" at all.[323] After all, the board in Moran was not classified, and so the entire board was up for reelection annually[324]— meaning that all of the directors could be replaced in one fell swoop and the acquiror could presumably remove any impediments to its tender offer fairly easily after that.

      262

      So, the Supreme Court made clear in Moran that "coercive acquisition techniques" (i.e. the well-known two-tiered front-end-loaded hostile tender offers of the 1980s) were a legally cognizable "threat," and the adoption of a poison pill was a reasonable defensive measure taken in response to that threat. At the time Moran was decided, though, the intermediate standard of review was still new and developing, and it remained to be seen "what [other] `threats' from hostile bidders, apart from unequal treatment for non-tendering shareholders, [would be] sufficiently grave to justify preclusive defensive tactics without offering any transactional alternative at all."[325]

      263

      Two scholars at the time penned an article suggesting that there were three types of threats that could be recognized under Unocal: (1) structural coercion— "the risk that disparate treatment of non-tendering shareholders might distort shareholders' tender decisions"[326] (i.e., the situation involving a two-tiered offer where the back end gets less than the front end); (2) opportunity loss—the "dilemma that a hostile offer might deprive target shareholders of the opportunity to select a superior alternative offered by target management;"[327] and (3) substantive coercion— "the risk that shareholders will mistakenly accept an underpriced offer because they disbelieve management's representations of intrinsic value."[328]

      264

      Recognizing that substantive coercion was a "slippery concept" that had the potential to be abused or misunderstood, the professors explained:

      265
      [97] To note abstractly that management might know shareholder interests better than shareholders themselves do cannot be a basis for rubber-stamping management's pro forma claims in the face of market skepticism and the enormous opportunity losses that threaten target shareholders when hostile offers are defeated. Preclusive defensive tactics are gambles made on behalf of target shareholders by presumptively self-interested players. Although shareholders may win or lose in each transaction, they would almost certainly be better off on average if the gamble were never made in the absence of meaningful judicial review. By minimizing management's ability to further its self-interest in selecting its response to a hostile offer, an effective proportionality test can raise the odds that management resistance, when it does occur, will increase shareholder value.[329]
      266

      Gilson & Kraakman believed that, if used correctly, an effective proportionality test could properly incentivize management, protect stockholders and ultimately increase value for stockholders in the event that management does resist a hostile bid—but only if a real "threat" existed. To demonstrate the existence of such a threat, management must show (in detail) how its plan is better than the alternative (the hostile deal) for the target's stockholders. Only then, if management met that burden, could it use a pill to block a "substantively coercive," but otherwise non-coercive bid.

      267

      The test proposed by the professors was taken up, and was more or less adopted, by then-Chancellor Allen in City Capital Associates v. Interco.[330] There, the board of Interco had refused to redeem a pill that was in place as a defense against an unsolicited tender offer to purchase all of Interco's shares for $74 per share. The bid was non-coercive (structurally), because the offer was for $74 both on the front and back end, if accepted. As an alternative to the offer, the board of Interco sought to effect a restructuring that it claimed would be worth at least $76 per share.

      268

      After pointing out that every case in which the Delaware Supreme Court had, to that point, addressed a defensive corporate measure under Unocal involved a structurally coercive offer (i.e. a threat to voluntariness), the Chancellor recognized that "[e]ven where an offer is noncoercive, it may represent a `threat' to shareholder interests" because a board with the power to refuse the proposal and negotiate actively may be able to obtain higher value from the bidder, or present an alternative transaction of higher value to stockholders.[331] Although he declined to apply the term "substantive coercion" to the threat potentially posed by an "inadequate" but non-coercive offer, Chancellor Allen clearly addressed the concept. Consciously eschewing use of the Orwellian term "substantive coercion,"[332] the Chancellor determined that, based on the facts presented to him, there was no threat of stockholder [98] "coercion"—instead, the threat was to stockholders' economic interests posed by a "non-coercive" offer that the board deemed to be "inadequate."[333] As Gilson & Kraakman had suggested, the Chancellor then held that, assuming the board's determination was made in good faith, such a determination could justify leaving a poison pill in place for some period of time while the board protects stockholder interests (either by negotiating with the bidder, or looking for a white knight, or designing an alternative to the offer). But "[o]nce that period has closed ... and [the board] has taken such time as it required in good faith to arrange an alternative value-maximizing transaction, then, in most instances, the legitimate role of the poison pill in the context of a noncoercive offer will have been fully satisfied."[334] The only remaining function for the pill at that point, he concluded, is to preclude a majority of the stockholders from making their own determination about whether they want to tender.

      269

      The Chancellor held that the "mild threat" posed by the tender offer (a difference of approximately $2 per share, when the tender offer was for all cash and the value of management's alternative was less certain) did not justify the board's decision to keep the pill in place, effectively precluding stockholders from exercising their own judgment—despite the board's good faith belief that the offer was inadequate and keeping the pill in place was in the best interests of stockholders.

      270

      In Paramount Communications, Inc. v. Time, Inc., however, the Delaware Supreme Court explicitly rejected an approach to Unocal analysis that "would involve the court in substituting its judgment as to what is a `better' deal for that of a corporation's board of directors."[335] Although not a "pill case," the Supreme Court in Paramount addressed the concept of substantive coercion head on in determining whether an all-cash, all-shares tender offer posed a legally cognizable threat to the target's stockholders.

      271

      As the Supreme Court put it, the case presented them with the following question: "Did Time's board, having developed a [long-term] strategic plan ... come under a fiduciary duty to jettison its plan and put the corporation's future in the hands of its stockholders?"[336] Key to the Supreme Court's ruling was the underlying pivotal question in their mind regarding the Time board's specific long-term plan—its proposed merger with Warner—and whether by entering into the proposed merger, Time had essentially "put itself up for sale."[337] This was important because, so long as the company is not "for sale," then Revlon duties do not kick in and the board "is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover."[338] The Supreme Court held that the Time board had not abandoned its long-term strategic plans; thus Revlon duties were not triggered and Unocal alone applied to the board's actions.[339]

      272

      [99] In evaluating the Time board's actions under Unocal, the Supreme Court embraced the concept of substantive coercion, agreeing with the Time board that its stockholders might have tendered into Paramount's offer "in ignorance or a mistaken belief of the strategic benefit which a business combination with Warner might produce."[340] Stating in no uncertain terms that "in our view, precepts underlying the business judgment rule militate against a court's engaging in the process of attempting to appraise and evaluate the relative merits of a long-term versus a short-term investment goal for shareholders"[341] (as to do so would be "a distortion of the Unocal process"), the Supreme Court held that Time's response was proportionate to the threat of Paramount's offer. Time's defensive actions were not aimed at "cramming down" a management-sponsored alternative to Paramount's offer, but instead, were simply aimed at furthering a pre-existing long-term corporate strategy.[342] This, held the Supreme Court, comported with the board's valid exercise of its fiduciary duties under Unocal.

      273

      Five years later, the Supreme Court further applied the "substantive coercion" concept in Unitrin, Inc. v. American General Corp.[343] There, a hostile acquirer (American General) wanted Unitrin (the target corporation) to be enjoined from implementing a stock repurchase and poison pill adopted in response to American General's "inadequate" all-cash offer. Recognizing that previous cases had held that "inadequate value" of an all-cash offer could be a valid threat (i.e. Interco), the Court also reiterated its conclusion in Paramount that inadequate value is not the only threat posed by a non-coercive, all-cash offer. The Unitrin Court recited that "the Time board of directors had reasonably determined that inadequate value was not the only threat that Paramount's all cash for all shares offer presented, but was also reasonably concerned that the Time stockholders might tender to Paramount in ignorance or based upon a mistaken belief, i.e., yield to substantive coercion."[344]

      274

      Relying on that line of reasoning, the Unitrin Court determined that the Unitrin board "reasonably perceived risk of substantive coercion, i.e., that Unitrin's shareholders might accept American General's inadequate Offer because of `ignorance or mistaken belief' regarding the Board's assessment of the long-term value of Unitrin's stock."[345] Thus, perceiving a valid threat under Unocal, the Supreme Court then addressed whether the board of Unitrin's response was proportional to the threat.

      275

      Having determined that the Unitrin board reasonably perceived the American General offer to be inadequate, and Unitrin's poison pill adoption to be a proportionate response, the Court of Chancery had found that the Unitrin board's decision to authorize its stock repurchase program was disproportionate because it was "unnecessary" to protect the Unitrin stockholders from an inadequate bid since the board already had a pill in place. The Court of Chancery here was sensitive to [100] how the stock buy back would make it extremely unlikely that American General could win a proxy contest. The Supreme Court, however, held that the Court of Chancery had "erred by substituting its judgment, that the Repurchase Program was unnecessary, for that of the board,"[346] and that such action, if not coercive or preclusive, could be valid if it fell within a range of reasonableness.

      276

      At least one of the professors, it seems, is unhappy with how the Supreme Court has apparently misunderstood the concept of substantive coercion as he had envisioned it, noting that "only the phrase and not the substance captured the attention of the Delaware Supreme Court" such that the "mere incantation" of substantive coercion now seems sufficient to establish a threat justifying a board's defensive strategy.[347]

      277

      More recent cases decided by the Court of Chancery have attempted to cut back on the now-broadened concept of "substantive coercion." The concept, after all, was originally (as outlined by Professors Gilson & Kraakman) intended to be a very carefully monitored "threat" requiring close judicial scrutiny of any defensive measures taken in response to such a threat. In Chesapeake v. Shore, Vice Chancellor Strine stated:

      278
      One might imagine that the response to this particular type of threat might be time-limited and confined to what is necessary to ensure that the board can tell its side of the story effectively. That is, because the threat is defined as one involving the possibility that stockholders might make an erroneous investment or voting decision, the appropriate response would seem to be one that would remedy that problem by providing the stockholders with adequate information.[348]
      279

      Once the stockholders have access to such information, the potential for stockholder "confusion" seems substantially lessened. At that point, "[o]ur law should [] hesitate to ascribe rube-like qualities to stockholders. If the stockholders are presumed competent to buy stock in the first place, why are they not presumed competent to decide when to sell in a tender offer after an adequate time for deliberation has been afforded them?"[349]

      280

      That is essentially how former-Chancellor Allen first attempted to apply the concept of substantive coercion in Interco. Chancellor Allen found it "significant" that the question of the board's responsibility to redeem or not to redeem the poison pill in Interco arose at the "end-stage" of the takeover contest.[350] He explained:

      281
      [T]he negotiating leverage that a poison pill confers upon this company's board will, it is clear, not be further utilized by the board to increase the options available to shareholders or to improve the terms of those options. Rather, at this stage of this contest, the pill now serves the principal purpose of ... precluding the shareholders from choosing an alternative... that the board finds less valuable to shareholders.[351]
      282

      Similarly, here, the takeover battle between Air Products and Airgas seems to [101] have reached an "end stage."[352] Air Products has made its "best and final" offer. Airgas deems that offer to be inadequate. And we're not "talking nickels and quarters here"[353]—an $8 gulf separates the two. The Airgas stockholders know all of this. At this stage, the pill is serving the principal purpose of precluding the shareholders from tendering into Air Products' offer. As noted above, however, the Supreme Court rejected the reasoning of Interco in Paramount. Thus, while I agree theoretically with former-Chancellor Allen's and Vice Chancellor Strine's conception of substantive coercion and its appropriate application, the Supreme Court's dictum in Paramount (which explicitly disapproves of Interco) suggests that, unless and until the Supreme Court rules otherwise, that is not the current state of our law.

      283
      D. A Note on TW Services
      284

      TW Services, Inc. v. SWT Acquisition Corp.[354] is an often overlooked case that is, in my view, an illuminating piece in this takeover puzzle. The case was another former-Chancellor Allen decision, decided just after Interco and Pillsbury, and right before Paramount. Indeed, it appears to be cited approvingly in Paramount in the same sentence where "Interco and its progeny" were rejected as not in keeping with proper Unocal analysis.[355] In other words, according to the Supreme Court, in TW Services (as opposed to Interco), Chancellor Allen did not substitute his "judgment as to what is a `better' deal for that of a corporation's board of directors."[356] But it is important to look at why this was so.

      285

      As noted above, TW Services essentially teed up the very question I am addressing in this Opinion, but then declined to answer it in light of the particular facts of that case. Specifically, Chancellor Allen raised front and center the question when, if ever, must a board abandon its long-run strategy in the face of a hostile tender offer. He declined to answer it because he decided the case on other grounds and did not ultimately need to reach the question.[357] In doing so, however, he provided insightful commentary on two key points: (1) a board's differing duties when under the Revlon versus Unocal standards of review,[358] and (2) Interco and its progeny.

      286

      First, as the Supreme Court later did in Paramount, Chancellor Allen grappled [102] with the following "critical question[:] when is a corporation in a Revlon [Inc. v. MacAndrews & Forbes Holdings, 506 A.2d 173 (1986)] mode?"[359] It is not until the board is under Revlon that its duty "narrow[s]" to getting the best price reasonably available for stockholders in a sale of the company.[360] The reason the board's duty shifts at that point to maximizing shareholder value is simple: "In such a setting, for the present shareholders, there is no long run."[361] This is not so when the board is under Unocal, the company is not for sale, and the board is instead pursuing long run corporate interests. Accordingly, the Chancellor asked,

      287
      But what of a situation in which the board resists a sale? May a board find itself thrust involuntarily into a Revlon mode in which is it required to take only steps designed to maximize current share value and in which it must desist from steps that would impede that goal, even if they might otherwise appear sustainable as an arguable step in the promotion of "long term" corporate or share values?[362]
      288

      Chancellor Allen does not directly answer the question. Instead, he continues with another follow-up question: Does a director's duty of loyalty to "the corporation and its shareholders" require a board—in light of the fact that a majority of shares may wish to tender into a current share value maximizing transaction now—to enter into Revlon mode? Again, he leaves the answer for another day and another case. But the most famous quote from TW Services was embedded in a footnote following that last question. Namely, in considering whether the duty of loyalty could force a board into Revlon mode, the Chancellor mused:

      289
      Questions of this type call upon one to ask, what is our model of corporate governance? "Shareholder democracy" is an appealing phrase, and the notion of shareholders as the ultimate voting constituency of the board has obvious pertinence, but that phrase would not constitute the only element in a well articulated model. While corporate democracy is a pertinent concept, a corporation is not a New England town meeting; directors, not shareholders, have responsibilities to manage the business and affairs of the corporation, subject however to a fiduciary obligation.[363]
      290

      Second, Chancellor Allen shed light on two then-recent cases where the Court of Chancery had attempted to order redemption of a poison pill. He noted that the boards in those cases (i.e., Pillsbury[364] and Interco[365]) had "elected to pursue a defensive restructuring that in form and effect was (so far as the corporation itself was concerned) a close approximation of and an alternative to a pending all cash tender [103] offer for all shares."[366] In other words, in Pillsbury and Interco, the boards were responding to a hostile offer by proposing "a management endorsed breakup transaction that, realistically viewed, constituted a functional alternative to the resisted sale."[367] Importantly, "[t]hose cases did not involve circumstances in which a board had in good faith ... elected to continue managing the enterprise in a long term mode and not to actively consider an extraordinary transaction of any type."[368] The issue presented by a board that responds to a tender offer with a major restructuring or recapitalization is fundamentally different than that posed by a board which "just says no" and maintains the status quo.

      291

      Thus, it seemed, the Chancellor endorsed the view that so long as a corporation is not for sale, it is not in Revlon mode and is free to pursue its long run goals. In essence, TW Services appeared to support the view that a well-informed board acting in good faith in response to a reasonably perceived threat may, in fact, be able to "just say no" to a hostile tender offer.

      292

      The foregoing legal framework describes what I believe to be the current legal regime in Delaware. With that legal superstructure in mind, I now apply the Unocal standard to the specific facts of this case.

      293
      III. ANALYSIS
      294
      A. Has the Airgas Board Established That It Reasonably Perceived the Existence of a Legally Cognizable Threat?
      295
      1. Process
      296

      Under the first prong of Unocal, defendants bear the burden of showing that the Airgas board, "after a reasonable investigation ... determined in good faith, that the [Air Products offer] presented a threat ... that warranted a defensive response."[369] I focus my analysis on the defendants' actions in response to Air Products' current $70 offer, but I note here that defendants would have cleared the Unocal hurdles with greater ease when the relevant inquiry was with respect to the board's response to the $65.50 offer.[370]

      297

      In examining defendants' actions under this first prong of Unocal, "the presence of a majority of outside independent directors coupled with a showing of reliance on advice by legal and financial advisors, `constitute[s] a prima facie showing of good faith and reasonable investigation.'"[371] Here, it is undeniable that the Airgas board meets this test.

      298

      First, it is currently comprised of a majority of outside independent directors— including the three recently-elected insurgent directors who were nominated to the board by Air Products. Air Products does not dispute the independence of the Air [104] Products Nominees,[372] and the evidence at trial showed that the rest of the Airgas board, other than McCausland, are outside, independent directors who are not dominated by McCausland.[373]

      299

      Second, the Airgas board relied on not one, not two, but three outside independent financial advisors in reaching its conclusion that Air Products' offer is "clearly inadequate."[374] Credit Suisse, the third outside financial advisor—as described in Section I.Q.2—was selected by the entire Airgas board, was approved by the three Air Products Nominees, and its independence and qualifications are not in dispute.[375] In addition, the Airgas board has relied on the advice of legal counsel,[376] and the three Air Products Nominees have retained their own additional independent legal counsel (Skadden, Arps). In short, the Airgas board's process easily passes the smell test.

      300
      2. What is the "Threat?"
      301

      Although the Airgas board meets the threshold of showing good faith and reasonable investigation, the first part of Unocal review requires more than that; it requires the board to show that its good faith and reasonable investigation ultimately gave the board "grounds for concluding that a threat to the corporate enterprise existed."[377] In the supplemental evidentiary hearing, Airgas (and its lawyers) attempted to identify numerous threats posed by Air Products' $70 offer: It is coercive. It is opportunistically timed.[378] It presents the stockholders with a "prisoner's dilemma." It undervalues Airgas—it is a "clearly inadequate" price. The merger arbitrageurs who have bought into Airgas need to be "protected from themselves."[379] The arbs are a "threat" to the minority.[380] The list goes on.

      302

      [105] The reality is that the Airgas board discussed essentially none of these alleged "threats" in its board meetings, or in its deliberations on whether to accept or reject Air Products' $70 offer, or in its consideration of whether to keep the pill in place. The board did not discuss "coercion" or the idea that Airgas's stockholders would be "coerced" into tendering.[381] The board did not discuss the concept of a "prisoner's dilemma."[382] The board did not discuss Air Products' offer in terms of any "danger" that it posed to the corporate enterprise.[383] In the October trial, Airgas had likewise failed to identify threats other than that Air Products' offer undervalues Airgas.[384] In fact, there has been no specific board discussion since the October trial over whether to keep the poison pill in place (other than Clancey's "protect the pill" line).[385]

      303

      Airgas's board members testified that the concepts of coercion, threat, and the decision whether or not to redeem the pill were nonetheless "implicit" in the board's discussions due to their knowledge that a large percentage of Airgas's stock is held by merger arbitrageurs who have short-term interests and would be willing to tender into an inadequate offer.[386] But the only threat that the board discussed—the threat that has been the central issue since the beginning of this case—is the inadequate price of Air Products' offer. Thus, inadequate price, coupled with the fact that a majority of Airgas's stock is held by merger arbitrageurs who might be willing to tender into such an inadequate offer, is [106] the only real "threat" alleged. In fact, Airgas directors have admitted as much. Airgas's CEO van Roden testified:

      304
      Q. [O]ther than the price being inadequate, is there anything else that you deem to be a threat?
      305
      A. No.[387]
      306

      In the end, it really is "All About Value."[388] Airgas's directors and Airgas's financial advisors concede that the Airgas stockholder base is sophisticated and well-informed, and that they have all the information necessary to decide whether to tender into Air Products' offer.[389]

      307
      a. Structural Coercion
      308

      Air Products' offer is not structurally coercive. A structurally coercive offer involves "the risk that disparate treatment of non-tendering shareholders might distort shareholders' tender decisions."[390] Unocal, for example, "involved a two-tier, highly coercive tender offer" where stock-holders who did not tender into the offer risked getting stuck with junk bonds on the back end.[391] "In such a case, the threat is obvious: shareholders may be compelled to tender to avoid being treated adversely in the second stage of the transaction."[392]

      309

      Air Products' offer poses no such structural threat. It is for all shares of Airgas, with consideration to be paid in all cash.[393] The offer is backed by secured financing.[394] There is regulatory approval.[395] The front end will get the same consideration as the back end, in the same currency, as quickly as practicable. Air Products is committed to promptly paying $70 in cash for each and every share of Airgas and has no interest in owning less than 100% of Airgas.[396] Air Products would seek to acquire any non-tendering shares "[a]s quick[ly] as the law would allow."[397] It is willing to commit to a subsequent offering period.[398] In light of that, any stockholders who believe [107] that the $70 offer is inadequate simply would not tender into the offer—they would risk nothing by not tendering because if a majority of Airgas shares did tender, any non-tendering shares could tender into the subsequent offering period and receive the exact same consideration ($70 per share in cash) as the front end.[399] In short, if there were an antonym in the dictionary for "structural coercion," Air Products' offer might be it.

      310

      As former-Vice Chancellor, now Justice Berger noted, "[c]ertainly an inadequate [structurally] coercive tender offer threatens injury to the stockholders ... [but i]t is difficult to understand how, as a general matter, an inadequate all cash, all shares tender offer, with a back end commitment at the same price in cash, can be considered a continuing threat under Unocal."[400] I agree. As noted above, though, the Supreme Court has recognized other "threats" that can be posed by an inadequately priced offer. One such potential continuing threat has been termed "opportunity loss," which appears to be a time-based threat.

      311
      b. Opportunity Loss
      312

      Opportunity loss is the threat that a "hostile offer might deprive target stockholders of the opportunity to select a superior alternative offered by target management or ... offered by another bidder."[401] As then-Vice Chancellor Berger (who was also one of the Justices in Unitrin) explained in Shamrock Holdings:

      313
      An inadequate, non-coercive offer may [] constitute a threat for some reasonable period of time after it is announced. The target corporation (or other potential bidders) may be inclined to provide the stockholders with a more attractive alternative, but may need some additional time to formulate and present that option. During the interim, the threat is that the stockholders might choose the inadequate tender offer only because the superior option has not yet been presented.... However, where there has been sufficient time for any alternative to be developed and presented and for the target corporation to inform its stockholders of the benefits of retaining their equity position, the "threat" to the stockholders of an inadequate, non-coercive offer seems, in most circumstances, to be without substance.[402]
      314

      As such, Air Products' offer poses no threat of opportunity loss. The Airgas board has had, at this point, over sixteen months to consider Air Products' offer and to explore "strategic alternatives going forward as a company."[403] After all that time, there is no alternative offer currently on the table, and counsel for defendants represented during the October trial that "we're not asserting that we need more [108] time to explore a specific alternative."[404] The "superior alternative" Airgas is pursuing is simply to "continue[] on its current course and execute[] its strategic [five year, long term] plan."[405]

      315
      c. Substantive Coercion
      316

      Inadequate price and the concept of substantive coercion are inextricably related. The Delaware Supreme Court has defined substantive coercion, as discussed in Section II.C, as "the risk that [Airgas's] stockholders might accept [Air Products'] inadequate Offer because of `ignorance or mistaken belief' regarding the Board's assessment of the long-term value of [Airgas's] stock."[406] In other words, if management advises stockholders, in good faith, that it believes Air Products' hostile offer is inadequate because in its view the future earnings potential of the company is greater than the price offered, Airgas's stockholders might nevertheless reject the board's advice and tender.

      317

      In the article that gave rise to the concept of "substantive coercion," Professors Gilson and Kraakman argued that, in order for substantive coercion to exist, two elements are necessary: (1) management must actually expect the value of the company to be greater than the offer—and be correct that the offer is in fact inadequate, and (2) the stockholders must reject management's advice or "believe that management will not deliver on its promise."[407] Both elements must be present because "[w]ithout the first element, shareholders who accept a structurally non-coercive offer have not made a mistake. Without the second element, shareholders will believe management and reject underpriced offers."[408]

      318

      Defendants' argument involves a slightly different take on this threat, based on the particular composition of Airgas's stockholders (namely, its large "short-term" base). In essence, Airgas's argument is that "the substantial ownership of Airgas stock by these short-term, deal-driven investors poses a threat to the company and its shareholders"—the threat that, because it is likely that the arbs would support the $70 offer, "shareholders will be coerced into tendering into an inadequate offer."[409] The threat of "arbs" is a new facet of substantive coercion, different from the substantive coercion claim recognized in Paramount.[410] There, the hostile tender offer was purposely timed to confuse the [109] stockholders. The terms of the offer could cause stockholders to mistakenly tender if they did not believe or understand (literally) the value of the merger with Warner as compared with the value of Paramount's cash offer. The terms of the offer introduced uncertainty. In contrast, here, defendants' claim is not about "confusion" or "mistakenly tendering" (or even "disbelieving" management)—Air Products' offer has been on the table for over a year, Airgas's stockholders have been barraged with information, and there is no alternative offer to choose that might cause stockholders to be confused about the terms of Air Products' offer. Rather, Airgas's claim is that it needs to maintain its defensive measures to prevent control from being surrendered for an unfair or inadequate price. The argument is premised on the fact that a large percentage (almost half) of Airgas's stockholders are merger arbitrageurs—many of whom bought into the stock when Air Products first announced its interest in acquiring Airgas, at a time when the stock was trading much lower than it is today—who would be willing to tender into an inadequate offer because they stand to make a significant return on their investment even if the offer grossly undervalues Airgas in a sale. "They don't care a thing about the fundamental value of Airgas."[411] In short, the risk is that a majority of Airgas's stockholders will tender into Air Products' offer despite its inadequate price tag, leaving the minority "coerced" into taking $70 as well.[412] The defendants do not appear to have come to grips with the fact that the arbs bought their shares from long-term stockholders who viewed the increased market price generated by Air Products' offer as a good time to sell.[413]

      319

      The threat that merger arbs will tender into an inadequately priced offer is only a legitimate threat if the offer is indeed inadequate.[414] "The only way to protect [110] stockholders [from a threat of substantive coercion] is for courts to ensure that the threat is real and that the board asserting the threat is not imagining or exaggerating it."[415] Air Products and Shareholder Plaintiffs attack two main aspects of Airgas's five year plan—(1) the macroeconomic assumptions relied upon by management, and (2) the fact that Airgas did not consider what would happen if the economy had a "double-dip" recession.

      320

      Plaintiffs argue that reasonable stockholders may disagree with the board's optimistic macroeconomic assumptions. McCausland did not hesitate to admit during the supplemental hearing that he is "very bullish" on Airgas. "It's an amazing company," he said. He testified that the company has a shot at making its 2007 five year plan "despite the fact that the worst recession since the Great Depression landed right in the middle of that period. [W]e're in a good business, and we have a unique competitive advantage in the U.S. market."[416] And it's not just Airgas that McCausland is bullish about—he's "bullish on the United States [] economy" as well.[417]

      321

      So management presented a single scenario in its revised five-year plan—no double dip recession; reasonably optimistic macroeconomic growth assumptions. Everyone at trial agreed that "reasonable minds can differ as to the view of future value."[418] But nothing in the record supported a claim that Airgas fudged any of its numbers, nor was there evidence that the board did not act at all times in good faith and in reasonable reliance on its outside advisors.[419] The Air Products Nominees [111] found the assumptions to be "reasonable."[420] They do not see "any indication of a double-dip recession."[421]

      322

      The next question is, if a majority of stockholders want to tender into an inadequately priced offer, is that substantive coercion? Is that a threat that justifies continued maintenance of the poison pill? Put differently, is there evidence in the record that Airgas stockholders are so "focused on the short-term" that they would "take a smaller harvest in the swelter of August over a larger one in Indian Summer"?[422] Air Products argues that there is none whatsoever. They argue that there is "no evidence in the record that [Airgas's short-term] holders [i.e., arbitrageurs and hedge funds] would not [] reject the $70 offer if it was viewed by them to be inadequate.... Defendants have not demonstrated a single fact supporting their argument that a threat to Airgas stockholders exists because the Airgas stock is held by investors with varying time horizons."[423]

      323

      But there is at least some evidence in the record suggesting that this risk may be real.[424] Moreover, both Airgas's expert and well as Air Products' own expert testified that a large number—if not all—of the arbitrageurs who bought into Airgas's stock at prices significantly below the $70 offer price would be happy to tender their shares at that price regardless of the potential long-term value of the company.[425] Based on the testimony of both expert witnesses, I find sufficient evidence that a majority of stockholders might be willing to tender their shares regardless of whether the price is adequate or not—thereby ceding control of Airgas to Air Products. This is a clear "risk" under the teachings [112] of TW Services[426] and Paramount[427] because it would essentially thrust Airgas into Revlon mode.

      324

      Ultimately, it all seems to come down to the Supreme Court's holdings in Paramount and Unitrin. In Unitrin, the Court held: "[T]he directors of a Delaware corporation have the prerogative to determine that the market undervalues its stock and to protect its stockholders from offers that do not reflect the long-term value of the corporation under its present management plan."[428] When a company is not in Revlon mode, a board of directors "is not under any per se duty to maximize shareholder value in the short term, even in the context of a takeover."[429] The Supreme Court has unequivocally "endorse[d the] conclusion that it 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."[430] As noted above, based on all of the facts presented to me, I find that the Airgas board acted in good faith and relied on the advice of its financial and legal advisors in coming to the conclusion that Air Products' offer is inadequate. And as the Supreme Court has held, a board that in good faith believes that a hostile offer is inadequate may "properly employ[] a poison pill as a proportionate defensive response to protect its stockholders from a `low ball' [113] bid."[431]

      325
      B. Is the Continued Maintenance of Airgas's Defensive Measures Proportionate to the "Threat" Posed by Air Products' Offer?
      326

      Turning now to the second part of the Unocal test, I must determine whether the Airgas board's defensive measures are a proportionate response to the threat posed by Air Products' offer. Where the defensive measures "are inextricably related, the principles of Unocal require that [they] be scrutinized collectively as a unitary response to the perceived threat."[432] Defendants bear the burden of showing that their defenses are not preclusive or coercive, and if neither, that they fall within a "range of reasonableness."[433]

      327
      1. Preclusive or Coercive
      328

      A defensive measure is coercive if it is "aimed at `cramming down' on its shareholders a management-sponsored alternative."[434] Airgas's defensive measures are certainly not coercive in this respect, as Airgas is specifically not trying to cram down a management sponsored alternative, but rather, simply wants to maintain the status quo and manage the company for the long term.

      329

      A response is preclusive if it "makes a bidder's ability to wage a successful proxy contest and gain control [of the target's board] ... `realistically unattainable.'"[435] Air Products and Shareholder Plaintiffs argue that Airgas's defensive measures are preclusive because they render the possibility of an effective proxy contest realistically unattainable. What the argument boils down to, though, is that Airgas's defensive measures make the possibility of Air Products obtaining control of the Airgas board and removing the pill realistically unattainable in the very near future, because Airgas has a staggered board in place. Thus, the real issue posed is whether defensive measures are "preclusive" if they make gaining control of the board realistically unattainable in the short term (but still realistically attainable sometime in the future), or if "preclusive" actually means "preclusive"—i.e. forever unattainable. In reality, or perhaps I should say in practice, these two formulations ("preclusive for now" or "preclusive forever") may be one and the same when examining the combination of a staggered board plus a poison pill, because no bidder to my knowledge has ever successfully stuck around for two years and waged two successful proxy contests to gain control of a classified board in order to remove a pill.[436] So does that make the combination of a [114] staggered board and a poison pill preclusive?

      330

      This precise question was asked and answered four months ago in Versata Enterprises, Inc. v. Selectica, Inc. There, Trilogy (the hostile acquiror) argued that in order for the target's defensive measures not to be preclusive: (1) a successful proxy contest must be realistically attainable, and (2) the successful proxy contest must result in gaining control of the board at the next election. The Delaware Supreme Court rejected this argument, stating that "[i]f that preclusivity argument is correct, then it would apply whenever a corporation has both a classified board and a Rights Plan.... [W]e hold that the combination of a classified board and a Rights Plan do not constitute a preclusive defense."[437]

      331

      The Supreme Court explained its reasoning as follows:

      332
      Classified boards are authorized by statute and are adopted for a variety of business purposes. Any classified board also operates as an antitakeover defense by preventing an insurgent from obtaining control of the board in one election. More than a decade ago, in Carmody [v. Toll Brothers, Inc.], the Court of Chancery noted "because only one third of a classified board would stand for election each year, a classified board would delay—but not prevent—a hostile acquiror from obtaining control of the board, since a determined acquiror could wage a proxy contest and obtain control of two thirds of the target board over a two year period, as opposed to seizing control in a single election."[438]
      333

      The Court concluded: "The fact that a combination of defensive measures makes it more difficult for an acquirer to obtain control of a board does not make such measures realistically unattainable, i.e., preclusive."[439] Moreover, citing Moran, the Supreme Court noted that pills do not fundamentally restrict proxy contests, explaining that a "Rights Plan will not have a severe impact upon proxy contests and it will not preclude all hostile acquisitions of Household."[440] Arguably the combination of a staggered board plus a pill is at least more preclusive than the use of a rights plan by a company with a pill alone (where all directors are up for election annually, as in Gaylord Container and Moran, because the stockholders could replace the entire board at once and redeem the pill). In any event, though, the Supreme Court [115] in Selectica suggests that this is a distinction without a significant difference, and very clearly held that the combination of a classified board and a Rights Plan is not preclusive, and that the combination may only "delay—but not prevent—a hostile acquiror from obtaining control of the board."[441]

      334

      The Supreme Court reinforced this holding in its Airgas bylaw decision related to this case, when it ruled that directors on a staggered board serve "three year terms" and Airgas could thus not be forced to push its annual meeting from August/September 2011 up to January 2011.[442] There, the Supreme Court cited approvingly to the "historical understanding" of the impact of staggered boards:

      335
      "By spreading the election of the full board over a period of three years, the classified board forces the successful [tender] offeror to wait, in theory at least, two years before assuming working control of the board of directors."[443]
      336
      * * *
      337
      "A real benefit to directors on a [staggered] board is that it would take two years for an insurgent to obtain control in a proxy contest."[444]
      338

      In addition, the Supreme Court cited its Selectica decision where, as noted above, it had held that "`a classified board would delay—but not prevent—a hostile acquiror from obtaining control of the board, since a determined acquiror could wage a proxy contest and obtain control of two thirds of the target board over a two year period, as opposed to seizing control in a single election."[445]

      339

      I am thus bound by this clear precedent to proceed on the assumption that Airgas's defensive measures are not preclusive if they delay Air Products from obtaining control of the Airgas board (even if that delay is significant) so long as obtaining control at some point in the future is realistically attainable. I now examine whether the ability to obtain control of Airgas's board in the future is realistically attainable.

      340

      Air Products has already run one successful slate of insurgents. Their three independent nominees were elected to the Airgas board in September. Airgas's next annual meeting will be held sometime around September 2011. Accordingly, if Airgas's defensive measures remain in place, Air Products has two options if it wants to continue to pursue Airgas at this time:[446] (1) It can call a special meeting and remove the entire board with a supermajority vote of the outstanding shares, or (2) It can wait until Airgas's 2011 annual meeting to nominate a slate of directors. I [116] will address the viability of each of these options in turn.

      341
      a. Call a Special Meeting to Remove the Airgas Board by a 67% Supermajority Vote
      342

      Airgas's charter allows for 33% of the outstanding shares to call a special meeting of the stockholders, and to remove the entire board without cause by a vote of 67% of the outstanding shares.[447] Defendants make much of the fact that "[o]f the 85 Delaware companies in the Fortune 500 with staggered boards, only six (including Airgas) have charter provisions that permit shareholders to remove directors without cause between annual meetings (i.e., at a special meeting and/or by written consent)."[448] This argument alone is not decisive on the issue of preclusivity, although it does distinguish the particular facts of this case from the typical case of a company with a staggered board.[449] Ultimately, though, it does not matter how many or how few companies in the Fortune 500 with staggered boards allow shareholders to remove directors by calling a special meeting; what matters is the "realistic attainability" of actually achieving a 67% vote of the outstanding Airgas shares in the context of Air Products' hostile tender offer (which equates to achieving approximately 85-86% of the unaffiliated voting shares),[450] or whether, instead, Airgas's continued use of its defensive measures is preclusive because it is a near "impossible task."[451]

      343

      The fact that something might be a theoretical possibility does not make it "realistically attainable." In other words, what the Supreme Court in Unitrin and Selectica meant by "realistically attainable" must be something more than a mere "mathematical possibility" or "hypothetically conceivable chance" of circumventing a poison pill. One would think a sensible understanding of the phrase would be that an insurgent has a reasonably meaningful or real world shot at securing the support of enough stockholders to change the target board's composition and remove the obstructing defenses.[452] It does not mean that the insurgent has a right to win or that the insurgent must have a highly probable chance or even a 50-50 chance of prevailing. But it must be more than just a theoretical possibility, given the required vote, the timing issues, the shareholder profile, the issues presented by the insurgent and the surrounding circumstances.

      344

      The real-world difficulty of a judge accurately assessing the "realistically attainable" factor, however, was made painfully [117] clear during the January supplemental evidentiary hearing through the lengthy and contentious testimony of two "proxy experts." Airgas offered testimony from Peter C. Harkins, the President and CEO of D.F. King & Co. Inc. and Air Products presented testimony by Joseph J. Morrow, the founder and CEO of Morrow & Co., LLC.[453] Both experts have extensive experience advising corporate clients in contested proxy solicitations and corporate takeover contests, as well as extensive (and lucrative) experience opining in courtrooms as experts on stockholder voting and investment behavior.[454] Ultimately, and despite Harkins' pseudo-scientific "bottoms-up analysis" and Morrow's anecdotal approach, I found both experts' testimony essentially unhelpful and unconvincing on the fundamental question whether a 67% vote of Airgas stockholders at a special meeting is realistically attainable. Morrow concluded that it is not realistically attainable, because the margin needed to attain 67% is so high given the percentage of unaffiliated stockholders likely to vote. Airgas's officers and directors own 11% of Airgas stock. In addition, 12% of Airgas stock did not vote in the September 2010 contested election (which is fairly typical, even in contested elections). That equals 23% of Airgas's outstanding stock that is arguably "not available" to Air Products' solicitation at a special stockholder meeting. Add to this 23% number the 2% that Air Products itself owns, and you are left with an "available pool" of 75% of the outstanding Airgas stock from which Air Products would need to garner 65% (which, added to its own 2%, would yield the required 67% of outstanding shares). Thus, following this reasoning, Air Products would need to attract the support of about 85% of the 75% of unaffiliated and likely to vote shares in order to reach the 67% vote required to oust the incumbent Airgas directors.[455] According to Morrow, this margin (85% of the unaffiliated and voting shares) has never been achieved in any contested election that he can recall in his 46 years in this business.[456] Harkins likewise could not give a real world example where an insurgent garnered that margin of votes in a contested election.[457]

      345

      Harkins, on the other hand, based his opinion that 67% is "easily" achievable (again, despite the glaring lack of any real world instance where an insurgent has ever achieved such a supermajority in a contested election) on his "bottoms-up" analysis of various categories of Airgas stockholders and their "likely" voting behavior, based in part on the Airgas stockholder voting patterns in the September 2010 election.[458] Although Harkins's categorical computations have a certain scientific or mathematical patina, they are all ultimately based on assumptions, guesses and speculation—albeit "educated" assumptions and guesses. For example, Harkins assumed that 100% of the voting arbitrageurs and event-driven investors will vote for Air Products' nominees at a special election, despite the fact that only 90% voted for Air Products nominees at the September 2010 contested short slate election and despite the absence of any historical instance where a bidder received [118] unanimous support from this stockholder category.[459] Similar flaws infect other categorical assumptions in Harkins' "bottoms-up" methodology, including his assumptions about the likely vote by index funds (where his prediction again is unsupported by the actual index fund votes in September 2010),[460] about the likely vote of "dual" stockholders who own stock in both Airgas and Air Products, and about the probability that proxy advisory firm ISS will support an effort to remove an entire slate of directors. If one of these key "assumptions" is incorrect, Harkins' model collapses and the "easy" 67% vote becomes mathematically impossible.

      346

      To cite one easy example, Harkins' "bottoms-up" analysis is based on Airgas's stockholder profile as of December 9, 2010.[461] The largest category of voting stockholders in the chart (by far) is the "arbitrageurs and event-driven investors" group, accounting for 46% of the total outstanding shares. Harkins assumes that 95% of them will vote, and as noted above, that 100% of those voting will vote in favor of Air Products' nominees at a special election. This gives a total of 43.7% of the outstanding shares voting for Air Products—a large chunk of the total required to get to 67%.[462] Even plugging in Morrow's [119] "assumption" that only 92.5% (rather than 95%) of this group will vote, and 100% of them vote in favor of Air Products, that still totals 42.5% of the total outstanding.[463] But Airgas's stockholder profile, as Harkins admitted, is "continuously changing."[464] McCausland testified that the arb concentration is down from 46% to 41%.[465] That single assumption alone (a difference that equates to almost 5% of the total outstanding that Harkins assumes would vote in favor of Air Products under either Harkins' or Morrow's voting assumptions) essentially renders the rest of the numbers in Harkins' chart meaningless—they do not add up to 67% unless he re-solves for "X" (the percentage of "Other Institutional Investors" needed to vote in favor of Air Products). It may be that additional arbs would swarm in upon the announcement of a special meeting.[466] It may not. And in the end, I guess, he can always just re-solve for "X." What this shows, though, is that the entire exercise does not answer the "realistic attainability" question one way or the other—it is a game of speculation.

      347

      Thus, the expert opinions proffered on how stockholders are likely to vote at a special meeting called to remove the entire Airgas board were unhelpful and not persuasive. The expert witnesses neither took the time nor made the effort to speak with any Airgas stockholders—whether retail, index, institutional investors who subcontract voting to ISS, long or short hedge funds, dual stockholders or event-driven stockholders—about how they might vote if such a special stockholder meeting were actually convened.[467] To that extent, each expert failed to support his conclusions in a manner that a judge would find reliable. In short, I am not persuaded by Harkins that 67% is realistically attainable, especially given the absence of any historical instance where a bidder achieved such a [120] margin in a contested election.[468] Both experts essentially admitted, moreover, that one cannot really know how an election will turn out until it is held and that, generally speaking, it is easier to obtain investor support for electing a minority insurgent slate than for a controlling slate of directors.[469]

      348

      In the end, however, the most telling aspect of the expert testimony was the statement that Air Products could certainly achieve 67% of the vote if its offer was "sufficiently appealing."[470] Harkins explained that he was "not predicting that a $70 offer will result in a 67 percent vote to remove the board."[471] He was simply predicting that, with an appealing enough offer or platform, a 67% vote is possible, but he was not providing his opinion (nor did he have one) on how appealing $70 is, or whether it would make victory at a special election attainable.[472] The following final, tautological insight by the expert just about sums up the usefulness of this particular day in the life of a trial judge:

      349
      Q. [So w]hat is a sufficiently appealing offer?
      350
      A. An offer that will garner 67 percent of the vote, I suppose.[473]
      351

      But what seems clear to me, quite honestly, is that a poison pill is assuredly preclusive in the everyday common sense meaning of the word; indeed, its rasion d'etre is preclusion—to stop a bid (or this bid) from progressing. That is what it is intended to do and that is what the Airgas pill has done successfully for over sixteen months. Whether it is realistic to believe that Air Products can, at some point in the future, achieve a 67% vote necessary to remove the entire Airgas board at a special meeting is (in my opinion) impossible to predict given the host of variables in this setting, but the sheer lack of historical examples where an insurgent has ever achieved such a percentage in a contested control election must mean something. Commentators who have studied actual hostile takeovers for Delaware companies have, at least in part, essentially corroborated this common sense notion that such a victory is not realistically attainable.[474] Nonetheless, while the special meeting may not be a realistically attainable mechanism for circumventing the Airgas defenses, that assessment does not end the analysis under existing precedent.

      352
      b. Run Another Proxy Contest
      353

      Even if Air Products is unable to achieve the 67% supermajority vote of the outstanding shares necessary to remove the board in a special meeting, it would only need a simple majority of the voting stockholders to obtain control of the board at next year's annual meeting. Air Products has stated its unwillingness to wait around for another eight months until Airgas's 2011 annual meeting.[475] There are [121] legitimately articulated reasons for this— Air Products' stockholders, after all, have been carrying the burden of a depressed stock price since the announcement of the offer.[476] But that is a business determination by the Air Products board. The reality is that obtaining a simple majority of the voting stock is significantly less burdensome than obtaining a supermajority vote of the outstanding shares, and considering the current composition of Airgas's stockholders (and the fact that, as a result of that shareholder composition, a majority of the voting shares today would likely tender into Air Products' $70 offer[477]), if Air Products and those stockholders choose to stick around, an Air Products victory at the next annual meeting is very realistically attainable.

      354

      Air Products certainly realized this. It had actually intended to run an insurgent slate at Airgas's 2011 annual meeting— when everyone thought that meeting was going to be held in January. The Supreme Court has now held, however, that each annual meeting must take place "approximately" one year after the last annual meeting.[478] If Air Products is unwilling to wait another eight months to run another slate of nominees, that is a business decision of the Air Products board, but as the Supreme Court has held, waiting until the next annual meeting "delay[s]—but [does] not prevent—[Air Products] from obtaining control of the board."[479] I thus am constrained to conclude that Airgas's defensive [122] measures are not preclusive.[480]

      355
      2. Range of Reasonableness
      356

      "If a defensive measure is neither coercive nor preclusive, the Unocal proportionality test requires the focus of enhanced judicial scrutiny to shift to the range of reasonableness."[481] The reasonableness of a board's response is evaluated in the context of the specific threat identified—the "specific nature of the threat [] `sets the parameters for the range of permissible defensive tactics' at any given time."[482]

      357

      Here, the record demonstrates that Airgas's board, composed of a majority of outside, independent directors, acting in good faith and with numerous outside advisors[483] concluded that Air Products' offer clearly undervalues Airgas in a sale transaction. The board believes in good faith that the offer price is inadequate by no small margin. Thus, the board is responding to a legitimately articulated threat.

      358

      This conclusion is bolstered by the fact that the three Air Products Nominees on the Airgas board have now wholeheartedly joined in the board's determination—what is more, they believe it is their fiduciary duty to keep Airgas's defenses in place. And Air Products' own directors have testified that (1) they have no reason to believe that the Airgas directors have breached their fiduciary duties,[484] (2) even though plenty of information has been made available to the stockholders, they "agree that Airgas management is in the best position to understand the intrinsic value of the company,"[485] and (3) if the shoe were on the other foot, they would act in the same way as Airgas's directors have.[486]

      359

      [123] In addition, Air Products made a tactical decision to proceed with its offer for Airgas in the manner in which it did. First, Air Products made a choice to launch a proxy contest in connection with its tender offer. It could have—at that point, in February 2010—attempted to call a special meeting to remove the entire board. The 67% vote requirement was a high hurdle that presented uncertainty, so it chose to proceed by launching a proxy contest in connection with its tender offer.

      360

      Second, Air Products chose to replace a minority of the Airgas board with three independent directors who promised to take a "fresh look." Air Products ran its nominees expressly premised on that independent slate. It could have put up three nominees premised on the slogan of "shareholder choice." It could have run a slate of nominees who would promise to remove the pill if elected.[487] It could have gotten three directors elected who were resolved to fight back against the rest of the Airgas board.

      361

      Certainly what occurred here is not what Air Products expected to happen. Air Products ran its slate on the promise that its nominees would "consider without any bias [the Air Products] Offer," and that they would "be willing to be outspoken in the boardroom about their views on these issues."[488] Air Products got what it wanted. Its three nominees got elected to the Airgas board and then questioned the directors about their assumptions. (They got answers.) They looked at the numbers themselves. (They were impressed.) They requested outside legal counsel. (They got it.) They requested a third outside financial advisor. (They got it.) And in the end, they joined in the board's view that Air Products' offer was inadequate. John Clancey, one of the Air Products Nominees, grabbed the flag and championed Airgas's defensive measures, telling the rest of the board, "We have to protect the pill."[489] David DeNunzio, Airgas's new independent financial advisor from Credit Suisse who was brought in to take a "fresh look" at the numbers, concluded in his professional opinion that the fair value of Airgas is in the "mid to high seventies, and well into the mid eighties."[490] In Robert Lumpkins' opinion (one of the Air Products Nominees), "the company on its own, its own business will be worth $78 or more in the not very distant future because of its own earnings and cash flow prospects ... as a standalone company."[491]

      362

      [124] The Supreme Court has clearly held that "the `inadequate value' of an all cash for all shares offer is a `legally cognizable threat.'"[492] Moreover, "[t]he fiduciary duty to manage a corporate enterprise includes the selection of a time frame for achievement of corporate goals. That duty may not be delegated to the stockholders."[493] The Court continued, "Directors are not obligated to abandon a deliberately conceived corporate plan for a short-term shareholder profit unless there is clearly no basis to sustain the corporate strategy."[494] Based on all of the foregoing factual findings, I cannot conclude that there is "clearly no basis" for the Airgas board's belief in the sustainability of its long-term plan.

      363

      On the contrary, the maintenance of the board's defensive measures must fall within a range of reasonableness here. The board is not "cramming down" a management-sponsored alternative—or any company-changing alternative.[495] Instead, the board is simply maintaining the status quo, running the company for the long-term, and consistently showing improved financial results each passing quarter.[496] The board's actions do not forever preclude Air Products, or any bidder, from acquiring Airgas or from getting around Airgas's defensive measures if the price is right. In the meantime, the board is preventing a change of control from occurring at an inadequate price. This course of action has been clearly recognized under Delaware law: "directors, when acting deliberately, in an informed way, and in the good faith pursuit of corporate interests, may follow a course designed to achieve long-term [125] value even at the cost of immediate value maximization."[497]

      364

      Shareholder plaintiffs argue in their Post-Supplemental Hearing brief that Delaware law adequately protects any non-tendering shareholders in the event a majority of Airgas shareholders did tender into Air Products' offer because, as a result of McCausland and the Airgas board and management's ownership positions in Airgas, there is no way that Air Products would be able to effect a short-form merger under DGCL § 253 at the inadequate $70 price.[498] They argue that when Air Products would then seek to effect a long-form merger on the back end—as it has stated is its intention—any deal would be subject to entire fairness and claims for appraisal rights.

      365

      But this protection may not be adequate for several reasons. First, despite Air Products' stated intention to consummate a merger "as soon as practicable" by acquiring any non-tendered shares "as quick as the law would allow,"[499] there are no guarantees; there is a risk that no back end deal will take place. Second, and more importantly, on the back end, control will have already been conveyed to Air Products.[500] The enormous value of synergies will not be factored into any appraisal.[501] Additionally, much of the projected [126] value in Airgas's five year plan is based on the expected returns from substantial investments that Airgas has already made— e.g., substantial capital investments, the SAP implementation. There is no guarantee (in fact it is unlikely) a fair value appraisal today would account for that projected value—value which Airgas's newest outside financial advisor describes as "orders of magnitude greater than what's been assumed and which would give substantially higher values."[502]

      366
      C. Pills, Policy and Professors (and Hypotheticals)
      367

      When the Supreme Court first upheld the use of a rights plan in Moran, it emphasized that "[t]he Board does not now have unfettered discretion in refusing to redeem the Rights."[503] And in the most recent "pill case" decided just this past year, the Supreme Court reiterated its view that, "[a]s we held in Moran, the adoption of a Rights Plan is not absolute."[504] The poison pill's limits, however, still remain to be seen.

      368

      The merits of poison pills, the application of the standards of review that should apply to their adoption and continued maintenance, the limitations (if any) that should be imposed on their use, and the "anti-takeover effect" of the combination of classified boards plus poison pills have all been exhaustively written about in legal academia.[505] Two of the largest contributors [127] to the literature are Lucian Bebchuk (who famously takes the "shareholder choice" position that pills should be limited and that classified boards reduce firm value) on one side of the ring, and Marty Lipton (the founder of the poison pill, who continues to zealously defend its use) on the other.[506]

      369

      The contours of the debate have morphed slightly over the years, but the fundamental questions have remained. Can a board "just say no"? If so, when? How should the enhanced judicial standard of review be applied? What are the pill's limits? And the ultimate question: Can a board "just say never"? In a 2002 article entitled Pills, Polls, and Professors Redux, Lipton wrote the following:

      370
      As the pill approaches its twentieth birthday, it is under attack from [various] groups of professors, each advocating a different form of shareholder poll, but each intended to eviscerate the protections afforded by the pill. ... Upon reflection, I think it fair to conclude that the [] schools of academic opponents of the pill are not really opposed to the idea that the staggered board of the target of a hostile takeover bid may use the pill to "just say no." Rather, their fundamental disagreement is with the theoretical possibility that the pill may enable a staggered board to "just say never." However, as ... almost every [situation] in which a takeover bid was combined with a proxy fight show, the incidence of a target's actually saying "never" is so rare as not to be a real-world problem. While [the various] professors' attempts to undermine the protections of the pill is argued with force and considerable logic, none of their arguments comes close to overcoming the cardinal rule of public policy—particularly applicable to corporate law and corporate finance—"If it ain't broke, don't fix it."[507]
      371

      Well, in this case, the Airgas board has continued to say "no" even after one proxy fight. So what Lipton has called the "largely theoretical possibility of continued resistance after loss of a proxy fight" is now a real-world situation.[508] Vice Chancellor Strine recently posed Professor Bebchuk et al.'s Effective Staggered Board ("ESB")[509] hypothetical in Yucaipa:

      372
      [128] [T]here is a plausible argument that a rights plan could be considered preclusive, based on an examination of real world market considerations, when a bidder who makes an all shares, structurally non-coercive offer has: (1) won a proxy contest for a third of the seats of a classified board; (2) is not able to proceed with its tender offer for another year because the incumbent board majority will not redeem the rights as to the offer; and (3) is required to take all the various economic risks that would come with maintaining the bid for another year.[510]
      373

      At that point, it is argued, it may be appropriate for a Court to order redemption of a poison pill. That hypothetical, however, is not exactly the case here for two main reasons. First, Air Products did not run a proxy slate running on a "let the shareholders decide" platform. Instead, they ran a slate committed to taking and independent look and deciding for themselves afresh whether to accept the bid. The Air Products Nominees apparently "changed teams" once elected to the Airgas board (I use that phrase loosely, recognizing that they joined the Airgas board on an "independent" slate with no particular mandate other than to see if a deal could be done). Once elected, they got inside and saw for themselves why the Airgas board and its advisors have so passionately and consistently argued that Air Products' offer is too low (the SAP implementation, the as-yet-unrealized benefits from recent significant capital expenditures, the timing in which Airgas historically has emerged from recessions, the intrinsic value of this company, etc.). The incumbents now share in the rest of the board's view that Air Products' offer is inadequate—this is not a case where the insurgents want to redeem the pill but they are unable to convince the majority. This situation is different from the one posited by Vice Chancellor Strine and the three professors in their article, and I need not and do not address that scenario.

      374

      Second, Airgas does not have a true "ESB" as articulated by the professors. As discussed earlier, Airgas's charter allows for 33% of the stockholders to call a special meeting and remove the board by a 67% vote of the outstanding shares.[511] Thus, according to the professors, no court intervention would be necessary in this case.[512] This factual distinction also further differentiates this case from the Yucaipa hypothetical.

      375
      CONCLUSION
      376

      Vice Chancellor Strine recently suggested that:

      377
      The passage of time has dulled many to the incredibly powerful and novel device that a so-called poison pill is. That device has no other purpose than to give the board issuing the rights the leverage to prevent transactions it does not favor by diluting the buying proponent's interests.[513]
      378

      [129] There is no question that poison pills act as potent anti-takeover drugs with the potential to be abused. Counsel for plaintiffs (both Air Products and Shareholder Plaintiffs) make compelling policy arguments in favor of redeeming the pill in this case—to do otherwise, they say, would essentially make all companies with staggered boards and poison pills "takeover proof."[514] The argument is an excellent sound bite, but it is ultimately not the holding of this fact-specific case, although it does bring us one step closer to that result.

      379

      As this case demonstrates, in order to have any effectiveness, pills do not—and can not—have a set expiration date. To be clear, though, this case does not endorse "just say never." What it does endorse is Delaware's long-understood respect for reasonably exercised managerial discretion, so long as boards are found to be acting in good faith and in accordance with their fiduciary duties (after rigorous judicial fact-finding and enhanced scrutiny of their defensive actions). The Airgas board serves as a quintessential example.

      380

      Directors of a corporation still owe fiduciary duties to all stockholders—this undoubtedly includes short-term as well as long-term holders. At the same time, a board cannot be forced into Revlon mode any time a hostile bidder makes a tender offer that is at a premium to market value. The mechanisms in place to get around the poison pill—even a poison pill in combination with a staggered board, which no doubt makes the process prohibitively more difficult—have been in place since 1985, when the Delaware Supreme Court first decided to uphold the pill as a legal defense to an unwanted bid. That is the current state of Delaware law until the Supreme Court changes it.

      381

      For the foregoing reasons, Air Products' and the Shareholder Plaintiffs' requests for relief are denied, and all claims asserted against defendants are dismissed with prejudice. The parties shall bear their own costs.

      382

      An Order has been entered that implements the conclusions reached in this Opinion.

      383

      [1] TW Servs., Inc. v. SWT Acquisition Corp., 1989 WL 20290, at *8 (Del.Ch. Mar. 2, 1989).

      384

      [2] 490 A.2d 1059 (Del.Ch.1985).

      385

      [3] See, e.g., Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 351 n. 229 (Del.Ch. 2010); eBay Domestic Holdings, Inc. v. Newmark, 2010 WL 3516473 (Del.Ch. Sept. 9, 2010); Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586 (Del.2010).

      386

      [4] Defendants have also asked the Court to order Air Products to pay the witness fees and expenses incurred by defendants in connection with the expert report and testimony of David E. Gordon in defense against Count I of Air Products' Amended Complaint, alleging breach of fiduciary duties in connection with Peter McCausland's January 5, 2010 exercise of Airgas stock options. That request is denied. The parties shall bear all of their own fees and expenses.

      387

      [5] See Section I.F. (The $60 Tender Offer) for details about the terms of the offer.

      388

      [6] JX 659 (Airgas Schedule 14D-9 (Dec. 22, 2010)) at Ex. (a)(111).

      389

      [7] Dec. 23, 2010 Letter Order.

      390

      [8] See JX 304; JX 433; JX 645; JX 1086.

      391

      [9] Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1154 (Del. 1990); see City Capital Assocs. Ltd. P'ship v. Interco, Inc., 551 A.2d 787 (Del.Ch. 1988); Grand Metro. Pub. Ltd. Co. v. Pillsbury Co., 558 A.2d 1049 (Del. Ch.1988).

      392

      [10] See Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1384 (Del. 1995) ("This Court has held that the `inadequate value' of an all cash for all shares offer is a `legally cognizable threat.'") (quoting Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1153 (Del. 1990)).

      393

      [11] Paramount, 571 A.2d at 1154.

      394

      [12] Id.

      395

      [13] SEH Tr. 420 (Clancey).

      396

      [14] SEH Tr. 104 (Davis).

      397

      [15] Id.

      398

      [16] References to the October trial transcript are cited as "Trial Tr. [####]." References to the January supplemental evidentiary hearing transcript are cited as "SEH Tr. [###]." For both the trial transcript and the supplementary evidentiary hearing transcript cites, the name of the particular witness speaking is indicated in parentheses. Citations to trial exhibits from both the October trial and the January hearing are referred to as "JX [###]."

      399

      [17] In addition to the listed players, the parties each presented expert witnesses who testified about the valuation of Airgas—from defendants' side, to show that management's assumptions in reaching its valuation conclusions about the company were reasonable; from plaintiffs' side, to rebut those assumptions and numbers. The experts were: Robert Reilly (Shareholder Plaintiffs' valuation expert) (see JX 642 (Expert Report of Robert Reilly (Aug. 20, 2010))); Professor Daniel Fischel (Air Products' valuation expert) (see JX 639 (Expert Report of Daniel Fischel (Aug. 20, 2010))); 639A (updated exhibits); and Professor Glenn Hubbard (Airgas's valuation expert) (see JX 640 (Expert Report of Glenn Hubbard (Sept. 3, 2010))). All three experts were credible witnesses on the limited topics that they were asked to opine on, who ultimately reached different conclusions. Reilly testified that the McCausland Analysis and inadequacy opinions from the financial advisors were not sufficient to provide a basis for Airgas to find Air Products' offers "grossly inadequate" and not worthy of discussion. Fischel and Hubbard both testified as to the macroeconomic assumptions underlying Airgas's five-year plan. Finding Airgas's assumptions overly optimistic, Fischel opined that the inadequacy opinions of Airgas's financial advisors are not supported by the economic evidence. Hubbard, on the other hand, testified that Airgas's macroeconomic assumptions were reasonable, and convincingly and persuasively explained why. Ultimately, I found Professor Hubbard to be the most persuasive expert witness on valuation, but this decision does not turn so much on who won the battle of the experts as it does on the special circumstances surrounding the conduct of the Air Products Nominees to the Airgas board.

      400

      [18] Two additional experts played minor roles at the October trial. Defendants presented "proxy expert" Peter Harkins (see JX 638 (Expert Report of Peter Harkins (Aug. 20, 2010))); JX 638A (Supplemental Expert Report of Peter Harkins (Sept. 26, 2010)). Harkins also testified at the January hearing, and his testimony is discussed in greater detail later in this Opinion. Finally, defendants also presented "tax expert" David Gordon, to provide his expert opinion on a discrete issue relating to McCausland's exercise of stock options, but his testimony has no bearing on the core issue before me. See infra note 97.

      401

      [19] Joint Pre-Trial Stip. ¶ 1; JX 86 (Air Products Form 10-K (Nov. 25, 2009)).

      402

      [20] JX 86 at 3.

      403

      [21] JX 583 (A Brief History of Air Products).

      404

      [22] JX 583 at 1; JX 86 at 7, 9; see also Trial Tr. 9-10 (Huck).

      405

      [23] Joint Pre-Trial Stip. ¶ 12.

      406

      [24] JX 334 (Airgas Form 10-K (May 27, 2010)) at 4.

      407

      [25] See Trial Tr. 642-45 (McCausland).

      408

      [26] See Trial Tr. 862-65 (Molinini).

      409

      [27] Id.

      410

      [28] Trial Tr. 864 (Molinini) ("[Thirty-five] percent of our business, which we call hardgoods, [includes] all the products that are not gases but that customers use when they consume the gases that they need to regulate pressure, they need to conduct flow, they need to protect themselves from the cryogenic temperatures, all of those others products."); JX 248 (Airgas Presentation (Feb. 22, 2010)) at 17.

      411

      [29] See JX 3 (Airgas Amended and Restated Certificate of Incorporation) at Art. V, § 1; JX 296 (Airgas Amended and Restated Bylaws (amended through April 7, 2010)) at Art. III, § 1.

      412

      [30] JX 449 (Airgas Schedule 14A (July 23, 2010)) at 13-14.

      413

      [31] Id.

      414

      [32] The parties stipulated to dismiss Brown and Ill from this action as they lost their seats in the September 15, 2010 annual meeting and thus no longer serve as members of Airgas's board. See Order and Stipulation of Dismissal Without Prejudice (granted Jan. 6, 2011).

      415

      [33] See JX 565A (certified results of inspector of elections).

      416

      [34] JX 565B (Airgas press release (Sept. 23, 2010)); Trial Tr. 505-06 (Thomas).

      417

      [35] Jan. 29, 2010. As of today, Airgas's 52-week low is $59.26.

      418

      [36] Nov. 2, 2010.

      419

      [37] Closing Argument Tr. 169 (Wolinsky). See SEH Tr. 65 (Clancey) ("Q. [At the December 21, 2010 Airgas board meeting,] did you reach any conclusions as to where you think this company's stock will be trading in a year? A. I think the company's stock, when and if this is behind us, will be trading in the 70s."); SEH Tr. 206 (McCausland) (testifying that Airgas stock could easily trade in the range of $72-$76 sometime in the next 12 months, "barring some major upset in the economy or the stock market"). Independent analysts' reports are in line with those numbers as well.

      420

      [38] SEH Tr. 393-94 (DeNunzio).

      421

      [39] JX 11 (Airgas Form 8-K (May 10, 2007) (Shareholder Rights Agreement)).

      422

      [40] See 8 Del. C. § 203.

      423

      [41] JX 3 (Airgas Amended and Restated Certificate of Incorporation) at Art. VI, §§ 1-3.

      424

      [42] Trial Tr. 613-14 (McCausland).

      425

      [43] Trial Tr. 656 (McCausland).

      426

      [44] Trial Tr. 729-30 (McLaughlin).

      427

      [45] Trial Tr. 656 (McCausland). At the January supplemental hearing, McCausland testified that Airgas now has "a good shot of making that 2007 five-year plan despite the fact that the worst recession since the Great Depression landed right in the middle of that period.") SEH 303 (McCausland).

      428

      [46] Trial Tr. 731 (McLaughlin).

      429

      [47] Trial Tr. 746 (McLaughlin); Trial Tr. 788 (McLaughlin). Shareholder Plaintiffs argue that the 2009 plan represented an "optimistic" plan including "aggressive assumptions," while Air Products calls the assumptions in the 2009 plan "highly optimistic" and "unreasonable"—particularly the macroeconomic assumptions and failure to consider the possibility of a double-dip recession. While the parties may call the assumptions different names (i.e., "strong," "mild," "aggressive," "slow"), everyone agrees that reasonable minds can differ as to what may lie ahead, and no one disputes that the company's ability to meet its projections depends in large part on growth in the U.S. economy as a whole. What is clear, however, is that no one at Airgas tweaked the plan at the direction of McCausland or changed any of their numbers in light of Air Products' offer. Trial Tr. 767 (McLaughlin); Trial Tr. 697 (McCausland). In addition, Airgas relied on its financial advisors at Bank of America Merrill Lynch and Goldman Sachs to review the plan, and the bankers were satisfied with the assumptions in the model. Trial Tr. 960 (Rensky).

      430

      [48] Trial Tr. 672 (McCausland); see JX 64 (Nov. 2009 Five Year Strategic Financial Plan).

      431

      [49] Trial Tr. 110 (McGlade).

      432

      [50] Trial Tr. 47 (Huck).

      433

      [51] Trial Tr. 111-12 (McGlade).

      434

      [52] JX 27 (Air Products Minutes of Meeting of Board of Directors (Sept. 17, 2009)) at 9.

      435

      [53] Trial Tr. 47 (Huck); see also Trial Tr. 10 (Huck) (explaining why Air Products had sold its packaged gas business to Airgas in 2002).

      436

      [54] Trial Tr. 659 (McCausland). The meeting lasted in the range of half an hour to fortyfive minutes. McCausland Dep. 39.

      437

      [55] Trial Tr. 115 (McGlade). In other words, Air Products would acquire all outstanding Airgas shares for $60 per share in an all-stock transaction.

      438

      [56] JX 37 (Typewritten notes of Les Graff re conversation with Peter McCausland).

      439

      [57] Trial Tr. 660-61 (McCausland); JX 37 at 1. Graff's notes also indicate that, according to McCausland, McGlade promised twice during that meeting that Air Products would "never go hostile." See Trial Tr. 663-64 (McCausland) ("I said, `John, you have to assure me that you will never go hostile or this conversation's going to be very short.' And he said, `Peter, we have no intention of going hostile.'"). McGlade claims otherwise. Trial Tr. 119 (McGlade) ("I never made a promise we wouldn't go hostile."); Trial Tr. 140-41 (McGlade) ("I did not promise to not go hostile. I told him at the time that I was here to discuss a collaborative transaction."). In any event, McGlade said that he does not specifically recall what he said and concedes that his response to McCausland might have been "subject to interpretation." Trial Tr. 141 (McGlade). Accordingly, I credit McCausland's testimony on this particular factual point, although I also believe McGlade's testimony that at that point in time he did not intend to go hostile but rather met with McCausland in the hopes of reaching a friendly deal, which turned out to be a fruitless exercise.

      440

      [58] JX 37 at 1.

      441

      [59] Trial Tr. 665 (McCausland).

      442

      [60] Trial Tr. 665-66 (McCausland).

      443

      [61] Id. Before the November retreat, Brown suggested that perhaps the independent directors should meet to discuss the offer outside of McCausland's presence (Brown Dep. 52-53), but ultimately the board agreed that McCausland did not have a conflict of interest, that because of his substantial stockholdings his interests were aligned with the Airgas shareholders, and that an executive session of the board to consider the offer was not necessary. Trial Tr. 501-02 (Thomas). Nevertheless, the independent directors did (later, in April) meet to discuss the offer outside of McCausland's presence, and came to the same conclusion as they did in his presence—that the offer was "grossly inadequate." Trial Tr. 503 (Thomas); Brown Dep. 126-27.

      444

      [62] Trial Tr. 666-67 (McCausland). McCausland then reached out to Dan Neff at Wachtell, Lipton, Rosen & Katz, and Airgas's longtime financial advisors Goldman Sachs (Michael Carr) and Bank of America Merrill Lynch (Filip Rensky).

      445

      [63] JX 73 (Minutes of the Regular Meeting of the Airgas Board (Nov. 5-7, 2009)); Trial Tr. 484 (Thomas); Trial Tr. 586 (McCausland).

      446

      [64] Trial Tr. 484-85 (Thomas); Trial Tr. 672 (McCausland). Although the five-year plan was not "presented" to the board until Day 2 of the retreat—nineteen pages into the minutes of the three-day meeting, and after the board had already unanimously decided to reject Air Products' offer (see JX 73 at 1)—I credit the testimony of Thomas and McCausland that the board had read and was familiar with the five-year plan before the retreat and thus were able to rely on it in considering the $60 offer. See JX 73 at 19; see also Trial Tr. 484 (Thomas); Trial Tr. 586-87 (McCausland); Trial Tr. 672 (McCausland) (testifying that when the board was discussing Air Products' offer at the November retreat, "the board was very familiar with [the five-year] plan. [The directors] come to our strategic retreats ready. And they knew it well.").

      447

      [65] JX 75 ("McCausland Analysis" Handout (Nov. 5, 2009)). The McCausland Analysis applies a sale of control multiple to forward EBITDA (earnings before interest, taxes, depreciation and amortization) forecasts from the 2009 five-year plan, and then various discount rates are applied to the results to generate present value estimates.

      448

      [66] Trial Tr. 492 (Thomas).

      449

      [67] Id.

      450

      [68] JX 73 at 1.

      451

      [69] Trial Tr. 308-09 (Ill) ("[T]here's no sense in sitting down [to discuss] what we conceived to be an inadequate price and establish a floor in regards to any negotiating. And we've consistently said that we would in fact sit down and negotiate, if there was an adequate price put on the table."); see also Thomas Dep. 21; Trial Tr. 503 (Thomas) ("Q. How about the conclusion not to have discussions, open negotiations, with Air Products at $60, $63.50, $65.50? A. We felt we should not have discussions at this point until they are prepared to put a reasonable offer on the table, with the full understanding that they would sit down and negotiate fair value from that.").

      452

      [70] McCausland Dep. 121.

      453

      [71] Trial Tr. 121 (McGlade); JX 84 (Letter from McGlade to McCausland (Nov. 20, 2009)).

      454

      [72] JX 84 at 1-2 ("[W]e welcome the opportunity to identify incremental value above and beyond what we have offered and are prepared to engage with you promptly to better understand the sources of that value and how best to share the value between our respective shareholders. To that end, we and our advisors request a meeting with you and your advisors as soon as possible, both to explore such additional sources of value and to move expeditiously towards consummating a transaction.").

      455

      [73] Id. at 2.

      456

      [74] JX 87 (Draft 11/25 letter from McCausland to McGlade (Nov. 25, 2009)). The letter was never intended to be sent to McGlade and was immediately recognized as a joke by most, although one director was "worried that [McCausland had] said what [he] really thought." JX 91 (email chain between Paula Sneed and Peter McCausland (Nov. 25-26, 2009)).

      457

      [75] JX 89 (Letter from McCausland to McGlade (Nov. 25, 2009)).

      458

      [76] JX 100 (Minutes of the Special Telephonic Meeting of the Airgas Board (Dec. 7, 2009)).

      459

      [77] Id.; see JX 102 (Proposed Talking Points (Dec. 7, 2009)); JX 104 (Discussion Materials (Dec. 7, 2009)).

      460

      [78] JX 100 at 1.

      461

      [79] Id. at 2.

      462

      [80] Id.

      463

      [81] JX 106 (Letter from McCausland to McGlade (Dec. 8, 2009)) at 2. McCausland also wrote that Airgas had "no interest in pursuing Air Products' unsolicited proposal" because the board unanimously believed that Air Products was "grossly undervaluing Airgas and offering a currency that is not attractive." Id. at 1.

      464

      [82] JX 111 (Letter from McGlade to McCausland (Dec. 17, 2009)) at 1; Trial Tr. 124 (McGlade).

      465

      [83] JX 111 at 1.

      466

      [84] Id.

      467

      [85] JX 111 at 5.

      468

      [86] JX 116 (Minutes of Special Telephonic Meeting of the Airgas Board (Dec. 21, 2009)).

      469

      [87] Id.; Trial Tr. 597 (McCausland).

      470

      [88] JX 116.

      471

      [89] JX 120 (Graff handwritten notes from Airgas Board of Directors Meeting (Dec. 21, 2009)).

      472

      [90] See JX 116 (Minutes of Special Telephonic Meeting of the Airgas Board (Dec. 21, 2009)).

      473

      [91] JX 137 (Minutes of the Continued Special Telephonic Meeting of the Airgas Board (Jan. 4, 2010)).

      474

      [92] Id.; Trial Tr. 598-99 (McCausland).

      475

      [93] Id.; JX 136 (Graff notes re Presentation to Airgas Board of Directors (Jan. 4, 2010)) at 1-2.

      476

      [94] JX 137 at 2.

      477

      [95] JX 141 (Letter from McCausland to McGlade (Jan. 4, 2010)); see also Trial Tr. 126 (McGlade).

      478

      [96] Id.

      479

      [97] On February 11, 2010, Air Products amended its complaint to add an allegation that McCausland improperly exercised these options while in possession of nonpublic information, and that the rest of the Airgas board breached its fiduciary duties by failing to stop him from exercising the options. Verified Amended Compl. ¶¶ 43-44, 61-62. Although this issue was addressed in the October trial and in post-trial briefing, those allegations were not set forth in a separate claim in Air Products' complaint, and Air Products has not sought relief specifically focused on those allegations. Defendants have argued that the allegation is "frivolous" under Court of Chancery Rule 11 and requested an order that Air Products pay the fees of Airgas's expert witness Gordon. Rather than take additional space later in this Opinion, I will dispose of this issue right here. Defendants' request is denied. First, defendants have not satisfied the procedural requirements of Rule 11(c)(1)(A). Second Air Products had a good faith basis for its allegation—McCausland did, in fact, exercise his stock options at a time when he knew Air Products had made an offer for Airgas, and he did receive a tax benefit based on the timing of his exercise. It is also true that Airgas may have received a larger tax deduction had he waited to exercise them on schedule. Trial Tr. 568-69 (McCausland). As it turns out, his exercise was entirely legal, permissible under Airgas's policy, and consistent with custom and practice of other companies. Trial Tr. 936-37 (Gordon). In short, Air Products made a good faith allegation and Airgas defended against it. There is nothing "frivolous" about Air Products' conduct that would rise to the level of sanctions under Rule 11. See Katzman v. Comprehensive Care Corp., C.A. No. 5982-VCL (Dec. 28, 2010) (Transcript) at 13, 16 ("I'm going to give you all some general principles [with respect to motions for sanctions]. I think lawyers should think twice, three times, four times, perhaps more before seeking Rule 11 sanctions or moving for fees under the bad faith exception . . . These types of motions are inflammatory. They involve allegations of intentional misconduct by counsel and, as a result, what they usually result in almost inevitably is an escalation of hostilities . . . So what's the bottom line here? . . . For most types of conduct that really merits Rule 11 or fee-shifting, you shouldn't need to point it out. It should be obvious from the briefing that someone's out of line. [Y]ou don't need to make the Rule 11 or bad faith motion.").

      480

      [98] JX 249 (Airgas Schedule 14D-9 (Feb. 22, 2010)) at 10; see also Trial Tr. 540 (McCausland) (expressing view that Airgas board at that time was not looking to sell the company); JX 215 (Letter from McCausland to McGlade (Feb. 9, 2010)) at 2 ("We agree that the `timing is excellent'—for Air Products—but it is a terrible time for Airgas stockholders to sell their company.").

      481

      [99] JX 150 (Letter from McGlade to Air Products' board (Jan. 20, 2010)) at 1. Defendants emphasize that Air Products timed its offer to "take advantage of the situation" before Airgas's stock recovered from the recession, also pointing to Huck's testimony that Air Products was "attempting to acquire Airgas for the lowest possible price." Trial Tr. 46 (Huck); see also SEH Tr. 76-77 (Davis) (testifying that he "believed that the price of Airgas stock was suppressed at the time that Air Products made its initial offer"). But this is exactly the type of thinking expected in a highly strategic acquisition attempt—of course Air Products wanted to acquire Airgas when its stock price was depressed and for the lowest possible price it had to pay. Air Products' directors were doing their job to get the best deal for their shareholders. At the same time, the Airgas board was acting well within its fiduciary duties to the Airgas stockholders, defending against Air Products' advances while making its views about the inadequacy of the offers known to the Airgas stockholders. Indeed, McCausland testified that Airgas itself has made "opportunistic" purchases and he believes there is nothing wrong with such an acquisition strategy. Trial Tr. 541-42 (McCausland); JX 14A (Seeking Alpha Interview with Airgas CEO Peter McCausland) at 2.

      482

      [100] JX 177 (Letter from McGlade to McCausland (Feb. 4, 2010)) at 1.

      483

      [101] Id. at 2.

      484

      [102] JX 204 (Minutes of the Regular Meeting of the Airgas Board (Feb. 8-9, 2010)). The meeting lasted almost five hours on February 8, and an additional three hours on February 9. See id. at 1, 5, 12.

      485

      [103] Id. at 2.

      486

      [104] JX 204 at 2-3.

      487

      [105] Id. at 4, 11.

      488

      [106] Id. at 11.

      489

      [107] JX 215 (Letter from McCausland to McGlade (Feb. 9, 2010)) ("[I]t is the unanimous view of the Airgas Board of Directors that your unsolicited proposal very significantly undervalues Airgas and its future prospects. Accordingly, the Airgas Board unanimously rejects Air Products' $60 per share proposal.").

      490

      [108] JX 222 (Airgas Schedule TO: Offer to Purchase by Air Products & Chemicals, Inc. (Feb. 11, 2010)).

      491

      [109] Specifically, the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act as applicable to the tender offer must have expired or been terminated. Id. at 1. The regulatory hurdles have now been cleared. The FTC approved the potential acquisition, subject to certain divestitures. See Press Release, FTC Approves Final Order Settling Charges that Air Products' Potential Acquisition of Rival Airgas Would be Anticompetitive (Oct. 22, 2010), available at http://www.ftc.gov/opa/2010/10/airproducts.shtm; see also In the Matter of Air Products and Chemicals, Inc., Docket No. C-4299, Analysis of Proposed Agreement Containing Consent Orders to Aid Public Comment (Sept. 9, 2010), available at www.ftc.gov/os/caselist/1010093/100909airproductsanal.pdf; Decision and Order [Redacted Public Version], at 11 (Sept. 9, 2010), available at http://www.ftc.gov/os/caselist/1010093/100909airproductsdo.pdf; Decision and Order [Redacted Public Version], at 11 (Oct. 22, 2010), available at http://www.ftc.gov/os/caselist/1010093/101022airproductsdo.pdf. See also SEH Tr. 305 (McCausland) ("Air Products has gotten FTC approval."). In addition, Air Products has identified buyers for those assets subject to divestiture. Trial Tr. 45 (Huck).

      492

      [110] JX 222 (Airgas Schedule TO: Offer to Purchase by Air Products & Chemicals, Inc. (Feb. 11, 2010)) at 1-2.

      493

      [111] Id. at 10-11.

      494

      [112] Id.

      495

      [113] Id. at 11; see also JX 186 (Air Products Offers to Acquire Airgas for $60 Per Share in Cash Conference Call Transcript (Feb. 5, 2010)) at 6.

      496

      [114] JX 245 (Minutes of the Special Telephonic Meeting of the Airgas Board (Feb. 20, 2010)).

      497

      [115] See JX 247 (Bankers' Presentation to Airgas Board at Feb. 20, 2010 Meeting).

      498

      [116] JX 245 at 3; see also Trial Tr. 601-02 (McCausland). At trial, one of Airgas's bankers explained the meaning of the financial advisors' "inadequacy opinion": "In this case, generally, inadequacy would mean that the offer does not fairly compensate the shareholders for the intrinsic value of the company. And in this case, [specifically,] we also relied on an understanding that this bidder, as well as potentially other bidders, could pay more for the company than that price." Trial Tr. 963-64 (Rensky).

      499

      [117] JX 249 (Airgas Schedule 14D-9 (Feb. 22, 2010)) at 18.

      500

      [118] Id. at 20.

      501

      [119] Id. at 20-21.

      502

      [120] Id. at 21. As Air Products has obtained the necessary regulatory approvals, these concerns are no longer "significant."

      503

      [121] Id. at Exhibit (a)(6). The presentation detailed (among other things) Airgas's growth strategy and explained why Airgas is "well-positioned for the U.S. economic recovery." Id. at slide 37.

      504

      [122] See JX 314 (Airgas Schedule 14-A: Notice of Intent by Air Products to Nominate Individuals for Election as Directors and Propose Stockholder Business at the 2010 Annual Meeting of Airgas Stockholders (May 13, 2010)); see also JX 454 (Airgas Schedule 14A: Air Products' Definitive Proxy Statement for 2010 Annual Meeting of Airgas Stockholders (July 29, 2010)).

      505

      [123] Mr. Clancey (age 65) has more than twenty-two years of experience as both CEO and Chairman of complex international businesses, and sixteen years of experience serving on the boards of large public companies across a range of industries. He is currently Chairman Emeritus of Maersk Inc. and Maersk Line Limited, a division of the A.P. Moller—Maersk Group, one of the world's largest shipping companies. Mr. Clancey previously served as the Chairman of Maersk Inc., where he managed the company's ocean transportation, truck and rail, logistics and warehousing and distribution businesses, and as Chief Executive Officer and President of Sea-Land Service, Inc. Mr. Clancey is currently a Principal and founder of Hospitality Logistics, International, a furniture, fixtures and equipment logistics services provider serving customers in the hotel industry. He has served as a member of the board of directors of UST Inc., Foster Wheeler AG, and AT & T Capital. Mr. Clancey, a former Captain in the United States Marine Corps, received a B.A. in Economics and Political Science from Emporia State College. Id.

      506

      [124] Mr. Lumpkins (age 66) has more than forty years of significant operational, management, financial and governance experience from a variety of positions in major international corporations, covering both developed and emerging countries, and service on public company boards in a wide range of industries. He is currently the Chairman of the board of directors of The Mosaic Company, a producer and marketer of crop and animal nutrition products and services, a position he has held since the creation of the company in October 2004. He previously served as Vice Chairman of Cargill Inc., a commodity trading and processing company, until his retirement in 2006, and as Cargill's Chief Financial Officer from 1989 until 2005. Mr. Lumpkins currently serves as a director of Ecolab, Inc., a cleaning and sanitation products and services provider; a director of Black River Asset Management LLC, a privately-owned fixed income-oriented asset management company; a Senior Advisor to Varde Partners, Inc., an asset management company specializing in alternative investments; and a member of the Advisory Board of Metalmark Capital, a private equity investment firm. He also serves as a Trustee of Howard University. He received an M.B.A. from the Stanford Graduate School of Business and a B.S. in Mathematics from the University of Notre Dame. Id.

      507

      [125] Mr. Miller (age 58) has extensive executive, financial and governance experience as a founder, significant shareholder, executive officer and director of both start-up companies and large public companies. He is the former Chairman and Chief Executive Officer of Crown Castle International Corp., a wireless communications company he founded in 1995 that currently has an equity market capitalization in excess of $10 billion. He currently serves as the President of 4M Investments, LLC, an international private investment company. He is also the founder, Chairman and majority shareholder of M7 Aerospace LP, a privately held aerospace service, manufacturing and technology company; founder, Chairman and majority shareholder of Intercomp Technologies, LLC, a privately held business process outsourcing company; and founder, Chairman and majority shareholder of Visual Intelligence, a privately held imaging technologies company. Mr. Miller previously served as a member of the board of directors of Affiliated Computer Services, Inc., from November 2008 until its acquisition by Xerox Corporation in February 2010. He received a J.D. from Louisiana State University and a B.B.A. from the University of Texas. Id.

      508

      [126] JX 454 (Airgas Schedule 14A: Air Products' Definitive Proxy Statement for 2010 Annual Meeting of Airgas Stockholders (July 29, 2010)) at 3.

      509

      [127] Id. at 3, 41; see also id. at A-1 ("[E]ach of the Air Products Nominees would be considered an independent director of Airgas.").

      510

      [128] Id. at 3, 41.

      511

      [129] Id.

      512

      [130] Id. at 8.

      513

      [131] Id.

      514

      [132] JX 638A (Supplemental Report of Peter C. Harkins (Sept. 26, 2010)) at 4. There is some evidence suggesting that the parties may have even added fuel to the media (bon)fire. In an email from McGlade whose subject line read "RE: Project Flashback Media Coverage," discussing some of the media coverage following Air Products' February 4, 2010 public announcement, McGlade wrote, "In the what it is worth category, our guys (that is our PR firm SARD) believe the Cramer story was planted. Of course our guys did the Faber story. So much for independent journalism!" See JX 192.

      515

      [133] Airgas made well over 75 SEC filings regarding Air Products' offer, including JX 249, JX 269, JX 276, JX 279, JX 282, JX 286, JX 290, JX 299, JX 305, JX 306, JX 317, JX 321, JX 332, JX 339, JX 353, JX 358, JX 363, JX 365, JX 373, JX 387, JX 388, JX 429, JX 435, JX 450, JX 452, JX 458, JX 459, JX 463, JX 468, JX 470, JX 474, JX 478, JX 481, JX 484, JX 486, JX 490, JX 491, JX 496, JX 500, JX 506, JX 512, JX 515, JX 522, JX 523, JX 540, JX 541, JX 545, JX 555 (Airgas's 14D-9 filings and amendments). Airgas also filed a 69-page proxy statement (JX 449), issued several comprehensive investor presentations (including JX 249, JX 480, JX 511, and JX 516), and to date Airgas has issued four earnings releases (JX 304, JX 433, JX 645, and JX 1086) since Air Products went public with its offer. Air Products also has made numerous SEC filings, including JX 275, JX 280, JX 291, JX 293, JX 298, JX 311, JX 315, JX 323, JX 326, JX 337, JX 342, JX 348, JX 349, JX 351, JX 356, JX 359, JX 362, JX 381, JX 389, JX 436, JX 447, JX 455, JX 464, JX 469, JX 475, JX 483, JX 488, JX 492, JX 497, JX 513, JX 525, JX 542, JX 546, JX 556 (Air Products Schedule TO filings and amendments).

      516

      [134] JX 294 (Minutes of the Regular Meeting of the Airgas Board (Apr. 7-8, 2010)) at 4. An executive session of non-management directors was held at the end of this board meeting. Id. In the executive session, the outside directors discussed the "Air Products situation" and unanimously reaffirmed their position that Airgas should not engage in discussions with Air Products at that time. Id. at 5. The next regularly-scheduled Airgas board meeting was held on May 24 and May 25, 2010. See JX 331 (Minutes of the Regular Meeting of the Airgas Board (May 24-25, 2010)). The board again discussed Air Products' tender offer and proxy contest. Id. at 4-5. After hearing reports from McLaughlin and Molinini on Airgas's recent financial performance and upcoming fiscal year plans, id. at 2-4, and based on economic and industry updates from the financial advisors (Rensky and Carr), the board once again was in "unanimous agreement that neither the directors nor management should meet with Air Products in response to its $60 per share cash tender offer." Id. at 5.

      517

      [135] Id.; JX 296 (Airgas Amended and Restated Bylaws (amended through April 7, 2010)) at Art. II.

      518

      [136] As we now know, based on the Delaware Supreme Court's decision in the related bylaw case, the Airgas board's future discretion to fix an annual meeting date is not unfettered; it must pick a date that is "approximately" one year (365 days) after its last annual meeting. See Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182 (Del.2010).

      519

      [137] Trial Tr. 526-27 (Thomas).

      520

      [138] See JX 449 (Airgas Schedule 14A (July 23, 2010)) at 1.

      521

      [139] JX 381 (Airgas Schedule TO: Amendment 18 (July 8, 2010)); Trial Tr. 63 (Huck).

      522

      [140] JX 381.

      523

      [141] JX 392 (Letter from McGlade to Airgas Board of Directors (July 9, 2010)).

      524

      [142] JX 417 (Minutes of the Special Telephonic Meeting of the Airgas Board (July 15, 2010)).

      525

      [143] Id. at 2.

      526

      [144] Id. at 4-6; JX 414 (Goldman Sachs and Bank of America Merrill Lynch presentation to the Airgas board regarding the $63.50 offer).

      527

      [145] JX 425 (Minutes of the Special Telephonic Meeting of the Airgas Board (July 20, 2010)) at 3.

      528

      [146] JX 438 (Letter from McCausland to McGlade (July 21, 2010)).

      529

      [147] JX 429 (Airgas Schedule 14D-9 (July 21, 2010)) at 7. See id. at 9 ("In the Airgas Board's judgment, the [$63.50] Offer, like Air Products' previous offers, is grossly inadequate and an extremely opportunistic attempt to cut off the Airgas stockholders' ability to benefit as the domestic economy continues its recovery."); JX 434 (Airgas Schedule 14A (July 21, 2010)) (same). July 21 was a big day for Airgas public filings—also on this day, Airgas announced its first quarter earnings and raised its earnings guidance for fiscal years 2011-2012. See JX 433 (Airgas Press Release (July 21, 2010)).

      530

      [148] JX 429 at 9-18.

      531

      [149] Id. at Annex D (Bank of America Merrill Lynch), Annex E (Goldman Sachs).

      532

      [150] Airgas's SAP implementation deserves some elaboration. Essentially, the implementation of SAP software is a company-wide process that can take several years to complete. The benefits can be enormous, from managing costs to improving communication. As Thomas explained, "It gives you power to manage your costs, particularly your inventory costs, your purchasing costs. It gives you great leverage as far as pricing is concerned." Trial Tr. 523 (Thomas). Notably, the November 2009 five-year plan included the costs but not the benefits of SAP. Trial Tr. 872 (Molinini). On August 31, Airgas announced anticipated benefits of its new SAP implementation, and released a detailed press release disclosing the perceived future benefits associated with the SAP implementation. JX 499 (Airgas Press Release re: "Airgas Provides Update on Value of Highly Customized SAP Implementation" (Aug. 31, 2010)).

      533

      [151] JX 435 (Airgas Schedule 14D-9: Amendment 22 (Airgas Schedule 14A: Presentation to Airgas Stockholders) (July 21, 2010)). In August, the Airgas board released an updated sixty-two page version of this presentation regarding its "perspective on valuation" and reasons for opposing Air Products' offer, reiterating once again Airgas's "strong future growth prospects [in the] recovering economy." JX 480 (Airgas Presentation: "It's All About Value (Updated)" (August 18, 2010)).

      534

      [152] JX 449 (Airgas Schedule 14A: Definitive Proxy Statement (July 23, 2010)) at 65.

      535

      [153] JX 454 (Airgas Schedule 14A: Air Products' Definitive Proxy Statement for 2010 Annual Meeting of Airgas Stockholders (July 29, 2010)).

      536

      [154] JX 454 (Airgas Schedule 14A: Air Products' Definitive Proxy Statement for 2010 Annual Meeting of Airgas Stockholders (July 29, 2010)) at 6; see also Airgas, Inc. v. Air Prods. & Chems., Inc., 2010 WL 3960599, at *2 (Del. Ch. Oct. 8, 2010).

      537

      [155] See, e.g., JX 459 (Airgas Schedule 14D-9: Airgas Press Release (Aug. 4, 2010)); JX 486 (Airgas Schedule 14D-9: Airgas Press Release (Aug. 23, 2010)); JX 449 (Airgas Schedule 14A: Definitive Proxy Statement (July 23, 2010)) at 65.

      538

      [156] JX 496 (Airgas Schedule 14D-9 (Aug. 30, 2010)). In that same press release, Airgas told its stockholders that "the short time fuse of a January deadline" would "impede the Airgas Board's ability to obtain an appropriate price for our stockholders from Air Products or to explore other strategies." Id. at 2. But the Airgas board has known about Air Products interest since at least October 2009. Even after Air Products went public with its offer in February 2010, the Airgas board has had a year from that point to "explore other strategies."

      539

      [157] JX 525 (Airgas Schedule TO: Amendment 31 (Airgas Schedule 14A: Air Products Increases All-Cash Offer for Airgas to $65.50 per Share; Airgas Schedule 14A: Air Products Offer for Airgas Presentation) (Sept. 8, 2010)); Trial Tr. 63 (Huck).

      540

      [158] JX 517 (Air Products Press Release (Sept. 6, 2010)).

      541

      [159] Id. ("If Airgas shareholders do not elect these three nominees and approve all of our proposals, we will conclude that shareholders do not want a sale of Airgas at this time—and we will therefore terminate our offer and move on to the many other attractive growth opportunities available to Air Products around the world.").

      542

      [160] JX 530A (Minutes of the Special Telephonic Meeting of the Airgas Board (Sept. 7, 2010)).

      543

      [161] Id. at 2.

      544

      [162] Id. at 3.

      545

      [163] JX 539 (Airgas Schedule 14A: Airgas Press Release (Sept. 8, 2010)).

      546

      [164] JX 540 (Airgas Schedule 14D-9: Amendment 44 (Sept. 8, 2010)).

      547

      [165] Trial Tr. 1155 (Carr).

      548

      [166] Trial Tr. 509-10 (Thomas); Trial Tr. 688 (McCausland).

      549

      [167] Trial Tr. 510 (Thomas).

      550

      [168] Trial Tr. 510 (Thomas); Trial Tr. 688-89 (McCausland).

      551

      [169] Trial Tr. 510-11 (Thomas); Trial Tr. 688-89 (McCausland).

      552

      [170] Trial Tr. 689 (McCausland).

      553

      [171] Trial Tr. 986-87 (Rensky); Trial Tr. 1142 (Carr).

      554

      [172] Trial Tr. 1154-55 (Carr).

      555

      [173] Trial Tr. 1144 (Carr); Trial Tr. 993-94 (Rensky).

      556

      [174] Trial Tr. 1148 (Carr).

      557

      [175] Trial Tr. 1151 (Carr); Trial Tr. 1180, 1183 (Woolery).

      558

      [176] Trial Tr. 1152 (Carr).

      559

      [177] See JX 565A (certified results of inspector of elections).

      560

      [178] JX 565B (Airgas Press Release (Sept. 23, 2010)).

      561

      [179] Airgas, Inc. v. Air Prods. & Chems., Inc., 2010 WL 3960599 (Del.Ch. Oct. 8, 2010).

      562

      [180] Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182 (Del.2010). See Section I.Q. (More Post-Trial Factual Developments). For an interesting analysis of the different effects on firm value attributable to the Court of Chancery decision validating the bylaw and the Supreme Court's decision invalidating it, see Lucian Bebchuk, Alma Cohen & Charles Wang, Staggered Boards and the Wealth of Shareholders: Evidence From a Natural Experiment (Nov. 1, 2010), available at http://ssrn.com/abstract=1706806.

      563

      [181] Defs.' Dec. 21, 2010 Supplemental Post-Trial Br. 1.

      564

      [182] Trial Tr. 630 (McCausland).

      565

      [183] Trial Tr. 631 (McCausland).

      566

      [184] Trial Tr. 841 (McLaughlin).

      567

      [185] Trial Tr. 474-75 (Thomas).

      568

      [186] Trial Tr. 271 (Ill).

      569

      [187] Trial Tr. 273 (Ill); see also Trial Tr. 318 (Ill) ("Isn't it true that everything that you believe Airgas['s] shareholders need to know about the Airgas five-year strategic plan has been disclosed to shareholders? A. I believe everything that they need to know to make their decisions, yes.").

      570

      [188] See supra note 150.

      571

      [189] Trial Tr. 889 (Molinini).

      572

      [190] Trial Tr. 67 (Huck); see also Trial Tr. 50 (Huck) ("No, it is not the best price.").

      573

      [191] Trial Tr. 79 (Huck); see also Trial Tr. 46 (Huck) (testifying that Air Products is attempting to acquire Airgas for the lowest possible price).

      574

      [192] See, e.g., Trial Tr. 273 (Ill) (testifying that Airgas's stockholders are a "sophisticated bunch"); Trial Tr. 888 (Molinini) (testifying that Airgas's stockholders are "very savvy"); Trial Tr. 573 (McCausland) (testifying that Airgas's stockholders are "sophisticated" and "capable of making a decision as to whether to accept or reject Air Products' offer").

      575

      [193] See JX 1081 (Second Supplemental Report of Peter C. Harkins (Jan. 5, 2011)).

      576

      [194] See JX 1085 (Expert Report of Joseph J. Morrow (Jan. 20, 2011)).

      577

      [195] JX 645 (Airgas Second Quarter Earnings Release (Oct. 26, 2010)).

      578

      [196] JX 646 (Letter from van Roden to McGlade (Oct. 26, 2010)). That same day, Air Products issued a press release saying that "There is nothing in the Airgas earnings or letter that changes our view of value." JX 647 (Air Products Press Release re Airgas Second Quarter Earnings (Oct. 26, 2010)).

      579

      [197] See JX 646.

      580

      [198] Id. (emphasis added).

      581

      [199] JX 649 (Letter from McGlade to van Roden (Oct. 29, 2010)) at 3.

      582

      [200] The board authorized van Roden to send his November 2 letter during a two-day board meeting that took place from November 1-2, 2010. JX 1010A (Minutes of the Regular Meeting of the Airgas Board (Nov. 1-2, 2010)); SEH Tr. 410-11 (Clancey); see also infra Section I.Q.1 (discussing the November 1-2 Airgas board meeting).

      583

      [201] JX 650 (Letter from van Roden to McGlade (Nov. 2, 2010)).

      584

      [202] Id. (emphasis added). McCausland had previously testified that Airgas would be willing to begin negotiations upon receipt of a $70 offer with a stated intention of paying more. See Trial Tr. 688-89, 694-96 (McCausland). Similarly, Airgas's investment banker testified that "it wouldn't take $78 a share" to get a deal done. Trial Tr. 1159 (Carr); see also Trial Tr. 1188 (Woolery). It later came to light that there was some question as to exactly how unanimous the board really was (particularly regarding the three newly-elected Air Products Nominees on the board) in its conclusion that it would take at least $78 to actually get a deal done, or whether that number was a starting point for negotiations. See infra Section I.Q.2 (discussing December 7 and December 8, 2010 letters between the Air Products Nominees and van Roden). At the time, however, this unanimous view of value was the representation made to Air Products, so it was the view that Air Products had to go on. Moreover, the entire Airgas board now unanimously presses that the value of Airgas in a sale is at least $78. See infra Section I.S. (The Airgas Board Unanimously Rejects the $70 Offer).

      585

      [203] JX 651 (Letter from McGlade to van Roden (Nov. 2, 2010)).

      586

      [204] JX 652 (Airgas Schedule 14D-9: Amendment 58 (Nov. 4, 2010)) at 3; JX 653 (Air Products Schedule TO: Amendment 44 (Nov. 5, 2010)) at 5. In attendance at the meeting were van Roden, McCausland, and Graff from Airgas, and McGlade, Huck, and Presiding Director Davis from Air Products. Id.; see also SEH Tr. 33-34 (Huck).

      587

      [205] SEH Tr. 33-34 (Huck). For example, the two companies had differing views as to how much same-store sales would rise in the future. Id.

      588

      [206] See JX 652 (Airgas Schedule 14D-9: Amendment 58 (Nov. 4, 2010)).

      589

      [207] Id.

      590

      [208] See, e.g., SEH Tr. 35 (Huck) (testifying that at the time of the November 4, 2010 meeting, he believed the Airgas participants had acted in good faith); SEH Tr. 121-22 (McGlade) (testifying that he believed that "representatives from Air Products and Airgas acted in a business-like manner and in good faith during the November 4th meeting"); SEH Tr. 81-86 (Davis) (testifying that he believed all of the parties acted in good faith at the Nov. 4 meeting). The newly-elected Air Products Nominees on Airgas's board similarly expressed the view that the Airgas board had been acting in good faith and had been doing its job all along. See SEH Tr. 412 (Clancey) ("Q: Did you think that the incumbent directors had not been doing their job right? A: No.... I think they were doing a good job and they had two banks to begin with.").

      591

      [209] Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182 (Del.2010).

      592

      [210] Dec. 2, 2010 Letter Order 1-2.

      593

      [211] Id. at 2-3.

      594

      [212] I found Clancey to be a credible witness and thus afford great weight to his testimony. Miller (another one of the Air Products Nominees whose testimony was presented during the supplemental evidentiary hearing), on the other hand, was less confidence-inspiring, and my view of his credibility is weighted accordingly. Robert Lumpkins, the third Air Products Nominee, was not presented as a witness in the supplemental evidentiary hearing, but I have read his deposition transcript in full and find his testimony to be in line with Clancey's.

      595

      [213] SEH Tr. 403 (Clancey).

      596

      [214] SEH Tr. 403-04. The meeting was arranged by Air Products' side, and ISS had also wanted to know about Clancey's background and experience. Id.

      597

      [215] SEH Tr. 404. Clancey concedes that his duty to represent all of the Airgas stockholders includes representing the interests of the Airgas stockholders who happen to be arbitrageurs and those who have shorter-term rather than longer-term investment horizons and who may want to sell their shares. SEH Tr. 421-22. Lumpkins similarly understood his role if elected to the Airgas board. At his deposition, he explained, "I believe [] that as a director of Airgas, my fiduciary duties, including a duty of care and loyalty, run to Airgas, and that in carrying out those duties I was representing all of the shareholders of Airgas."). JX 1095 (Lumpkins Dep. 19 (Jan. 21, 2011)); see also id. at 13-14.

      598

      [216] SEH Tr. 403, 405. Again, Lumpkins was similarly situated. JX 1095 (Lumpkins Dep. 19-22) (testifying that he knew nothing about Airgas when first approached to run as a nominee, did due diligence before accepting the nomination, "did not have a view" as to Air Products' offer, and believed he was "elected as an independent director" who "entered [] with the view of bringing a fresh look to the situation").

      599

      [217] SEH Tr. 406 (Clancey).

      600

      [218] SEH Tr. 406-07 (Clancey).

      601

      [219] SEH Tr. 406-08 (Clancey).

      602

      [220] SEH Tr. 407 (Clancey).

      603

      [221] Id. Lumpkins also "view[s] it as likely that Airgas will achieve or exceed its five-year plan." JX 1095 (Lumpkins Dep. 53)

      604

      [222] SEH Tr. 407-08 (Clancey).

      605

      [223] SEH Tr. 409 (Clancey).

      606

      [224] SEH Tr. 411-12 (Clancey). JX 1010A (Minutes of the Regular Meeting of the Airgas Board (Nov. 1-2, 2010)) at 5.

      607

      [225] JX 1027 (Letter from Clancey, Lumpkins, and Miller to van Roden (Dec. 7, 2010)) at 1.

      608

      [226] Id. at 2.

      609

      [227] JX 650 (Letter from van Roden to McGlade (Nov. 2, 2010)).

      610

      [228] JX 1027 (Letter from Clancey, Lumpkins, and Miller to van Roden (Dec. 7, 2010)) at 3 (footnote omitted).

      611

      [229] JX 1028 (Letter from van Roden to Clancey, Lumpkins, and Miller (Dec. 8, 2010)) at 2.

      612

      [230] Id. at 1, 3.

      613

      [231] SEH Tr. 427 (Clancey).

      614

      [232] SEH Tr. 430 (Clancey).

      615

      [233] JX 1038 (Minutes of the Special Telephonic Meeting of the Independent Members of the Airgas Board (Dec. 10, 2010)) at 2-5.

      616

      [234] See, e.g., SEH Tr. 414 (Clancey) ("I was satisfied [with the selection of Credit Suisse.] They're a good firm. I know of them and I've seen them, you know, in action from afar, and everybody else felt, both the two new directors and the other directors, felt very comfortable with them."); see JX 1038 at 3; JX 1095 (Lumpkins Dep. 172 (Jan. 21, 2011)) ("I felt very good about the process [the board followed in connection with the $70 offer], I felt the addition of the Credit Suisse work was very important and that I was very satisfied with the board's decision.").

      617

      [235] SEH Tr. 53 (Huck).

      618

      [236] SEH Tr. 447 (Clancey).

      619

      [237] JX 1039A (Airgas Schedule 14-D (Dec. 13, 2010)).

      620

      [238] See Section I.S. (The Airgas Board Unanimously Rejects the $70 Offer).

      621

      [239] JX 1033 (Minutes of the Special Meeting of the Air Products Board (Dec. 9, 2010)).

      622

      [240] Dec. 2, 2010 Letter Order 2 n. 1; see also Air Products' Post-Trial Reply Br. 27; Trial Tr. 67 (Huck) ("65.50 is not our best and final offer."); Trial Tr. 155 (McGlade) (testifying that Air Products has been clear that $65.50 is not its best and final offer).

      623

      [241] JX 1033 at 3.

      624

      [242] Id. at 3-4.

      625

      [243] Id. at 4. But for the letter, Air Products would not have raised its offer at that point in time. SEH Tr. 38 (Huck); see also SEH Tr. 89 (Davis).

      626

      [244] JX 657 (Air Products Schedule TO: Amendment 48 (Dec. 9, 2010)).

      627

      [245] Id.; Air Products Press Release (Dec. 9, 2010).

      628

      [246] See, e.g., SEH Tr. 418 (Clancey) ("Best and final is normally a cliché that gets you into the finals so that you can take your price up or take your price down, and it's meant to force a situation."). Indeed, even one of Air Products' directors was not really sure whether the $70 offer was the end of the road. See SEH Tr. 93 (Davis) ("Q. [Y]ou believed that Airgas would make a counteroffer to Air Products' best and final offer; correct? A. Personally? Q. Yes. A. I thought that that would lead to a discussion of value, yes."); SEH Tr. 93-95 (Davis) (testifying that he believed around the time of the December 9 meeting that Air Products might go higher than $70 "to put the deal over the top").

      629

      [247] For example, Air Products has not disclosed its estimate of capital or revenue synergies that would be realized from a deal. See Trial Tr. 49 (Huck).

      630

      [248] January 20, 2011 Letter Order 4; see also In re Circon Corp. S'holders Litig., 1998 WL 34350590, at *1 (Del.Ch. Mar. 11, 1998) ("What is relevant is what the defendants knew and considered at the time they took action in response to [Air Products' tender offer,] not information defendants did not know and did not consider.").

      631

      [249] See, e.g., JX 657 (Air Products Schedule TO: Amendment 48 (Dec. 9, 2010)) ("This is Air Products' best and final offer for Airgas and will not be further increased."); Letter from Counsel for Air Products to Court (Dec. 21, 2010), at 5 ("Air Products has made its best and final offer. If Airgas does not accept that offer, then the process is at an end.").

      632

      [250] SEH Tr. 5 (Huck); SEH Tr. 75 (Davis); SEH Tr. 108 (McGlade).

      633

      [251] SEH Tr. 108 (McGlade); see also SEH Tr. 72 (Huck) ("Seventy dollars is Air Products' best and final offer? A. It is.").

      634

      [252] SEH Tr. 49 (Huck).

      635

      [253] SEH Tr. 72 (Huck).

      636

      [254] SEH Tr. 110 (McGlade).

      637

      [255] SEH Tr. 49 (Huck).

      638

      [256] SEH Tr. 75 (Davis), see also SEH Tr. 76 (Davis) ("Q. As far as you're concerned, $70 is Air Products' best and final offer for Airgas? A. As far as I'm concerned, yes.").

      639

      [257] SEH Tr. 108 (McGlade) ("We were unanimous in the decision.").

      640

      [258] SEH Tr. 67-68 (Huck).

      641

      [259] Defs.' Nov. 8, 2010 Post-Trial Br. 57.

      642

      [260] JX 1063 (Minutes of the Special Meeting of the Airgas Board (Dec. 21, 2010)).

      643

      [261] Id. at 2-3.

      644

      [262] Id. at 4.

      645

      [263] Id. at 4-9.

      646

      [264] Id. at 6.

      647

      [265] Id. at 7.

      648

      [266] Id. at 8.

      649

      [267] Id. at 9. SEH Tr. 349 (DeNunzio) ("[W]e didn't think it was a close call.").

      650

      [268] Id. at 9.

      651

      [269] SEH Tr. 417 (Clancey).

      652

      [270] JX 1063 (Minutes of the Special Meeting of the Airgas Board (Dec. 21, 2010)) at 10.

      653

      [271] SEH Tr. 420 (Clancey).

      654

      [272]Miller: "Q: [I]s it possible that there [is] a price below $78 that you would still be willing to do a deal with Air Products at? A. In my mind, probably not, no." SEH Tr. 162.

      655

      Lumpkins: "I have come to the point where I believe today that the company is worth $78 a share.... My opinion also is that the company on its own, its own business will be worth $78 or more in the not very distant future because of its own earnings and cash flow prospects [a]s a standalone company." JX 1095 (Lumpkins Dep. 165, 169 (Jan. 21, 2011)).

      656

      [273] SEH Tr. 205-06 (McCausland).

      657

      [274] SEH Tr. 217 (McCausland); see also JX 1063 (Minutes of the Special Meeting of the Airgas Board (Dec. 21, 2010)) at 11 ("Mr. Thomas stated that he would certainly be supportive of sitting down and talking to Air Products if it offered $78 per share.").

      658

      [275] JX 659 (Airgas Schedule 14D-9 (Dec. 22, 2010)) at Ex. (a)(111); see id. at 6 ("Airgas's Board of Directors concluded that the [$70 offer] is inadequate, does not reflect the value or prospects of Airgas, and is not in the best interests of Airgas, its shareholders and other constituencies.").

      659

      [276] Id.

      660

      [277] JX 659 at 5-6. Id.

      661

      [278] Id.

      662

      [279] Id. at Annex J (Bank of America Merrill Lynch), Annex K (Credit Suisse), Annex L (Goldman Sachs).

      663

      [280] See supra Section I.O (The October Trial).

      664

      [281] See, e.g., SEH Tr. 189-90 (McCausland); SEH Tr. 395-96 (DeNunzio) (testifying that analysts' projections were "remarkably close" to management's, "[s]o that information's available to the world").

      665

      [282] JX 304, JX 433, JX 645, JX 1086.

      666

      [283] See SEH Tr. 200-01 (McCausland) (testifying that he has met with at least 300 individual arbitrageurs to discuss Air Products' offer).

      667

      [284] SEH Tr. 253 (McCausland).

      668

      [285] JX 1090 (van Roden Dep. 262 (Jan. 12, 2011)).

      669

      [286] SEH Tr. 154-55 (Miller).

      670

      [287] SEH Tr. 396 (DeNunzio).

      671

      [288] SEH Tr. 393-94 (DeNunzio).

      672

      [289] JX 1095 (Lumpkins Dep. 169 (Jan. 21, 2011)).

      673

      [290] SEH Tr. 453 (Clancey).

      674

      [291] Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), see also Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 335 (Del.Ch.2010) ("[I]t is settled law that the standard of review to be employed to address whether a poison pill is being exercised consistently with a board's fiduciary duties is [] Unocal.").

      675

      [292] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361 (Del.1995) (citing Unocal, 493 A.2d at 955).

      676

      [293] Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1152 (Del.1990); see also Unocal, 493 A.2d at 955.

      677

      [294] Unocal, 493 A.2d at 955.

      678

      [295] Chesapeake Corp. v. Shore, 771 A.2d 293, 301 n. 8 (Del.Ch.2000) (internal citation omitted) (emphasis added).

      679

      [296] See eBay Domestic Holdings, 2010 WL 3516473, at *12 (finding that despite defendants' "deliberative" investigative process, defendants nevertheless "fail[ed] the first prong of Unocal both factually and legally").

      680

      [297] See eBay, 2010 WL 3516473, at *20 ("Like other defensive measures, a rights plan cannot be used preclusively or coercively; nor can its use fall outside the `range of reasonableness.'").

      681

      [298] Id.

      682

      [299] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1367 (Del.1995).

      683

      [300] Id.

      684

      [301] Defs.' Post-Supplemental Hearing Br. 4.

      685

      [302] Id. (quoting Unocal, 493 A.2d at 954).

      686

      [303] Id. (quoting Unocal, 493 A.2d at 954).

      687

      [304] Id. at 5.

      688

      [305] Unocal, 493 A.2d at 954 (internal footnote and citation omitted) (emphasis added).

      689

      [306] Id. at 955 (internal citation omitted).

      690

      [307] J. Travis Laster, Exorcising the Omnipresent Specter: The Impact of Substantial Equity Ownership by Outside Directors on Unocal Analysis, 55 Bus. Law. 109, 116 (1999); see also Kahn v. Roberts, 679 A.2d 460, 465 (Del. 1996) ("Where [] the board takes defensive action in response to a threat to the board's control of the corporation's business and policy direction, a heightened standard of judicial review applies because of the temptation for directors to seek to remain at the corporate helm in order to protect their own powers and perquisites. Such self-interested behavior may occur even when the best interests of the shareholders and corporation dictate an alternative course.").

      691

      [308] Defendants further argue that there is less justification for Unocal's approach today than when Unocal was decided because boards are more independent now and stockholders are better able to keep boards in check. Whether or not this is true does not have any bearing on whether Unocal applies, though. Unocal applies to both independent outside directors, as well as insiders, whenever a board is taking defensive measures to thwart a takeover. Independence certainly bears heavily on the first prong of Unocal, but it is not outcome-determinative; the burden of proof is still on the directors to show that their actions are reasonable in relation to a perceived threat (that is, they still must meet Unocal prong 2 before they are back under the business judgment rule).

      692

      [309] Unitrin v. Am. Gen. Corp., 651 A.2d 1361, 1376 (Del. 1995) (quoting Paramount Commc'ns v. Time, Inc., 571 A.2d at 1154 n. 8).

      693

      [310] See Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 599 (Del.2010) ("Delaware courts have approved the adoption of a Shareholder Rights Plan as an antitakeover device, and have applied the Unocal test to analyze a board's response to an actual or potential hostile takeover threat.").

      694

      [311] TW Servs., Inc. v. SWT Acquisition Corp., 1989 WL 20290, at *9 (Del.Ch. Mar. 2, 1989).

      695

      [312] Id. Here, Air Products' tender offer would almost certainly result in a "change of control" transaction, as the offer would likely succeed in achieving greater than 50% support from Airgas's stockholders, which largely consist of merger arbitrageurs and hedge funds who would gladly tender into Air Products' offer. See SEH Tr. 225 (McCausland) (stating his view that a majority of Airgas shares would tender into the $70 offer).

      696

      [313] 1989 WL 20290, at *10.

      697

      [314] See id. at *9-10.

      698

      [315] Id. at *10.

      699

      [316] Id.

      700

      [317] Moran v. Household Int'l, Inc., 500 A.2d 1346 (Del.1985).

      701

      [318] Id. at 1356.

      702

      [319] Id. at 1354 (citing Unocal, 493 A.2d at 954-55, 958).

      703

      [320] Id.

      704

      [321] Id. at 1356-57.

      705

      [322] See id. at 1354.

      706

      [323] Id. at 1353.

      707

      [324] Moran v. Household Int'l, Inc., 490 A.2d 1059, 1064 (Del.Ch.1985).

      708

      [325] Ronald Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, 44 Bus. Law. 247, 258 (1989).

      709

      [326] Id.

      710

      [327] Id. at 267.

      711

      [328] Id.

      712

      [329] Id. at 274.

      713

      [330] City Capital Assocs. Ltd. P'ship v. Interco Inc., 551 A.2d 787 (Del.Ch. 1988).

      714

      [331] Id. at 797-98.

      715

      [332] The Chancellor cited a draft of the Gilson & Kraakman article, used its two other categories, and clearly chose not to deem an all shares, all cash offer coercive in any respect. Id. at 796 n. 8 (citing Ronald Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to the Proportionality Review?, John M. Olin Program in Law & Economics, Stanford Law School (Working Paper No. 45, Aug. 1988); 44 Bus. Law. ___ (forthcoming February, 1989)).

      716

      [333] Id. at 798.

      717

      [334] Id.

      718

      [335] Paramount Commc'ns, Inc. v. Time Inc., 571 A.2d 1140, 1153 (Del. 1990).

      719

      [336] Id. at 1149-50.

      720

      [337] Id. at 1150. In other words, would the board's actions be judged under the Unocal standard or under the Revlon standard of review?

      721

      [338] Id.

      722

      [339] Id. at 1150-51.

      723

      [340] Id. at 1153. The Court also noted other potential threats posed by Paramount's all-cash, all-shares offer, including (1) that the conditions attached to the offer introduced some uncertainty into the deal, and (2) that the timing of the offer was designed to confuse Time stockholders.

      724

      [341] Id. at 1153.

      725

      [342] Id. at 154-55.

      726

      [343] 651 A.2d 1361 (Del.1995).

      727

      [344] Id. at 1384.

      728

      [345] Id. at 1385.

      729

      [346] Id. at 1389.

      730

      [347] Ronald J. Gilson, Unocal Fifteen Years Later (And What We Can Do About It), 26 Del. J. Corp. L. 491, 497 n. 23 (2001).

      731

      [348] See, e.g., Chesapeake v. Shore, 771 A.2d 293, 324-25 (Del.Ch.2000).

      732

      [349] Id. at 328.

      733

      [350] City Capital Assocs. Ltd. P'ship v. Interco Inc., 551 A.2d 787, 790 (Del.Ch. 1988).

      734

      [351] Id.

      735

      [352] Practitioners may question whether judges are well positioned to make a determination that a takeover battle has truly reached its "end stage." But someone must decide, and the specific circumstances here—after more than sixteen months have elapsed and one annual meeting convened, with three price increases and Air Products representatives credibly testifying in this Court and publicly representing that they have reached the end of the line—demonstrates that this particular dispute has reached the end stage.

      736

      [353] SEH Tr. 394 (DeNunzio).

      737

      [354] 1989 WL 20290 (Del.Ch. Mar. 2, 1989).

      738

      [355] Time, 571 A.2d 1140, 1153.

      739

      [356] Id.

      740

      [357] Specifically, the case involved an all-cash, all-shares tender offer whose closing was conditioned upon execution of a merger agreement with the target. The Chancellor thus decided the case under 8 Del. C. § 251. Under the business judgment rule, the board was permitted to decline the offer and was "justified in not further addressing the question whether it should deviate from its long term management mode in order to do a current value maximizing transaction." 1989 WL 20290, at *11.

      741

      [358] The doctrinal evolution in our Revlon jurisprudence is a story for another day. Suffice it to say for now that it has not remained static and I in no way mean to suggest otherwise by this purely historical description.

      742

      [359] Id. at *8.

      743

      [360] Id. at *7.

      744

      [361] Id. (emphasis added). Chancellor Allen continued, "The rationale for recognizing that non-contractual claims of other corporate constituencies are cognizable by boards, or the rationale that recognizes the appropriateness of sacrificing achievable share value today in the hope of greater long term value, is not present when all of the current shareholders will be removed from the field by the contemplated transaction." Id. (emphasis added).

      745

      [362] Id. at *8.

      746

      [363] Id. at *8 n. 14 (emphasis added).

      747

      [364] Grand Metro. Pub. Ltd. Co. v. Pillsbury Co., 558 A.2d 1049 (Del.Ch.1988).

      748

      [365] City Capital Assocs. Ltd. P'ship v. Interco Inc., 551 A.2d 787 (Del.Ch.1988).

      749

      [366] 1989 WL 20290, at *9.

      750

      [367] Id. at *8.

      751

      [368] Id. (emphasis added).

      752

      [369] Chesapeake v. Shore, 771 A.2d 293, 330 (Del.Ch.2000) (citing Unitrin, 651 A.2d at 1375).

      753

      [370] There are a number of reasons for this. For example, the inadequacy of the price was even greater at $65.50. More importantly, Air Products had openly admitted that it was willing to pay more for Airgas. The pill was serving an obvious purpose in providing leverage to the Airgas board. The collective action problem is lessened when the bidder has made its "best and final" offer, provided it is in fact its best and final offer.

      754

      [371] Selectica Inc. v. Versata Enters., Inc., 2010 WL 703062, at *12 (Del.Ch. Feb. 26, 2010).

      755

      [372] See supra Section I.G (The Proxy Contest) (describing independence of the three Air Products Nominees).

      756

      [373] See, e.g., Trial Tr. 501-03 (Thomas); see also supra note 61.

      757

      [374] JX 659 (Airgas Schedule 14D-9 (Dec. 22, 2010)) at Ex. (a)(111); see id. at Annex J (Bank of America Merrill Lynch), Annex K (Credit Suisse), Annex L (Goldman Sachs).

      758

      [375] SEH Tr. 414 (Clancey); SEH Tr. 53 (Huck).

      759

      [376] See, e.g., JX 73 (Minutes of the Regular Meeting of the Airgas Board (Nov. 5-7, 2009)); JX 100 (Minutes of the Special Telephonic Meeting of the Airgas Board (Dec. 7, 2009)); JX 116 (Minutes of Special Telephonic Meeting of the Airgas Board (Dec. 21, 2009)); JX 137 (Minutes of the Continued Special Telephonic Meeting of the Airgas Board (Jan. 4, 2010)); JX 204 (Minutes of the Regular Meeting of the Airgas Board (Feb. 8-9, 2010)); JX 245 (Minutes of the Special Telephonic Meeting of the Airgas Board (Feb. 20, 2010)); JX 294 (Minutes of the Regular Meeting of the Airgas Board (April 7-8, 2010)); JX 331 (Minutes of the Regular Meeting of the Airgas Board (May 24-25, 2010)); JX 417 (Minutes of the Special Telephonic Meeting of the Airgas Board (July 15, 2010)); JX 425 (Minutes of the Special Telephonic Meeting of the Airgas Board (July 20, 2010)); JX 530A (Minutes of the Special Telephonic Meeting of the Airgas Board (Sept. 7, 2010)); JX 1010A (Minutes of the Regular Meeting of the Airgas Board (Nov. 1-2, 2010)); JX 1038 (Minutes of the Special Telephonic Meeting of the Independent Members of the Airgas Board (Dec. 10, 2010)); JX 1063 (Minutes of the Special Meeting of the Airgas Board (Dec. 21, 2010)) (counsel from Wachtell, Lipton, Rosen & Katz present at all of the meetings; advice provided by Dan Neff, Marc Wolinsky, Ted Mirvis, David Katz and others).

      760

      [377] Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 599 (Del.2010).

      761

      [378] See SEH Tr. 188 (McCausland).

      762

      [379] See SEH Tr. 250-52 (McCausland).

      763

      [380] See SEH Tr. 249-50 (McCausland).

      764

      [381] SEH Tr. 438 (Clancey) (testifying that nobody ever actually said anything about stockholders being coerced); SEH Tr. 368 (DeNunzio) (testifying that at the December 21, 2010 Airgas board meeting when the board discussed the $70 offer, there was no discussion about whether Airgas's stockholders would be coerced into tendering); SEH Tr. 158 (Miller) (testifying that he did not discuss the topic of coercion with anyone and did not recall it being discussed at any board meeting); JX 1090 (van Roden Dep. 86 (Jan. 12, 2011)) (testifying that he has never talked about the notion of coercion at a board meeting).

      765

      [382] SEH Tr. 438-39 (Clancey) ("Q. [N]either you nor any of your fellow board members said anything about a so-called prisoner's dilemma. Is that correct? A. That is correct... Q. [And] prior to your deposition, you had never heard the concept of a prisoner's dilemma used in the context of the Air Products offer. Is that correct? A. That is correct."); SEH Tr. 369 (DeNunzio) ("Q. No discussion at [the December 21, 2010 Airgas] board meeting about stockholders being subject to a prisoner's dilemma, was there? A. Not that I recall."); JX 1090 (van Roden Dep. 230 (Jan. 12, 2011)) (testifying that the notion of prisoner's dilemma was never discussed at an Airgas board meeting). Miller, who is "not conversant on prisoner's dilemma" testified that he had not heard the concept discussed in the context of Air Products' $70 offer and "[i]t was not discussed at board meetings." SEH Tr. 157-58 (Miller). The only time he had discussed prisoner's dilemma was in his deposition preparation session with counsel. Id.

      766

      [383] Miller testified that not only did he not know what a "threat" was (in plain English), so he simply could not answer the question whether he believed somehow that the Air Products offer presents some danger or threat to the company, he also has never discussed with anyone the notion of whether Air Products' offer is a threat or presents any danger to Airgas. SEH Tr. 155-57 (Miller).

      767

      [384] See Trial Tr. 474 (Thomas) ("Q. Mr. Thomas, you believe that the only threat posed to the shareholders of Airgas by the Air Products' tender offer is a low price; correct? A. I do.").

      768

      [385] JX 1090 (van Roden Dep. 251-52 (Jan. 12, 2011)).

      769

      [386] SEH Tr. 437-38 (Clancey); SEH Tr. 242 (McCausland) ("Coercion and threat were implicit in everything we discussed that day [at the December 21, 2010 board meeting]."); SEH Tr. 249-50 (McCausland); SEH Tr. 160-62 (Miller).

      770

      [387] JX 1090 (van Roden Dep. 254 (Jan. 12, 2011)).

      771

      [388] See SEH Tr. 301 (McCausland).

      772

      [389] See Section II.C. For example, Clancey testified that the Airgas stockholders have access to "more than adequate" information upon which to base their decision whether or not to tender into Air Products' offer—"all the information that they could ever want is available." SEH Tr. 453-54. This includes the public and well-known opinion of the Airgas board, as well as that of its financial advisors and numerous analysts' reports with numbers that are "very close or almost identical to management's own internal projections for this company going forward." SEH Tr. 453 (Clancey).

      773

      [390] Ronald Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, 44 Bus. Law. 247, 258 (1989).

      774

      [391] Unocal, 493 A.2d at 956 ("It is now well recognized that such offers are a classic coercive measure designed to stampede shareholders into tendering at the first tier, even if the price is inadequate, out of fear of what they will receive at the back end of the transaction.").

      775

      [392] Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1152 (Del.1990) (emphasis added).

      776

      [393] JX 222 (Airgas Schedule TO: Offer to Purchase by Air Products & Chemicals, Inc. (Feb. 11, 2010)); see also Trial Tr. 130-31 (McGlade); SEH Tr. 5 (Huck).

      777

      [394] JX 222 (Airgas Schedule TO: Offer to Purchase by Air Products & Chemicals, Inc. (Feb. 11, 2010)).

      778

      [395] See Section I.F. (The $60 Tender Offer).

      779

      [396] SEH Tr. 15 (Huck); SEH Tr. 110-11 (McGlade).

      780

      [397] SEH Tr. 15 (Huck); SEH Tr. 110-11 (McGlade).

      781

      [398] SEH Tr. 15-16 (Huck); SEH Tr. 111-12 (McGlade).

      782

      [399] See Kahn v. Lynch Commc'n Sys., Inc., 669 A.2d 79, 86 (Del. 1995) ("In this case, no shareholder was treated differently in the transaction from any other shareholder, nor subjected to two-tiered or squeeze-out treatment. [The bidder] offered cash for all the minority shares and paid cash for all shares tendered. Clearly there was no coercion exerted which was material to this aspect of the transaction.") (internal citation omitted).

      783

      [400] Shamrock Holdings, Inc. v. Polaroid Corp., 559 A.2d 278, 289 (Del.Ch.1989).

      784

      [401] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1384 (Del.1995) (quoting Ronald Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, 44 Bus. Law. 247, 267 (1989)).

      785

      [402] Shamrock Holdings, 559 A.2d at 289 (internal citations omitted).

      786

      [403] Trial Tr. 290-91 (Ill).

      787

      [404] Trial Tr. 315 (Wolinsky).

      788

      [405] JX 429 (Airgas Schedule 14D-9 (July 21, 2010)) at 10.

      789

      [406] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1385 (Del.1995).

      790

      [407] Ronald Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, 44 Bus. Law. 247, 260 (1989).

      791

      [408] Id.

      792

      [409] Defs.' Post-Supplemental Hearing Br. 23-25; see also Defs.' Post-Trial Br. 95 (arguing that the fact that Airgas stockholders are informed and sophisticated "does not stand as a rebuttal to the conclusion that Air Products' offer presents a threat of substantive coercion. The issue here is not only that shareholders may disbelieve the Airgas Board, and that they will want to see results before they fully credit the Board's view. The issue is also that they will be coerced into tendering into an offer that they do not wish to accept.").

      793

      [410] Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140 (Del.1990). Similar concerns about short-term investors were noted in Paramount, however: "Large quantities of Time shares were held by institutional investors. The board feared that even though there appeared to be wide support for the Warner transaction, Paramount's cash premium would be a tempting prospect to these investors." Id. at 1148.

      794

      [411] SEH Tr. 202 (McCausland) ("They don't care a thing about the fundamental value of Airgas. I know that. I naively spent a lot of time trying to convince them of the fundamental value of Airgas in the beginning. But I'm quite sure now, given that experience, that they have no interest in the long-term.").

      795

      [412] See SEH Tr. 454 (Clancey) ("[Essentially, the risk is] that the informed minority, in theory, will be forced to do something because of the bamboozled majority, or the majority who will act because their interests' time lines are different than that minority.").

      796

      [413] See Mercier v. Inter-Tel (Delaware), Inc., 929 A.2d 786, 815 (Del.Ch.2007) ("[T]he bad arbs and hedge funds who bought in, had obviously bought their shares from folks who were glad to take the profits that came with market prices generated by the Merger and Vector Capital's hint of a higher price. These folks, one can surmise, had satisfied whatever long-term objective they had for their investment in Inter-Tel.").

      797

      [414] Otherwise, as Gilson and Kraakman have articulated it, there will have been no "coercion" because the first element will be missing—that is, stockholders who tendered into an "adequate" offer will not have made a mistake. Airgas also belatedly tries to make the argument that the typical "disbelieve management and tender" form of substantive coercion exists as well, because there is nonpublic information that Airgas's stockholders do not have access to (for example, the detailed valuation information that goes into the five-year plan, and other sensitive competitive and strategic information). In support of this argument, they point to Clancey, who believed that all the information stockholders could want is available, yet it was not until he gained access to the nonpublic information that he joined in the board's view on value. This argument fails for at least two reasons. First, this argument was simply made too late in the game. Almost every witness during the October trial—and even in the January supplemental hearing—testified that Airgas's stockholders had all the information they need to make an informed decision. See Section I.O. (The October Trial); Section I.S. (The Airgas Board Unanimously Rejects the $70 Offer) at 73-76. Second, Airgas stockholders know this about Clancey, Lumpkins, and Miller. They know that the three Air Products Nominees were skeptical of management's projections initially (after all, these were Air Products' nominees who got onto the board for the purpose of seeing if a deal could get done!), but they changed their tune once they studied the board's information and heard from the board's advisors. This is why stockholders elect directors to the board. The fact that Air Products' own three nominees fully support the rest of the Airgas board's view on value, in my opinion, makes it even less likely that stockholders will disbelieve the board and tender into an inadequate offer. The articulated risk that does exist, however, is that arbitrageurs with no long-term horizon in Airgas will tender, whether or not they believe the board that $70 clearly undervalues Airgas.

      798

      [415] Chesapeake Corp. v. Shore, 771 A.2d 293, 326 (Del.Ch.2000).

      799

      [416] SEH Tr. 303 (McCausland).

      800

      [417] Id.

      801

      [418] Air Products Post-Supplemental Hearing Br. 31; SEH Tr. 31 (Huck); SEH Tr. 82 (Davis); SEH Tr. 121 (McGlade); SEH Tr. 353-54 (DeNunzio); SEH Tr. 180-81 (Miller).

      802

      [419] Professors Gilson and Kraakman expressly coupled their invention of the term substantive coercion with a recognition of its danger and their call for a searching form of judicial review to make sure that the concept did not become a blank check for boards to block structurally non-coercive bids. Indeed, one senses that their article advocated a second-best solution precisely because they feared that the Delaware Supreme Court would not embrace Interco. But their article's articulated solution—a searching judicial examination of the resisting board's business plan—has some resonance here. Although I have not undertaken the appraisal-like inquiry Gilson and Kraakman advocate, the credibility of the board's determination that the bid is undervalued is enhanced by something more confidence-inspiring than judicial review of the board's business plan. The three new directors elected by the stockholders insisted on retaining their own financial and legal advisors. Those new directors and their expert advisors analyzed the company's business plan with fresh, independent eyes and came to the same determination as the incumbents, which is that the company's earnings potential justifies a sale value of at least $78. In this scenario, therefore, even the analysis urged by Gilson and Kraakman would seem to support the board's use of the pill.

      803

      [420] SEH Tr. 409 (Clancey).

      804

      [421] SEH Tr. 409 (Clancey); SEH Tr. 181 (Miller). Air Products' CFO Huck didn't "see a double-dip either, so I see long, good, steady, solid growth going forward here for the economy." JX 1086A at 7.

      805

      [422] Mercier, 929 A.2d at 815.

      806

      [423] Air Products Post-Supplemental Hearing Br. 21-22 n. 15.

      807

      [424] For example, on December 8, 2010, one stockholder who claimed to represent "the views of Airgas stockholders generally" sent a letter to the Airgas board urging them to negotiate with Air Products—when the $65.50 offer was still on the table. See JX 1029 (Letter from P. Schoenfeld Asset Management LP to Airgas Board of Directors (Dec. 8, 2010)); see also SEH Tr. 224 (McCausland). At various points in time, Peter Schoenfeld urged the board to take $65.50, $67, $70. SEH Tr. 224 (McCausland). He would be happy, it seemed, to see a deal done at any price (presumably above what he bought into the stock at). Schoenfeld wrote, "We hope that the demand for $78 per share is a negotiating position. As an Airgas stockholder, we strongly believe that the Airgas board could accept a significant discount from $78 per share and still get a good deal for the Airgas stockholders." JX 1029 at 2. Certainly, I can safely assume that Schoenfeld (and similarly situated stockholders) likely would tender into Air Products' $70 offer.

      808

      [425] SEH Tr. 567-68 (Harkins) ("[A]rbitrageurs [] typically purchase[] their shares at elevated levels in order to profit by realizing the spread between the price they paid and the deal price. If the offer fails and the stock returns to pre-bid levels or to anticipated post-tender trading levels, the arbitrageurs would ... suffer huge losses.... I think it's widely understood that short-term investors own close to if not a majority of this company. So if you decided to not tender, you would be making that decision knowing and believing that owners of a majority were likely to tender."); SEH Tr. 735-36 (Morrow) ("Q. [Y]ou don't know any merger arb who, given a choice between tendering for 70 bucks and waiting for [a] second-step merger three or four months later at the same price, would choose not to tender and wait for that second-step merger instead; right? A. That's correct.").

      809

      [426] TW Servs., Inc. v. SWT Acquisition Corp., 1989 WL 20290 (Del.Ch. Mar. 2, 1989).

      810

      [427] Airgas's board is not under "a fiduciary duty to jettison its plan and put the corporation's future in the hands of its stockholders." Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1149-50 (Del.1990).

      811

      [428] Unitrin, 651 A.2d 1361, 1376 (citing Paramount, 571 A.2d at 1153). Vice Chancellor Strine has pointed out that "[r]easonable minds can and do differ on whether it is appropriate for a board to consider an all cash, all shares tender offer as a threat that permits any response greater than that necessary for the target board to be able to negotiate for or otherwise locate a higher bid and to provide stockholders with the opportunity to rationally consider the views of both management and the prospective acquiror before making the decision to sell their personal property." In re Gaylord Container Corp. S'holders Litig., 753 A.2d 462, 478 n. 56 (Del. Ch.2000). But the Supreme Court cited disapprovingly to the approach taken in City Capital Associates v. Interco, Inc., 551 A.2d 787 (Del.Ch. 1988), which had suggested that an all-cash, all-shares bid posed a limited threat to stockholders that justified leaving a poison pill in place only for some period of time while the board protects stockholder interests, but "[o]nce that period has closed ... and [the board] has taken such time as it required in good faith to arrange an alternative value-maximizing transaction, then, in most instances, the legitimate role of the poison pill in the context of a noncoercive offer will have been fully satisfied." The Supreme Court rejected that understanding as "not in keeping with a proper Unocal analysis."

      812

      [429] Paramount, 571 A.2d at 1150.

      813

      [430] Id. at 1150 n. 12. I admit empirical studies show that corporate boards are subject to error in firm value projections, usually on the overconfident side of the equation. I also admit that markets are imperfect, most often on the side of overvaluing a company. See generally Bernard Black and Reinier Kraakman, Delaware's Takeover Law: The Uncertain Search for Hidden Value, 96 Nw. U.L.Rev. 565 (2001-02) (describing the "hidden value" model on which managers and directors rely as the basis for resisting takeover offers, and contrasting it with the "visible value" model animating stockholders and potential acquirers). In this case, the Airgas board (relying on the "hidden value" model described by Black and Kraakman) is strongly positing that the market has seriously erred in the opposite direction, by dramatically underestimating Airgas's intrinsic value. I do not share the Airgas board's confidence in its strategic analysis and I do not agree with their claims to superior inside information, but I am bound by Delaware Supreme Court precedent that, in my opinion, drives the result I reach.

      814

      [431] Id.

      815

      [432] Id. (quoting Unitrin, 651 A.2d at 1387). Airgas's defensive measures are inextricably related in their purpose and effect, and I thus review them as a unified response to Air Products' offer.

      816

      [433] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1388 (Del.1995) (citing Paramount Commc'ns, Inc. v. QVC Network, Inc., 637 A.2d 34, 45-46 (Del. 1994)); see Selectica, 5 A.3d at 601.

      817

      [434] Selectica, 5 A.3d at 601 (quoting Unitrin, 651 A.2d at 1387).

      818

      [435] Id. (citing Carmody v. Toll Bros., Inc., 723 A.2d 1180, 1195 (Del.Ch.1998)). Until Selectica, the preclusive test asked whether defensive measures rendered an effective proxy contest "`mathematically impossible' or `realistically unattainable,'" but since "realistically unattainable" subsumes "mathematically impossible," the Supreme Court in Selectica explained that there is really "only one test of preclusivity: `realistically unattainable.'" Id.

      819

      [436] Indeed, Airgas's own expert testified that no bidder has ever replaced a majority of directors on a staggered board by winning two consecutive annual meeting elections. SEH Tr. 657-58 (Harkins).

      820

      [437] Selectica, 5 A.3d 586, 604 (Del.2010) (emphasis added).

      821

      [438] Id. (quoting Carmody v. Toll Bros., Inc., 723 A.2d 1180, 1186 n. 17 (Del.Ch. 1998)).

      822

      [439] Id. (citing In re Gaylord Container Corp. S'holders Litig., 753 A.2d 462, 482 (Del.Ch. 2000)). Of course, the target company in the case the Supreme Court cited for that proposition, In re Gaylord Container Corp. Shareholders Litigation, did not have a staggered board (all directors were up for election annually). The combination of the defensive measures in Gaylord Container combined to make obtaining control "more difficult" because an acquiror could only obtain control once a year, at the annual meeting, but the defensive measures were found not to be preclusive because "[b]y taking out the target company's board through a proxy fight or a consent solicitation, the acquiror could obtain control of the board room, redeem the pill, and open the way for consummation of its tender offer." Gaylord Container, 753 A.2d at 482. Vice Chancellor Strine noted, however, that "[t]hese provisions are far less preclusive than a staggered board provision, which can delay an acquiror's ability to take over a board for several years." Id.

      823

      [440] Selectica, 5 A.3d at 604 (quoting Moran v. Household Int'l, Inc., 500 A.2d at 1357). Again, in the case the Supreme Court is quoting from (Moran), the entire Household board was subject to election annually; the company did not have a staggered board.

      824

      [441] Id.

      825

      [442] See Airgas, Inc. v. Air Prods. & Chems., Inc., 8 A.3d 1182 (Del.2010).

      826

      [443] 8 A.3d 1182, 1192 n. 27 (Del.2010) (quoting Lewis S. Black, Jr. & Craig B. Smith, Antitakeover Charter Provisions: Defending Self-Help for Takeover Targets, 36 Wash. & Lee L.Rev. 699, 715 (1979)) (alteration in original).

      827

      [444] Id. (quoting 1 R. Franklin Balotti & Jesse A. Finkelstein, The Delaware Law of Corporations and Business Organizations § 4.6 (2010)) (alteration in original).

      828

      [445] Id. at 1190 n. 18 (emphasis added).

      829

      [446] I say at this time because Air Products has indicated that if Airgas's defenses remain in place, it may walk away from a deal now, but it may be willing to bid for Airgas at some point in the future. See, e.g., SEH Tr. 49-50 (Huck) ("Q. [W]hen you say `best and final,' you mean as of today. But the world could change and you can't commit as to what Air Products may do as future events unfold; correct? A. That is correct."); see also SEH Tr. 95-96 (Davis).

      830

      [447] JX 3 (Airgas Amended and Restated Certificate of Incorporation) at Art. 2, § 2.

      831

      [448] Defs.' Dec. 21 Supplemental Post-Trial Br. 4.

      832

      [449] It also distinguishes this case from the paradigmatic case posited by Professors Bebchuk, Coates, and Subramanian in 54 Stan. L.Rev. 887 (2002). In their article, the professors write: "Courts should not allow managers to continue blocking a takeover bid after they lose one election conducted over an acquisition offer." Id. at 944. In essence, the professors argue that corporations with an "effective staggered board" ("ESB"), defined as one in which a bidder "must go through two annual meetings in order to gain majority control of the target's board," should be required to redeem their pill after losing one election cycle. Id. at 912-14, 944. But, the professors concede, "without an ESB, no court intervention is necessary." Id. at 944. Airgas does not have an ESB as described by the professors because of its charter provision allowing removal of the entire board without consent at any time by a 67% vote.

      833

      [450] SEH Tr. 523-24 (Harkins).

      834

      [451] SEH Tr. 8 (Huck).

      835

      [452] Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 337 n. 182 (Del.Ch.2010).

      836

      [453] See JX 1081 (Second Supplemental Report of Peter C. Harkins (Jan. 5, 2011)); JX 1085 (Expert Report of Joseph J. Morrow (Jan. 20, 2011)).

      837

      [454] SEH Tr. 456 (Harkins); SEH Tr. 685-86 (Morrow).

      838

      [455] See, e.g., SEH Tr. 523-24 (Harkins).

      839

      [456] SEH Tr. 759 (Morrow).

      840

      [457] SEH Tr. 535-36 (Harkins).

      841

      [458] See Ex. ARG 912; JX 1081 (Second Supplemental Report of Peter C. Harkins (Jan. 5, 2011)) at 2-8.

      842

      [459] See Ex. ARG 912; SEH 473-74 (Harkins) (testifying that 100% of the arbs and event-driven investors would vote for Air Products, "assuming an appealing platform"); Harkins Supplemental Report (Sept. 26, 2010).

      843

      [460] See SEH Tr. 481-82 (Harkins); SEH Tr. 216-17 (McCausland).

      844

      [461]SEH Tr. 615 (Harkins); JX 1051A (Airgas Investor Relations Update (Dec. 21, 2010)) at 8. The breakdown as of December 9, 2010 was as follows:

      845

      [462] Ex. ARG 912.

      846

      [463] Ex. ARG 913; see SEH Tr. 713-15, 723, 736 (Morrow).

      847

      [464] SEH Tr. 617 (Harkins).

      848

      [465] SEH Tr. 203 (McCausland). As far as what accounted for the change, McCausland testified that in the month of December more long term (traditional, fundamental) investors have moved back into the stock, while the largest sales came from arbs and hedge funds. Id.

      849

      [466] SEH Tr. 551 (Harkins).

      850

      [467] SEH Tr. 509-11 (Harkins); SEH Tr. 760-61 (Morrow).

      851

      [468] Chesapeake v. Shore, 771 A.2d 293, 341-44 (Del.Ch.2000) (finding that 88% of participating unaffiliated shares was not realistically attainable).

      852

      [469] SEH Tr. 521-22 (Harkins); SEH Tr. 644 (Harkins); SEH Tr. 759-60 (Morrow).

      853

      [470] SEH Tr. 644 (Harkins).

      854

      [471] SEH Tr. 507 (Harkins).

      855

      [472] SEH Tr. 507-08 (Harkins).

      856

      [473] SEH Tr. 508 (Harkins).

      857

      [474] See Guhan Subramanian et al., Is Delaware's Antitakeover Statute Unconstitutional?, 65 Bus. Law. 685 (2010). But see A. Gilchrist Sparks & Helen Bowers, After Twenty-Two Years, Section 203 of the Delaware General Corporation Law Continues to Give Hostile Bidders a Meaningful Opportunity for Success, 65 Bus. Law. 761 (2010).

      858

      [475] See, e.g., SEH Tr. 52 (Huck) (testifying that "at the December 9th board meeting, the Air Products' board determined [] that it would not pursue its attempt to acquire Airgas through the next Airgas annual meeting"); SEH Tr. 97-98 (Davis) (testifying that at the December 9th meeting, "the board made a business decision that it didn't want to wait that long to pursue Airgas and seek to elect another slate at the annual meeting").

      859

      [476] SEH Tr. 12 (Huck) ("[O]ur shareholders have carried the burden of reduced stock price for a long period of time. The stock price of Air Products declined approximately 10 to 15 percent upon the announcement of this offer, due to the uncertainty which was introduced by the transaction. When that occurred—we knew it was going to occur, however, you know, the shareholders have carried this for almost a year now. ... That is a long time for the shareholders to carry the penalty. We felt that we needed to draw that to a conclusion to be fair to our shareholders.").

      860

      [477] As noted elsewhere in this Opinion, both sides readily seem to admit that there is at least a strong likelihood that a majority of Airgas's current stockholders would want to tender into Air Products' $70 offer. See, e.g., SEH Tr. 202 (McCausland) ("The tender offer would succeed if the pill were pulled. I have no doubt about that."); SEH Tr. 43-44 (Huck); SEH Tr. 87-88 (Davis) ("[M]uch of the Airgas stock was owned by arbs that had acquired their stock at a price under 70, and [so] it was believed they would support a $70 offer.").

      861

      [478] Reading the Supreme Court's decision literally, even a fully informed vote by a majority of the stockholders to move the company's annual meeting date is not allowed under Delaware law when the company has a staggered board. Companies without a staggered board have this flexibility, but not companies with staggered boards. 8 Del. C. § 109(a); 8 Del. C. § 211(b).

      862

      [479] Selectica, 5 A.3d at 604. Although the three Air Products Nominees from the September 2010 election all have joined the rest of the Airgas board in its current views on value, if Air Products nominated another slate of directors who were elected, there is no question that it would have "control" of the Airgas board—i.e. it will have nominated and elected the majority of the board members. There is no way to know at this point whether or not those three hypothetical New Air Products Nominees would join the rest of the board in its view, or whether the entire board would then decide to remove its defensive measures. The preclusivity test, though, is whether obtaining control of the board is realistically unattainable, and here I find that it is not. Considering whether some future hypothetical Air-Products-Controlled Airgas board would vote to redeem the pill is not the relevant inquiry.

      863

      [480] Our law would be more credible if the Supreme Court acknowledged that its later rulings have modified Moran and have allowed a board acting in good faith (and with a reasonable basis for believing that a tender offer is inadequate) to remit the bidder to the election process as its only recourse. The tender offer is in fact precluded and the only bypass of the pill is electing a new board. If that is the law, it would be best to be honest and abandon the pretense that preclusive action is per se unreasonable.

      864

      [481] Selectica, 5 A.3d at 605 (internal quotations omitted).

      865

      [482] Id. at 606 (quoting Unitrin, 651 A.2d at 1384).

      866

      [483] See 8 Del. C. § 141(e) (the board may rely in good faith upon the advice of advisors selected with reasonable care).

      867

      [484] SEH Tr. 80-81 (Davis) ("Q. You're not aware of any facts that would lead you to believe that the three Air Products [N]ominees on the Airgas board have breached their duty to the Airgas shareholders; correct? A. I'm not aware. Q. You're not aware of any facts that lead you to believe that the other Airgas directors on the Airgas board have breached their fiduciary duties to the Airgas shareholders; correct? A. Not based on any facts I'm aware of."); see also SEH Tr. 115 (McGlade) ("Q. [Y]ou're not aware of any facts that lead you to believe that the three Air Products [N]ominees on the Airgas board have breached their fiduciary duties to Airgas shareholders? A. I am not.").

      868

      [485] SEH Tr. 138 (McGlade); see also SEH Tr. 82 (Davis) (testifying that he is "not aware of anyone in a better position than Airgas management to make projections for Airgas" and he "believe[s] that it's reasonable for the Airgas board to rely on the projections provided by Airgas management").

      869

      [486] SEH Tr. 103-104 (Davis) (testifying that he probably has a better understanding of the value of Air Products than the average Air Products stockholder and that, "if an offer was made for Air Products that [he] considered to be unfair to the stockholders of Air Products," he would consider his "[f]iduciary duty [to] be to hold out for the proper price... [a]nd to use every legal mechanism available to [him] to do that.").

      870

      [487] That is, Air Products could have chosen three "independent" directors who may have a different view of value than the current Airgas board, who could act in a manner that would still comport with their exercise of fiduciary duties, but would perhaps better align their interests with those of the short-term arbs, for instance. As an example, Air Products could have proposed a slate of three Lucian Bebchuks (let's say Lucian Bebchuk, Alma Cohen, and Charles Wang) for election. In exercising their business judgment if elected to the board, these three academics might have reached different conclusions than Messrs. Clancey, Miller, and Lumpkins did— businessmen with years of experience on boards who got in there, saw the numbers, and realized that the intrinsic value of Airgas in their view far exceeded Air Products' offer. Maybe Bebchuk et al. would have been more skeptical. Or maybe they would have gotten in, seen the numbers, and acted just as the three Air Products Nominees did. But the point is, Air Products chose to put up the slate that it did.

      871

      [488] JX 454 (Airgas Schedule 14A: Air Products' Definitive Proxy Statement for 2010 Annual Meeting of Airgas Stockholders (July 29, 2010)) at 3.

      872

      [489] SEH Tr. 420 (Clancey).

      873

      [490] SEH Tr. 393-94 (DeNunzio).

      874

      [491] JX 1095 (Lumpkins Dep. 169 (Jan. 21, 2011)).

      875

      [492] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1384 (Del.1995) (quoting Paramount).

      876

      [493] Paramount Commc'ns, Inc. v. Time, Inc., 571 A.2d 1140, 1154 (Del. 1990) (emphasis added).

      877

      [494] Id.

      878

      [495] See id. at 1154-55.

      879

      [496] SeeJX 1118 (Airgas Earnings Teleconference Third Quarter Ended December 31, 2010 Slide Deck (Jan. 21, 2011)) at 3:

      880

      [497] Paramount v. Time, 1989 WL 79880, at *19 (Del.Ch. July 14, 1989); see also In re Dollar Thrifty S'holder Litig., 2010 WL 3503471, at *29 (Del.Ch. Sept. 8, 2010) ("[O]ur law does not require a well-motivated board to simply sell the company whenever a high market premium is available.")

      881

      [498] Specifically, because McCausland and the other directors and officers of Airgas together own greater than 10% of the outstanding shares, there is essentially no way for Air Products to obtain greater than 90% of the outstanding shares in a tender offer. Under DGCL § 253, a bidder who acquires 90% of the outstanding stock of a corporation could effect a short-form merger to freeze out the remaining less-than-10%, without a vote of the minority. Short of obtaining 90% of the outstanding shares, though, Air Products would be left as a majority stockholder in Airgas, and would have to effect any merger under 8 Del. C. § 251, which would require the affirmative vote of both the Airgas board and Airgas's minority stockholders.

      882

      [499] JX 222 (Airgas Schedule TO: Offer to Purchase by Air Products & Chemicals, Inc. (Feb. 11, 2010)) at 1-2; SEH Tr. 15 (Huck). Air Products' representatives made clear, however, that they do not intend to retain a majority interest in Airgas. SEH Tr. 15 (Huck) ("Q. Does Air Products have any interest in owning less than 100 percent of Airgas? A. No, we do not."). Thus, the non-tendering minority Airgas stockholders would likely receive $70 in a back-end transaction with Air Products, or else Air Products would at that point sell its interest and leave Airgas alone, resulting in a depressed stock price for some period of time before it resumes its unaffected stock price.

      883

      [500] See Golden Telecom, Inc. v. Global GT LP, 11 A.3d 214, 217 (Del.2010) ("[I]n determining `fair value,' the [appraisal] statute [DGCL § 262] instructs that the court `shall take into account all relevant factors.' Importantly, [the Delaware Supreme] Court has defined `fair value' as the value to a stockholder of the firm as a going concern, as opposed to the firm's value in the context of an acquisition or other transaction.") (internal footnote and citations omitted); see also M.P.M. Enters., Inc. v. Gilbert, 731 A.2d 790, 795 (Del. 1999) ("Section 262(h) requires the trial court to `appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation.' Fair value, as used in § 262(h), is more properly described as the value of the company to the stockholder as a going concern, rather than its value to a third party as an acquisition.").

      884

      [501] See Golden Telecom, 11 A.3d at 218-19 ("[P]ublic companies distribute data to their stockholders to convince them that a tender offer price is `fair.' In the context of a merger, this `fair' price accounts for various transactional factors, such as synergies between the companies. Requiring public companies to stick to transactional data in an appraisal proceeding would pay short shrift to the difference between valuation at the tender offer stage—seeking `fair price' under the circumstances of the transaction—and valuation at the appraisal stage—seeking `fair value' as a going concern.").

      885

      [502] SEH Tr. 397-98 (DeNunzio) ("I think there's every reason that people could conclude there's [] much, much greater upside, for example, in the SAP implementation. I mean, orders of magnitude greater than what's been assumed and which would give substantially higher values. I think there's reason to believe that, at another time, in another market environment, there may be other acquirers of the company at higher prices than what Air Products is offering today. And if you were to sell the company at that moment in time, and to those other kinds of parties, you could do substantially in excess of the 70, even accounting for time value of money in the intervening period.").

      886

      [503] Moran v. Household Int'l, Inc., 500 A.2d 1346, 1354 (Del. 1985).

      887

      [504] Versata Enters., Inc. v. Selectica, Inc., 5 A.3d 586, 607 (Del.2010) (citing Moran, 500 A.2d at 1354). Marty Lipton himself has written that "the pill was neither designed nor intended to be an absolute bar. It was always contemplated that the possibility of a proxy fight to replace the board would result in the board's taking shareholder desires into account, but that the delay and uncertainty as to the outcome of a proxy fight would give the board the negotiating position it needed to achieve the best possible deal for all the shareholders, which in appropriate cases could be the target's continuing as an independent company. ... A board cannot say `never,' but it can say `no' in order to obtain the best deal for its shareholders." Martin Lipton, Pills, Polls, and Professors Redux, 69 U. Chi. L.Rev. 1037, 1054 (2002) (citing Marcel Kahan & Edward Rock, How I Learned to Stop Worrying and Love the Pill: Adaptive Responses to Takeover Law, 69 U. Chi. L.Rev. 871, 910 (2002) ("[T]he ultimate effect of the pill is akin to `just say wait.'")). As it turns out, for companies with a "pill plus staggered board" combination, it might actually be that a target board can "just say wait ... a very long time," because the Delaware Supreme Court has held that having to wait two years is not preclusive.

      888

      [505] I will not cite them all here, but a sampling of just the early generation of articles includes: Martin Lipton, Takeover Bids in the Target's Boardroom, 35 Bus. Law. 101 (1979); Frank Easterbrook & Daniel Fischel, Takeover Bids, Defensive Tactics, and Shareholders' Welfare, 36 Bus. Law. 1733 (1981); Martin Lipton, Takeover Bids in the Target's Boardroom: An Update After One Year, 36 Bus. Law. 1017 (1981); Frank Easterbrook & Daniel Fischel, The Proper Role of a Target's Management in Responding to a Tender Offer, 94 Harv. L.Rev. 161 (1981); Martin Lipton, Takeover Bids in the Target's Boardroom: A Response to Professors Easterbrook and Fischel, 55 N.Y.U. L.Rev. 1231 (1980); Ronald J. Gilson, A Structural Approach to Corporations: The Case Against Defensive Tactics in Tender Offers, 33 Stan. L.Rev. 819 (1981); Lucian Arye Bebchuk, The Case for Facilitating Competing Tender Offers, 95 Harv. L.Rev. 1028 (1982).

      889

      [506] In addition, Lipton often continues to argue that the deferential business judgment rule should be the standard of review that applies, despite the fact that that suggestion was squarely rejected in Moran and virtually every pill case since, which have consistently applied the Unocal analysis to defensive measures taken in response to hostile bids. Accordingly, although it is not the law in Delaware, Lipton's "continued defense of an undiluted application of the business judgment rule to defensive conduct" has been aptly termed "tenacious." Ronald Gilson & Reinier Kraakman, Delaware's Intermediate Standard for Defensive Tactics: Is There Substance to Proportionality Review?, 44 Bus. Law. 247, 247 n. 1 (1989).

      890

      [507] Martin Lipton, Pills, Polls, and Professors Redux, 69 U. Chi. L.Rev. 1037, 1065 (2002) (emphasis added).

      891

      [508] Id. at 1058.

      892

      [509] See supra note 449 (describing Bebchuk et al.'s ESB argument that directors who lose one election over an outstanding acquisition offer should not be allowed to continue blocking the bid by combining a pill with an ESB, and suggesting that "unless managers are allowed to use a pill-ESB combination to force only one election rather than two, the pill-ESB combination becomes preclusive").

      893

      [510] Yucaipa Am. Alliance Fund II, L.P. v. Riggio, 1 A.3d 310, 351 n. 229 (Del.Ch.2010) (citing Bebchuk et al. at 944-46); see also Leo E. Strine, Jr., The Professorial Bear Hug: The ESB Proposal As a Conscious Effort to Make the Delaware Courts Confront the Basic "Just Say No" Question, 55 Stan. L.Rev. 863, 877-79 (2002) (questioning whether the continued use of a pill could ever be deemed preclusive if it is considered non-preclusive to maintain a pill after a bidder has won an election for seats on an ESB).

      894

      [511] See Section III.B. 1.; see also supra note 449.

      895

      [512] Bebchuk et al. at 944 ("Note that without an ESB, no court intervention is necessary in order to achieve [the professors' desired] outcome.").

      896

      [513] Hollinger Int'l, Inc. v. Black, 844 A.2d 1022, 1083 (Del.Ch.2004).

      897

      [514] Closing Argument Tr. 88 (Nachbar).

  • 4 Controlling Shareholder Transactions

    • 4.1 Frank v. ELGAMAL

      1
      RICHARD FRANK, Plaintiff,
      v.
      ZAK W. ELGAMAL, JAIME OLMO-RIVAS, BLAND E. CHAMBERLAIN III, JOSE CHAPA JR., CHARLES BAILEY, MICHAEL KLEINMAN, HENRY Y. L. TOH, GREAT POINT PARTNERS I, LP, AH HOLDINGS INC., AH MERGER SUB, INC., and AMERICAN SURGICAL HOLDINGS, INC., Defendants.
      2
      C.A. No. 6120-VCN.
      3

      Court of Chancery of Delaware.

      4
      Submitted: December 22, 2011.
      5
      Decided: March 30, 2012.
      6

      Jessica Zeldin, Esquire of Rosenthal, Monhait & Goddess, P.A., Wilmington, Delaware, and Carl L. Stine, Esquire of Wolf Popper LLP, New York, New York, Attorneys for Plaintiff.

      7

      Steven L. Caponi, Esquire, Alisa E. Moen, Esquire, and David A. Dorey, Esquire of Blank Rome LLP, Wilmington, Delaware, Attorneys for Defendants Zak W. Elgamal, Jaime Olmo-Rivas, Bland E. Chamberlain III, Jose Chapa Jr., Charles Bailey, Michael Kleinman, and Henry Y. L. Toh.

      8

      Kenneth J. Nachbar, Esquire, Leslie A. Polizoti, Esquire, and John C. Cordrey, Esquire of Morris, Nichols, Arsht & Tunnell LLP, Wilmington, Delaware, Attorneys for Defendants Great Point Partners I, LP, AH Holdings Inc., AH Merger Sub, Inc., and American Surgical Holdings, Inc.

      9
      MEMORANDUM OPINION
      10
      NOBLE, Vice Chancellor.
      11
      I. INTRODUCTION
      12

      This action arises out of the merger (the "Merger") of American Surgical Holdings, Inc. ("American Surgical" or the "Company") with AH Merger Sub, Inc. ("Merger Sub"), a wholly-owned subsidiary of AH Holdings, Inc. ("Holdings"), which, in turn, is an affiliate of Great Point Partners, I LP ("Great Point" and collectively, with Merger Sub and Holdings, the "Purchasing Entities"). Plaintiff Richard Frank brought this purported class action to challenge the Merger. Frank alleges that American Surgical's Board of Directors (the "Board"), and the Company's control group (the "Control Group" and collectively, with the Purchasing Entities and the Board, the "Defendants") breached their fiduciary duties in connection with the Merger. Frank also alleges that the Purchasing Entities aided and abetted those breaches of fiduciary duty. The Defendants have moved to dismiss all of the claims asserted against them. This is the Court' s decision on the Defendants' motion.

      13
      II. BACKGROUND[1]
      14
      A. The Parties
      15

      Frank was, at all relevant times, the owner of shares of American Surgical common stock.

      16

      Before the Merger, American Surgical was a Delaware corporation with its principal executive offices in Houston, Texas. American Surgical provided professional surgical assistant services to patients, surgeons, and healthcare institutions in Texas, Oklahoma, Virginia, Tennessee, and Georgia. The Company's common stock traded on the Over-the-Counter Bulletin Board.

      17

      Defendants Zak W. Elgamal, Jamie Olmo-Rivas, Charles Bailey, Michael Kleinman, and Henry Y.L. Toh were, at all relevant times, the members of the Board. Elgamal also was Chairman of the Board, as well as American Surgical's President and Chief Executive Officer. Before the Merger, Elgamal owned 27.53% of American Surgical's common stock. Olmo-Rivas was the Company's Chief Operating Officer, and, before the Merger, he owned 27.58% of the Company's common stock.

      18

      Until the Merger, Defendants Jose Chapa Jr. and Bland E. Chamberlain III were surgical assistants employed with American Surgical. In addition, Chapa was one of the Company's most highly compensated executive officers, and he owned 8.04% of American Surgical's common stock. Chamberlain owned 8.04% of the Company's common stock. Elgamal, Olmo-Rivas, Chapa, and Chamberlain make up the Control Group.[2] Immediately before the Merger, the Control Group held 71.19% of American Surgical's common stock. The Complaint alleges that the members of the Control Group, "as majority shareholders of the Company acting in concert, owed fiduciary duties to the public shareholders of the Company . . . ."[3]

      19

      Defendant Great Point is a private-equity fund affiliated with Great Point Partners, an investment firm based in Greenwich, Connecticut that specializes in recapitalization transactions involving middle-market health care companies. Defendant Holdings, an affiliate of Great Point, and Defendant Merger Sub, a wholly-owned subsidiary of Holdings, were created solely to effectuate the Merger.

      20
      B. Factual Background and Procedural History
      21

      On August 12, 2009, the Board created a mergers and acquisitions committee (the "M&A; Committee"), consisting of directors Toh, Elgamal, and Olmo-Rivas, to explore strategic opportunities for the Company. Soon after it was formed, the M&A; Committee hired the Polaris Group ("Polaris") to serve as the Company's financial advisor. On December 2, 2009, the Board designated directors Bailey and Kleinman as a special committee (the "Special Committee"). The purpose of the Special Committee was to "negotiate the terms and conditions of any potential transaction involving the sale of the Company,"[4] but the Complaint alleges that "the members of the Special Committee engaged in little, if any, negotiations."[5]

      22

      From August 2009 through December 2009, Polaris solicited potential business combinations for American Surgical. "After various rounds of information sharing involving many strategic and financial entities, four parties emerged as having a continued interest in discussing a possible transaction."[6] The Complaint alleges that a company, described as Private Equity Firm A, proposed a strategic transaction to American Surgical that was superior to the Merger:

      23
      The proposal from Private Equity Firm A was not a full cash buyout offer but a multi-million dollar investment in the Company that would have allowed the Company to fund its expansion, and also allow the Company's public shareholders to continue their investment in the Company as it continues to expand to other states. . . . Private Equity Firm A's proposal valued the Company at $46 million. However, the proposal from Private Equity Firm A was not as lucrative to the ... [Control Group]. Accordingly, the . . . [Control Group] pushed forward with the Merger offered by Great Point . . . .[7]
      24

      The Special Committee, however, determined that the Merger "represented the most favorable transaction for the Company's shareholders"[8] and "retained a separate financial advisor—Howard Frazier Barker Elliott, Inc. ["HFBE"]—to render a fairness opinion with respect to a possible transaction with Great Point."[9]

      25

      On December 20, 2010, after months of negotiations between American Surgical and Great Point, American Surgical entered into an agreement and plan of merger (the "Merger Agreement") with Holdings and Merger Sub. The Merger was structured as a reverse triangular merger—Merger Sub merged with American Surgical, and American Surgical survived as a wholly-owned subsidiary of Holdings. Under the terms of the Merger Agreement, each share of American Surgical common stock was converted into a right to receive $2.87 in cash.[10] The Merger Agreement also provides that "[t]he affirmative vote of the holders of a majority of the outstanding Common Shares on the record date for the Company Meeting is the only vote of holders of securities of the Company which is required to approve and adopt this Agreement . . . [and] the Merger . . . ."[11] Moreover, the Merger Agreement contained several defensive devices, including a termination fee, a matching rights provision, and a no-shop clause.

      26

      On December 20, 2010, three sets of agreements, in addition to the Merger Agreement, were entered into in connection with the Merger.[12] First, each member of the Control Group executed a stockholder voting agreement (the "Voting Agreements") with Holdings. In the Voting Agreements, each member of the Control Group agreed to vote all of the American Surgical common shares he owned in favor of the Merger. At that time, the members of the Control Group owned about 64% of American Surgical's common stock, but by the record date of the Merger, they owned 71.19% of the Company's common stock.

      27

      Second, each member of the Control Group entered into an exchange agreement (the "Exchange Agreements") with Holdings. In the Exchange Agreements, each member of the Control Group agreed to exchange, immediately before the effective time of the Merger, some of his American Surgical common shares for shares of Holdings' Series A Preferred Stock. Collectively, the members of the Control Group agreed to, and subsequently did, exchange 2,234,707 shares of American Surgical common stock (about 17.4% of American Surgical's common stock) for a 14.9% ownership interest in Holdings. Thus, although American Surgical's minority shareholders would be cashed-out in the Merger, the Exchange Agreements, which were executed on the same day as the Merger Agreement, provided that the members of the Control Group would retain an interest in the Company following the Merger.

      28

      Third, each member of the Control Group signed an employment agreement with Merger Sub (the "Employment Agreements"), which became effective at the effective time of the Merger.

      29
      Elgamal and Olmo-Rivas were each provided with a base annual salary of $386,250, an annual incentive bonus up to 100% of their base salary, and an additional annual bonus of 12.5% of any EBITDA generated in excess of certain set target EBITDA amounts for the 2010 and 2011 calendar year. . . . [Merger Sub] also granted to Defendants Elgamal and Olmo-Rivas performance-based stock options equal to 1.75% of the fully diluted shares of . . . Holdings . . ., which options would vest based on the achievement of certain EBITDA targets. . . . Defendants Chapa and Chamberlain were provided with a base annual salary of $250,000 and $175,000 respectively, [and] with discretionary bonuses of $100,000 and $50,000, respectively.[13]
      30

      On December 19, 2010, the day before the Merger Agreement was executed, HFBE stated its opinion that "the [Merger] consideration, without interest, to be received by the Company's stockholders (other than the . . . [Control Group]) was fair, from a financial point of view, to such holders."[14] The Complaint, however, takes issue with HFBE's fairness opinion. The Complaint alleges that the opinion was based, in part, on a flawed comparable company analysis. According to the Complaint, HFBE divined a 5-7x EBITDA multiple for American Surgical by comparing it to companies that were not actually comparable. The Complaint argues that companies comparable to American Surgical were actually sold at EBITDA multiples of 11-15x. The Complaint further contends that, even assuming HFBE's comparable company analysis was properly performed, "the $2.87 Merger price was on the very low end of the Implied Per Share Equity Value Reference Ranges for the Company's Common Stock, and well below the midpoint of those ranges."[15] Moreover, the Complaint asserts that not all aspects of the fairness opinion were fairly disclosed to American Surgical's shareholders— "HFBE anticipated that the . . . [Merger] would provide $20-30 million in synergies to Great Point . . . [and that the Control Group, with its ongoing interest in the Company, would benefit from these synergies. But] this fact was not disclosed in the Definitive Proxy."[16]

      31

      On January 4, 2011, the Company filed its preliminary proxy statement.[17] On January 11, Frank initiated this action. On January 14, he moved for expedited proceedings and a preliminary injunction.[18] On January 21, American Surgical filed its definitive proxy statement, "which contained supplemental disclosures that effectively mooted the Plaintiff's disclosure claims. For that reason, Frank withdrew his motions for expedited proceedings and for a preliminary injunction on January 24th."[19] On February 23, 2011, at a special meeting of American Surgical's common stockholders gathered for the purpose of voting on the Merger, 86.6% of the Company's common stock was voted, and 99.9% of those shares voted were cast in favor of the Merger. On March 23, 2011, the Merger closed.[20] On that same day, Toh received a $250,000 fee for his role in negotiating the Merger.

      32
      III. CONTENTIONS
      33

      The Complaint consists of four causes of action. Cause of Action I alleges that the members of the Control Group "acting in concert and together as a group, were controlling shareholders, and have violated their fiduciary duties of loyalty and care owed to the public shareholders of American Surgical . . . ."[21] More specifically, Cause of Action I alleges that the Merger "is an attempt to deny Plaintiff and the other members of the Class their right to share proportionately in the true value of the Company, while usurping the same for the benefit of the ... [members of the Control Group] who will maintain an interest in American Surgical on terms that were unfair and inadequate to Plaintiff and the members of the Class."[22] Cause of Action I also suggests that the members of the Control Group breached their fiduciary duties because they possessed "non-public information concerning the financial condition of American Surgical, . . . which they did not disclose to American Surgical's public stockholders,"[23] Cause of Action II alleges that the members of the Control Group were unjustly enriched as a result of the Merger. Cause of Action III alleges that the members of the Board, as well as Chamberlain and Chapa have breached their duty "to ensure that any transaction where the controlling shareholders of the Company are standing on both sides, is fair to American Surgical's shareholders, and [their duty] to ensure that the Company's shareholders were provided with all material information required by them in order to determine whether or not to seek appraisal."[24] According to the Complaint, the members of the Board, Chamberlain, and Chapa "have violated their fiduciary duties to Plaintiff and the other Class members by acquiescing to an unfair process dictated by conflicted insiders."[25] Cause of Action IV alleges that the Purchasing Entities aided and abetted the breaches of fiduciary duty articulated in Causes of Action I and III. Cause of Action IV offers two reasons why the Purchasing Entities should be liable for aiding and abetting. First, the Purchasing Entities were "intimately involved in the negotiations and structuring of the . . . [Merger] and understood that the . . . [Control Group] and the minority shareholders were competing for the consideration that . . . [the Purchasing Entities] would pay to acquire American Surgical."[26] Second, the Purchasing Entities "demanded deal protection measures, including an excessive termination fee, matching rights, and a no-shop clause while enticing American Surgical's management to enter into a deal with them through equity offerings .. . and lucrative salaries and bonuses . . . ."[27] Frank seeks to: (1) certify this action as a class action; (2) rescind the Merger or, in the alternative, recover rescissory damages for the purported class; (3) have the Defendants account for all of the damages they caused the purported class; and (4) recover the costs of this action, including reasonable attorneys' fees.

      34

      The Defendants have filed a joint motion to dismiss the Complaint pursuant to Court of Chancery Rule 12(b)(6). The Defendants argue that the arguments made in support of Cause of Action I are insufficient to rebut the presumptions of the business judgment rule. The Defendants admit that a control group may, necessarily, have to show the entire fairness of a transaction that it stands on both sides of,[28] but the Defendants argue that here, the Control Group did not stand on both sides of the Merger. The Defendants argue that, the Purchasing Entities, a group of third parties with no affiliation to any member of the Control Group, structured the terms of the Merger, and that "none of the alleged controllers in this case—individually or as a group—negotiated the part of . . . [the Merger] that involved the . . . [minority shareholders'] deal compensation."[29] Moreover, the Defendants argue that the members of the Control Group "were net sellers of American Surgical's shares in the Merger . . . ."[30]

      35
      The . . . [members of the Control Group] sold 75% of their shares for the same Merger consideration as all of the other stockholders, and "rolled over" only 25% of their shares. Moreover, while the shares they rolled over represented nearly 18% of the outstanding stock of American Surgical, they were exchanged for only 15% of the acquiring company—a correspondingly smaller percentage of the acquiring company's shares. . . . In these circumstances, the Rollover Defendants would always be better off if a higher price were paid in the Merger.[31]
      36

      Because, according to the Defendants, the allegations in Cause of Action I are insufficient to overcome the presumptions of the business judgment rule, the Defendants argue that Cause of Action I fails to state a claim that the members of the Control Group breached their fiduciary duties. The Defendants also dispute that Chamberlain and Chapa were part of the Control Group—"[w]ithout allegations that Chapa and Chamberlain were somehow needed to secure dispositive control over the transaction, they are not accused of violating any specific duties to the class shareholders and must be dismissed.[32]

      37

      In challenging Cause of Action II, the Defendants argue that a claim that the Control Group was unjustly enriched must fail for at least two reasons. First, the Defendants contend that "the dismissal of Plaintiff's First Cause of Action for Breach of Fiduciary Duty necessarily requires that the Unjust Enrichment claim fail as well.[33] Second, the Defendants contend that Frank's argument that the Control Group was unjustly enriched is based on a flawed interpretation of HFBE's fairness opinion. Specifically, the Defendants argue that Frank failed to consider projected net debt in calculating the enterprise value of American Surgical after the Merger. According to the Defendants, the fairness opinion, properly interpreted, shows that the Control Group was not enriched as a result of the Merger.

      38

      As for Cause of Action III, the Defendants argue that because the Control Group was not standing on both sides of the Merger, the decision to enter into the Merger Agreement is entitled to the presumptions of the business judgment rule, unless the Complaint pleads facts to suggest that a majority of the Board was not independent and disinterested when the Board approved the Merger Agreement. The Defendants continue their argument by laying out why a majority of the Board was disinterested and independent. The Defendants concede that "[f] or purposes of this motion, Defendant directors Elgamal and Olmo-Rivas, who owned more than 55% of the Company's stock, and who received post-merger employment, discretionary bonuses, and ownership in the post-merger company may be considered to have had an `interest' in the Merger."[34] But the Defendants contend that the other three members of the Board, Klienman, Bailey, and Toh, were independent and disinterested. Moreover, the Defendants argue that the terms of the Merger Agreement were negotiated by the Special Committee, and the Special Committee recommended that the Board enter into the Merger Agreement. According to the Defendants, the Special Committee was composed of independent and disinterested directors, Bailey and Kleinman, and therefore, the Defendants contend that the Special Committee's approval of the Merger is another basis upon which the Court should determine that the Board's decision to enter into the Merger Agreement is entitled to the presumptions of the business judgment rule. The Defendants also argue that, if they are correct that the presumptions of the business judgment rule apply to the Board's decision to undertake the Merger, any claim for monetary damages against any member of the Board, for breach of the duty of care, should be dismissed because American Surgical had adopted an exculpatory provision pursuant to 8 Del. C. §102(b)(7) which eliminates director liability for good faith breaches of the duty of care. "If, on the other hand, entire fairness does, or may, apply here, then Defendants are content to have the §102(b)(7) defense decided at trial or further summary disposition."[35]

      39

      With respect to Cause of Action IV, the Defendants argue that because Frank has failed to plead an underlying breach of fiduciary duty by the Board or the Control Group, a claim for aiding and abetting fails as a matter of law. Moreover, the Defendants argue that even if Frank has pled a claim for breach of fiduciary duty, he has failed to adequately plead that the Purchasing Entities knowingly participated in that breach.

      40

      In opposing the Defendants' motion to dismiss Cause of Action I, Frank argues that the Complaint adequately alleges that Elgamal, Olmo-Rivas, Chapa, and Chamberlain "were, together, majority shareholders of American Surgical, owing a fiduciary duty to the minority public shareholders."[36] Frank also argues that the Complaint adequately alleges that the members of the Control Group stood on both sides of the Merger because "they negotiated for themselves a material interest in the surviving company,"[37] and therefore, that the Merger is subject to entire fairness review. "Moreover, even if the members of the controlling group did not stand on both sides of the . . . [Merger, Frank contends that] entire fairness might still be the appropriate standard of review at trial because no majority-of-the-minority provision was included as part of the . . . [Merger]."[38]

      41

      In support of Cause of Action II, Frank argues that the Complaint adequately pleads a claim for unjust enrichment against the members of the Control Group. Frank contends that the Defendants' argument that the unjust enrichment claim is based on a flawed analysis of HFBE's fairness opinion should not be addressed on a motion to dismiss—"[the Defendants'], or their expert's, disagreement with the analysis in the Complaint is not appropriately the subject for a motion to dismiss, but is a factual question that will be more appropriately answered after the completion of discovery."[39]

      42

      In defense of Cause of Action III, Frank argues that the Complaint adequately pleads that all of the Defendants were either interested in the Merger, or not independent, and therefore, that the Merger is subject to entire fairness review. Frank contends that each member of the Control Group was interested in the Merger because each received a material benefit (continued employment) in connection with the Merger. Frank further contends that Toh was interested in the Merger because he was paid $250,000 for his role in negotiating the Merger. According to Frank, "[s]uch a significant payment should, at least for purposes of this Motion, be considered a disabling conflict."[40] Frank argues that Bailey and Kleinman "were not independent because they had business relationships with the Company."[41] Specifically, Bailey and Kleinman, who are surgeons, worked at hospitals which allegedly have contractual relationships with one of American Surgical's subsidiaries.[42]

      43

      With regard to Cause of Action IV, Frank argues that the Complaint adequately pleads a claim for aiding and abetting.

      44
      IV. ANALYSIS
      45

      "Pursuant to [Court of Chancery] Rule 12(b)(6), this Court may grant a motion to dismiss for failure to state a claim if a complaint does not assert sufficient facts that, if proven, would entitle the plaintiff to relief."[43] "[T]he governing pleading standard in Delaware to survive a motion to dismiss is reasonable `conceivability.'"[44] Thus, when considering a motion to dismiss,

      46
      a trial court should accept all well-pleaded factual allegations in the Complaint as true, accept even vague allegations in the Complaint as "well-pleaded" if they provide the defendant notice of the claim, draw all reasonable inferences in favor of the plaintiff, and deny the motion unless the plaintiff could not recover under any reasonably conceivable set of circumstances susceptible of proof.[45]
      47

      "The court . . . need not `accept conclusory allegations unsupported by specific facts or . . . draw unreasonable inferences in favor of the non-moving party,'"[46] but as long as there is a reasonable possibility that a plaintiff could recover, a motion to dismiss will be denied.[47]

      48
      A. Cause of Action I
      49

      Cause of Action I alleges that the members of the Control Group breached the fiduciary duties that they owed to American Surgical's minority stockholders. When a corporation with a controlling stockholder merges with an unaffiliated company, the minority stockholders of the controlled corporation are cashed-out, and the controlling stockholder receives a minority interest in the surviving company, the controlling stockholder does not "stand on both sides" of the merger.[48] Therefore, in that type of transaction, Kahn v. Lynch Communication Systems, Inc.[49] "does not mandate that the entire fairness standard of review apply notwithstanding any procedural protections that were used."[50]

      50
      [I]t is nonetheless true that . . . [the controlling stockholder] and the minority stockholders . . . [are] in a sense "competing" for portions of the consideration . . . [that the unaffiliated company is] willing to pay to acquire . . . [the corporation] and that . . . [the controlling stockholder], as a result of his controlling position, could effectively veto any transaction. In such a case it is paramount-indeed, necessary in order to invoke business judgment review-that there be robust procedural protections in place to ensure that the minority stockholders have sufficient bargaining power and the ability to make an informed choice of whether to accept the third-party's offer for their shares.[51]
      51

      Specifically, "business judgment would be the applicable standard of review if the transaction were (1) recommended by a disinterested and independent special committee, and (2) approved by stockholders in a non-waivable vote of the majority of all the minority stockholders."[52] If a transaction is not conditioned on "robust procedural protections," "entire fairness is the appropriate standard of review."[53]

      52

      The Complaint sufficiently alleges that the Merger was a Hammons-type transaction. The Complaint pleads facts which suggest that the Control Group was American Surgical's controlling stockholder, that the Merger was a transaction between unaffiliated parties, and that the terms of the Merger granted the members of the Control Group a minority interest in the surviving company while American Surgical's minority stockholders were cashed-out. Therefore, because the Merger was not conditioned on "robust procedural protections," the Merger will be reviewed for entire fairness.

      53
      1. The Control Group was American Surgical's Controlling Stockholder
      54
      Although a controlling shareholder is often a single entity or actor, Delaware case law has recognized that a number of shareholders, each of whom individually cannot exert control over the corporation (either through majority ownership or significant voting power coupled with formidable managerial power), can collectively form a control group where those shareholders are connected in some legally significant way-e.g., by contract, common ownership, agreement, or other arrangement-to work together toward a shared goal.[54]
      55

      "If such a control group exists, it is accorded controlling shareholder status, and its members owe fiduciary duties to the minority shareholders of the corporation."[55]

      56

      Although there was no one person or entity that controlled American Surgical, the Complaint sufficiently alleges that Elgamal, Olmo-Rivas, Chapa, and Chamberlain, the members of the Control Group, were connected in a legally significant way. The Complaint alleges that the members of the Control Group, "as majority shareholders of the Company acting in concert, owed fiduciary duties to the public shareholders of the Company ...."[56] Moreover, the Complaint outlines how all of the members of the Control Group contemporaneously entered into the Voting Agreements, the Exchange Agreements, and the Employment Agreements. Specifically, the Complaint describes that on December 20, 2010, each member of the Control Group (1) agreed to vote his shares of American Surgical common stock in favor of the Merger, (2) exchanged some of his American Surgical common stock for an interest in the post-Merger entity, and (3) accepted employment with the post-Merger entity. It can reasonably be inferred, from that conduct, that the members of the Control Group were acting as American Surgical's controlling stockholder. Therefore, for purposes of a motion to dismiss, the Control Group was American Surgical's controlling stockholder.[57]

      57
      2. American Surgical's Minority Stockholders were Cashed-Out in the Merger while the Control Group Retained an Interest in the Surviving Company
      58

      Although the Defendants try to distinguish this case from Hammons and In re LNR Property Corp. Shareholders Litigation,[58] the facts here are strikingly similar to the facts in each of those cases. In Hammons, a corporation with a controlling stockholder merged into an unaffiliated company, and the corporation's minority stockholders were cashed-out. The controlling stockholder, however, was not cashed-out. Rather, in return for his shares of the corporation's stock, the controlling stockholder received a 2% interest in the surviving company, as well as certain other benefits.[59] The Court, in Hammons, recognized that the unaffiliated purchaser "made an offer to the minority stockholders, who were represented by the disinterested and independent special committee,"[60] but the Court still determined that the merger would be subject to entire fairness review unless it was conditioned on "robust procedural protections."[61]

      59

      Similarly, in LNR, a corporation with a controlling stockholder merged with an unaffiliated company and the corporation's minority stockholders were cashed-out. In connection with the merger, however, the controlling stockholder and other members of the corporation's management obtained an ownership stake in the surviving entity. The LNR Court, addressing a motion to dismiss, was required to accept the allegation in the complaint that the controlling stockholder sold a portion of his stockholdings "for a significant sum yet still retained the ability to participate in the Company's future profits and growth"[62] by acquiring a 20.4% interest in the surviving entity.[63] The Court determined that that allegation, "if true, could support a reasonable inference that . . . [the controlling stockholder] was sufficiently conflicted at the time he negotiated the sale that he would rationally agree to a lower sale price in order to secure a greater profit from his investment in . . . [the surviving entity]."[64] The Court further stated that "[i]f this is shown to be the case, the transaction will be subject to entire fairness review."[65]

      60

      This case, as in Hammons and LNR, involves a corporation with a controlling stockholder that entered into a merger with an unaffiliated company, and in the Merger, the minority stockholders were cashed-out while the controlling stockholder retained the ability to participate in the corporation's future profits and growth. Although the Defendants correctly contend that there is no allegation in the Complaint that the Control Group negotiated the compensation that the minority stockholders received in the Merger, the Court in Hammons determined that even when an independent and disinterested special committee negotiates on behalf of the minority, a merger will still be subject to entire fairness review unless it is conditioned on "robust procedural protections."[66] Moreover, although the Defendants contend that the members of the Control Group were "net sellers" in the Merger,[67] the Court, in LNR, made clear that when a corporation's minority stockholders are being cashed-out in a transaction, and the corporation's controlling stockholder will have a continued interest in the surviving entity, it is reasonable to infer that the controlling stockholder might "agree to a lower sale price in order to secure a greater profit from his investment in . . . [the surviving entity]."[68] As Frank states:

      61
      It is certainly plausible to conclude from the Complaint's allegations that the . . . [members of the Control Group] were motivated to obtain a substantial amount of cash from the deal but at the same time retain a sizable interest in the surviving Company, which they undoubtedly hoped would, with the help of a private equity firm, continue its planned expansion to become a "nationwide leader in the surgical assistant sector" that the Company strived for in its business plan.[69]
      62

      In short, the Merger is analogous to the transactions at issue in Hammons and LNR, and thus, the Merger is subject to entire fairness review unless it was conditioned on "robust procedural protections."

      63
      3. The Merger was not Conditioned on Robust Procedural Protections
      64

      The Merger was not conditioned on a non-waivable vote of the majority of all the minority stockholders. Rather, the Merger Agreement provides that "[t]he affirmative vote of the holders of a majority of the outstanding Common Shares on the record date for the Company Meeting is the only vote of holders of securities of the Company which is required to approve and adopt this Agreement . . . [and] the Merger . . . ."[70] Moreover, the Defendants do not argue that the Merger was conditioned on some other shareholder-protective mechanism that would satisfy Hammons.[71] Thus, the Merger is subject to entire fairness review.

      65

      "[W]hen the entire fairness standard applies, controlling stockholders can never escape entire fairness review, but they may shift the burden of persuasion . . . ."[72] The one way that the Control Group could shift the burden of persuasion is by showing "that the transaction was approved . . . by an independent board majority (or in the alternative, a special committee of independent directors)."[73] The Defendants claim that the Merger was approved by both an independent majority of the Board, and the Special Committee, which, they argue, was composed of independent and disinterested directors. The Defendants might be correct as to one or both of those claims, but a motion to dismiss is not the proper vehicle for deciding whether the burden of proof under entire fairness should be shifted.[74] The Merger will be reviewed for entire fairness, and therefore, the Defendants' motion to dismiss Cause of Action I is denied.[75]

      66
      B. Cause of Action II
      67

      Cause of Action II alleges that the members of the Control Group were unjustly enriched as a result of the Merger. In order to plead a claim for unjust enrichment, Frank must allege "(1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law."[76] With regard to an enrichment, the Complaint alleges that the Merger allowed the members of the Control Group "to continue to benefit from the Company's ongoing success,"[77] and that the Merger increased the likelihood of that success—the Company is now being run by, Great Point, a sophisticated market participant.[78] With regard to an impoverishment, the Complaint alleges that American Surgical's minority shareholders are not able to participate in the Company's ongoing success because they were cashed-out, at an unfairly low price, in the Merger.[79] Thus, the Control Group's alleged enrichment and the minority shareholders alleged impoverishment are related—the Merger allegedly both cashed out the minority shareholders at an unfair price, and gave Great Point control of American Surgical. Finally, the Complaint alleges that the Control Group's actions in connection with the Merger constituted a breach of fiduciary duty. Actions that constitute a breach of fiduciary duty are remedied in equity, and, at least for purposes of a motion to dismiss, unjustified. Therefore, Frank has adequately pled a claim for unjust enrichment.[80]

      68

      Frank's claim for unjust enrichment in Cause of Action II appears, at least to some extent, to be duplicative of his claim for breach of fiduciary duty in Cause of Action I. Delaware law, however, appears to permit a plaintiff to simultaneously assert two equitable claims even if they overlap.[81] A plaintiff will only receive, at most, one recovery,[82] but, at least at this procedural juncture, Frank may simultaneously assert a claim for breach of fiduciary duty and a claim for unjust enrichment against the members of the Control Group. Thus, the Defendants' motion to dismiss Cause of Action II is denied.

      69
      C. Cause of Action III
      70

      Cause of Action III alleges that the members of the Board, as well as Chamberlain and Chapa, have breached their fiduciary duty to ensure that the Merger was fair to American Surgical's minority shareholders, as well as their duty to ensure that the Company's shareholders were provided with all material information relevant to the decision of whether to seek appraisal. Because, as discussed above in Section IV.A, the members of the Control Group have, at this stage, the burden of proving that the Merger was entirely fair, the claims asserted against them in Cause of Action III survive. Moreover, Frank has adequately alleged that Toh was interested in the Merger because he received a $250,000 fee for his role in the transaction.[83] The Defendants may ultimately be correct that Toh earned that fee, and that it was not material to him, but, at this point, the Court can reasonably infer that Toh was interested in the Merger.

      71

      As for Bailey and Kleinman, Frank has alleged that they were not independent because they are surgeons who worked at hospitals that have a contractual relationship with one of American Surgical's subsidiaries. That allegation is insufficient as a matter of law to suggest that Bailey and Kleinman were not independent. Thus, if Bailey and Kleinman breached any duty, it was likely their duty of care. The Defendants contend that American Surgical has adopted an exculpatory provision pursuant to 8 Del. C. §102(b)(7), and thus, that Bailey and Kleinman cannot be held monetarily liable for any breach of their duty of care. The Defendants recognize, however, that this is not the time to address the effect of a §102(b)(7) exculpatory provision—"[i]f . . . entire fairness does, or may, apply here, then Defendants are content to have the §102(b)(7) defense decided at trial or further summary disposition."[84] Thus, the Defendants' motion to dismiss Cause of Action III is denied.

      72
      D. Cause of Action IV
      73

      Cause of Action IV alleges that the Purchasing Entities aided and abetted the breaches of fiduciary duty committed by the members of the Control Group and the Board. To state a claim that the Purchasing Entities aided and abetted a breach of fiduciary duty, Frank must plead "(1) the existence of a fiduciary relationship, (2) a breach of the fiduciary's duty, . . . (3) knowing participation in that breach by the . . . [Purchasing Entities],' and (4) damages proximately caused by the breach."[85] With regard to the requirement of "knowing participation," the Supreme Court has held:

      74
      Knowing participation in a boards 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, whereas a bidder may be liable to the targets stockholders if the bidder attempts to create or exploit conflicts of interest in the board. Similarly, a bidder may be liable to a targets stockholders for aiding and abetting a fiduciary breach by the targets board where the bidder and the board conspire in or agree to the fiduciary breach.[86]
      75

      The Complaint makes two arguments in support of its claim that the Purchasing Entities aided and abetted breaches of fiduciary duty. First, the Purchasing Entities were "intimately involved in the negotiations and structuring of the . . . [Merger] and understood that the . . . [Control Group] and the minority shareholders were competing for the consideration that . . . [the Purchasing Entities] would pay to acquire American Surgical."[87] Second, the Purchasing Entities "demanded deal protection measures, including an excessive termination fee, matching rights, and a no-shop clause while enticing American Surgical's management to enter into a deal with them through equity offerings . . . and lucrative salaries and bonuses . . . ."[88] Neither of those arguments, however, suggests that the Merger was anything other than an arm's-length transaction. With regard to the first argument, the Defendants are correct that it "is a tautology: no acquirer can ever complete an acquisition without being involved in the negotiations."[89] Moreover, although the first argument suggests that the Purchasing Entities knew that the Control Group and the minority shareholders were competing for consideration, it does not suggest that the Purchasing Entities attempted to exploit that competition. With regard to the second argument, nearly every third-party bidder seeks deal protection devices, and the fact that the Purchasing Entities were able to get American Surgical to agree to a few does not suggest anything other than that the parties were bargaining at arm's-length. Therefore, the Defendants' motion to dismiss Cause of Action IV is granted.[90]

      76
      V. CONCLUSION
      77

      For the foregoing reasons, the Defendants' motion to dismiss is granted as to Cause of Action IV, but denied as to Causes of Action I, II, and III. An implementing order will be entered.

      78

      [1] Except in noted instances, the factual background is based on the allegations in the Verified Amended Class Action Complaint (the "Complaint" or "Compl.").

      79

      [2] Early on in this Memorandum Opinion, the phrase "Control Group" is used for convenience. The Defendants question whether the four individuals may fairly be characterized as a "control group."

      80

      [3] Compl. ¶ 2.

      81

      [4] Id. at ¶ 44.

      82

      [5] Id.

      83

      [6] Frank v. Elgamal, 2011 WL 3300344, at *2 (Del. Ch. July 28, 2011) (the "Letter Opinion" or "Letter Op."). The Court draws certain background facts and aspects of the procedural history from the Letter Opinion. Nothing taken from the Letter Opinion is material to the Court's analysis.

      84

      [7] Compl. ¶ 46.

      85

      [8] Letter Op., 2011 WL 330344, at *2.

      86

      [9] Id.

      87

      [10] "[U]nder the terms of the Merger Agreement, . . . American Surgical's stockholders would [also] receive (a) additional per share merger consideration consisting of a final cash dividend, if any, payable by the Company and computed in accordance with the . . . [Merger Agreement], and (b) an ownership interest in CMC Associates, LLC, a subsidiary of the Company, which will be the beneficial owner of certain pending litigation and litigation rights. The value of the potential dividend and ownership interest in CMC Associate[s], LLC, was not ascertainable prior to the consummation of the Merger." Compl. ¶ 35. American Surgical's shareholders received a dividend of $0.02 per share on March 23, 2011. Letter Op., 2011 WL 3300344, at *2.

      88

      [11] Compl. ¶ 43.

      89

      [12] American Surgical Holdings, Inc., Current Report (Form 8-K) Ex. 10.1-10.12 (Dec. 23, 2010), available at http://www.sec.gov/Archives/edgar/data/1257499/XXXXXXXXXXXXXXXXXX/XXXXXXXXX -10-287695-index.htm. The Complaint incorrectly states that several of these agreements were entered into on December 23, 2010. See Compl. ¶¶ 8-11. The fact that these agreements were entered into on December 20, as opposed to December 23, is not material to the Court's analysis.

      90

      [13] Compl. ¶ 42.

      91

      [14] American Surgical Holdings, Inc., Definitive Proxy Statement (Schedule 14A), at 11 (Jan. 21, 2011), available at http://www.sec.gov/Archives/edgar/data/1257499/XXXXXXXXXXXXXXXXXX/ddef14a.htm. The Court only relies on American Surgical's Definitive Proxy Statement for the proposition that HFBE gave a fairness opinion on December 19, 2010.

      92

      [15] Compl. ¶ 59.

      93

      [16] Id. at ¶ 67.

      94

      [17] Letter Op., 2011 WL 3300344, at *2.

      95

      [18] Id.

      96

      [19] Id.

      97

      [20] Id.

      98

      [21] Compl. ¶ 69.

      99

      [22] Id. at ¶ 72.

      100

      [23] Id. at ¶ 71.

      101

      [24] Id. at ¶ 81. In the alternative, Cause of Action III alleges that "in agreeing to the Merger, ... [the members of the Board, Chamberlain, and Chapa] initiated a process to sell American Surgical that imposes a heightened fiduciary responsibility on them," id. at ¶ 85, which they have violated "by failing to maximize shareholder value." Id. at ¶ 86.

      102

      [25] Id. at ¶ 82.

      103

      [26] Id. at ¶ 89.

      104

      [27] Id. at ¶ 90.

      105

      [28] See Joint Opening Br. in Supp. of Defs.' Mot. to Dismiss ("Defs.' Opening Br.") at 14 ("While entire fairness may apply ab initio where a controlling entity stands on both sides of a transaction (i.e., in a squeeze out merger or a merger between two companies with one shareholder controlling both sides), `[e]ntire fairness is not automatically triggered when a noncontrolling shareholder appears on both sides of the challenged transaction.'") (quoting Orman v. Cullman, 794 A.2d 5, 20 n.36 (Del. Ch. 2002)).

      106

      [29] Joint Reply Br. in Supp. of Defs.' Mot. to Dismiss ("Defs.' Reply Br.") at 9.

      107

      [30] Defs.' Opening Br. at 16.

      108

      [31] Id.

      109

      [32] Id. at 28.

      110

      [33] Id. at 26.

      111

      [34] Id. at 19-20.

      112

      [35] Defs.' Reply Br. at 24.

      113

      [36] Pl.'s Br. in Opp. to Defs.' Mot. to Dismiss ("Pl.'s Answering Br.") at 11.

      114

      [37] Id. at 11-12.

      115

      [38] Id. at 12.

      116

      [39] Id. at 29.

      117

      [40] Id. at 27.

      118

      [41] Id. at 22.

      119

      [42] Compl. ¶ 47.

      120

      [43] In re Alloy, Inc. S'holder Litig., 2011 WL 4863716, at *6 (Del. Ch. Oct. 13, 2011).

      121

      [44] Central Mortg. Co. v. Morgan Stanley Mortg. Capital Holdings, LLC, 27 A.3d 531, 537 (Del. 2011) (citation omitted).

      122

      [45] Id. at 536 (citation omitted).

      123

      [46] Alloy, 2011 WL 4863716, at *6 (citing Price v. E.I. duPont de Nemours & Co., Inc., 26 A.3d 162, 166 (Del. 2011)).

      124

      [47] See id. ("Delaware's reasonable `conceivability' standard asks whether there is a `possibility' of recovery.") (citing Central Mortg., 27 A.3d at 537 n.13).

      125

      [48] In re John Q. Hammons Hotels Inc. S'holder Litig., 2009 WL 3165613, at *10 (Del. Ch. Oct. 2, 2009).

      126

      [49] 638 A.2d 1110 (Del. 1994).

      127

      [50] Hammons, 2009 WL 3165613, at *10.

      128

      [51] Id. at *12.

      129

      [52] Id.

      130

      [53] Id. at *13.

      131

      [54] Dubroff v. Wren Holdings, LLC, 2009 WL 1478697, at *3 (Del. Ch. May 22, 2009) ("Dubroff I") (citing In re PNB Holding Co. S'holders Litig., 2006 WL 2403999, at *9-10 (Del. Ch. Aug. 18, 2006); Emerson Radio Corp. v. Int'l Jensen Inc., 1996 WL 483086, at *17 (Del. Ch. Aug. 20, 1996)).

      132

      [55] Dubroff v. Wren Holdings, LLC, 2011 WL 5137175, at *7 ("Dubroff II") (Del. Ch. Oct. 28, 2011) (citing Dubroff I, 2009 WL 1478697, at *3).

      133

      [56] Compl. ¶ 2.

      134

      [57] The Defendants argue that even if Elgamal and Olmo-Rivas are considered to be a control group, Chapa and Chamberlain should not be considered to be part of that group because "Elgamal and Olmo-Rivas certainly possessed a majority interest in American Surgical without Chapa and Chamberlain." Defs.' Opening Br. at 28 (emphasis in original). A person is part of a control group when he is connected to the other members of the control group in some "legally significant way." Chapa and Chamberlain are alleged to have entered into Voting Agreements, Exchange Agreements, and Employment Agreements at the same time that Elgamal and Olmo-Rivas entered into those agreements. And the Complaint alleges that Elgamal, Olmo-Rivas, Chapa, and Chamberlain acted together to attain unique benefits for themselves at the expense of American Surgical's other stockholders. Thus, at this procedural stage, the Court will view Chapa and Chamberlain as members of the Control Group. If later in this litigation, Chapa and Chamberlain can show that they were not members of the Control Group, then they will obviously not be liable as controllers. Moreover, even if the Control Group only consisted of Elgamal and Olmo-Rivas, the Court's analysis, at this stage, would not change. Even if the Control Group only consisted of Elgamal and Olmo-Rivas, the Complaint would still allege that a control group agreed to enter into a transaction to benefit itself at the expense of American Surgical's minority stockholders.

      135

      [58] 896 A.2d 169 (Del. Ch. 2005).

      136

      [59] 2009 WL 3165613, at *7.

      137

      [60] Id. at *10.

      138

      [61] Id. at *12. See also Orman, 794 A.2d at 19-22 (determining that a merger was entitled to the presumptions of the business judgment rule "[d]espite the fact that the Cullman Group possessed voting control over the Company both before and after the proposed transaction, [where] approval of the merger required that a majority of the Unaffiliated Shareholders of Class A stock, voting separately as a class, vote in favor of the transaction," and the merger was recommended by an active special committee with full bargaining power.) (citation omitted).

      139

      [62] LNR, 896 A.2d at 173.

      140

      [63] Id. at 172.

      141

      [64] Id. at 178.

      142

      [65] Id. (citations omitted).

      143

      [66] Hammons, 2009 WL 3165613, at *12.

      144

      [67] See Defs.' Opening Br. at 16.

      145

      [68] LNR, 896 A.2d at 178.

      146

      [69] Pl.'s Answering Br. at 24.

      147

      [70] Compl. ¶ 43.

      148

      [71] The Defendants do argue that a majority of American Surgical's minority stockholders voted to approve the Merger. Defs.' Reply Br. at 20-22. A majority of the minority vote, however, only serves as a robust procedural protection when it is a non-waivable pre-condition to a transaction. Only when a transaction is conditioned on a vote of the majority of all minority stockholders will the minority stockholders know that they have real power. The fact that a majority of American Surgical's minority stockholders eventually voted to approve the Merger is not a robust procedural protection; it is something that occurred after the Merger was a foregone conclusion. The one actual procedural protection that the Defendants point to is the Special Committee, and under Hammons, that is not enough to invoke the presumptions of the business judgment rule in this setting.

      149

      [72] In re Southern Peru Copper Corp. S'holder Deriv. Litig., 2011 WL 6440761, at *20 (Del. Ch. Oct. 14, 2011, revised Dec. 20, 2011) (citation omitted).

      150

      [73] Id.

      151

      [74] See Orman, 794 A.2d at 20 n.36 ("Once the business judgment rule presumption is rebutted, the burden of proof shifts to the defendant, who must either establish the entire fairness of the transaction or show that the burden of disproving its entire fairness must be shifted to the plaintiff. A determination of whether the defendant has met that burden will normally be impossible by examining only the documents the Court is free to consider on a motion to dismiss—the complaint and any documents it incorporates by reference.").

      152

      [75] The Court is aware that purchasers of companies, especially private equity funds, often condition a transaction on the continued employment of critical members of management. Moreover, purchasers will sometimes structure a transaction so that the managers who continue with the company receive an equity stake in the company. Presumably, transactions are structured in this way so that the managers have "skin in the game." Moreover, this Court has suggested that, at least in some circumstances, it is permissible to structure transactions in this way. See In re OPENLANE, Inc. S'holders Litig., 2011 WL 4599662, at *5 (Del. Ch. Sept. 30, 2011) ("A competent executive who will stay on after the transaction may be viewed as value-adding by an acquirer."); Wayne County Employees' Ret. Sys. v. Corti, 2009 WL 2219260, at *11 (Del. Ch. July 24, 2009) ("That Kotick and Kelly did not have to pursue the transaction with Vivendi in order to retain their positions as managers significantly alleviates the concern that Kotick and Kelly were acting out of an impermissible `entrenchment' motive.'"). The problem of applying that reasoning to this case is that when the managers who are being given an on-going interest in the company are also members of the company's control group, it is reasonable for the Court to infer not only that the purchaser wants the managers to have "skin in the game," but that the managers/control group members are using their control to acquire a unique benefit for themselves at the expense of the minority stockholders.

      153

      Delaware's corporate law is primarily process-based—"the foundational principle of Delaware corporate law [is] that the directors, and not the court, properly manage the corporation." Corti, 2009 WL 2219260, at *15. Hammons clearly laid out a process—when a corporation with a controlling stockholder merges with an unaffiliated company, the minority stockholders of the controlled corporation are cashed-out, and the controlling stockholder receives a minority interest in the surviving company, the merger will be subject to entire fairness review unless there are robust procedural protections in place. The Merger Agreement did not contain robust procedural protections. Thus, it is subject to entire fairness review.

      154

      [76] Dubroff II, 2011 WL 5137175, at *11 (quoting Latesco, L.P. v. Wayport, Inc., 2009 WL 2246793, at *9 n.33 (Del. Ch. July 24, 2009)) (internal quotations omitted).

      155

      [77] Compl. ¶ 78.

      156

      [78] Id. at ¶ 67.

      157

      [79] Id. at ¶¶ 2, 67.

      158

      [80] The Defendants' argument that Frank's unjust enrichment claim is based on a flawed interpretation of HFBE's fairness opinion is a factual argument. Therefore, even assuming that the argument is accurate, it would not be a proper basis upon which to grant a motion to dismiss.

      159

      [81] See MCG Capital Corp. v. Maginn, 2010 WL 1782271, at *25 n.147 (Del. Ch. May 5, 2010) ("In this case, then, for all practical purposes, the claims for breach of fiduciary duty and unjust enrichment are redundant. One can imagine, however, factual circumstances in which the proofs for a breach of fiduciary duty claim and an unjust enrichment claim are not identical, so there is no bar to bringing both claims against a director.").

      160

      [82] Id. ("If MCG is able to prove Maginn breached his duty of loyalty in Count Five then it will also be successful in proving unjust enrichment in Count Six. Both claims hinge on whether Maginn was disloyal to Jenzabar by the manner in which he procured the 2002 Bonus. Of course, in the event MCG makes its case on both claims, Jenzabar will only be entitled to one recovery; return of the 2002 Bonus plus interest.").

      161

      [83] See Orman, 794 A.2d at 30 ("Even though there is no bright-line dollar amount at which consulting fees received by a director become material, at the motion to dismiss stage and on the facts before me, I think it is reasonable to infer that $75,000 would be material to director Bernbach . . . .").

      162

      [84] Defs.' Reply Br. at 24. See also LNR, 896 A.2d at 178 ("While the independent director defendants may ultimately be able to rely upon the Section 102(b)(7) charter provision, it is premature to dismiss the claims against them on this basis. First, the entire fairness standard of review may be applicable, and, thus, `the inherently interested nature of those transactions [may be] inextricably intertwined with issues of loyalty.'") (quoting Emerald Partners v. Berlin, 787 A.2d 85, 93 (Del. 2001)).

      163

      [85] Malpiede v. Townson, 780 A.2d 1075, 1096 (Del. 2001) (quoting Penn Mart Realty Co. v. Becker, 298 A.2d 349, 351 (Del. Ch. 1972) (other citations omitted)).

      164

      [86] Id. at 1097-98 (citations omitted).

      165

      [87] Compl. ¶ 89.

      166

      [88] Id. at ¶ 90.

      167

      [89] Defs.' Reply Br. at 26.

      168

      [90] The aiding and abetting claim here is distinguishable from the aiding and abetting claim in Hammons. In Hammons, the Court explained that the plaintiffs had alleged that the purchaser knew that the target company's shares were trading at a discount because the company's controlling stockholder had engaged in improper self-dealing. Nevertheless, the purchaser allegedly relied on the company's stock price. 2009 WL 3165613, at *18. The Hammons Court stressed "that . . . [the controlling stockholder] and the minority stockholders were in a sense `competing' for the consideration . . . [the purchaser] would pay . . .," and thus, the Court held that "plaintiffs could prevail at trial on the issue of fair dealing." Id. As stated above, here, unlike in Hammons, there is no allegation that the Purchasing Entities attempted to exploit the competition between the Control Group and American Surgical's minority stockholders. The Complaint alleges that the Defendants timed the Merger "to take advantage of a recent unexplained decline in the market price of American Surgical's stock," Compl. ¶ 57, but without an allegation that Great Point knew that the stock price was depressed for an improper reason, the fact that Great Point sought to consummate the Merger when American Surgical's stock price was low merely suggests that it was a savvy buyer. Thus, Frank's aiding and abetting claim against the Purchasing Entities fails as a matter of law.

    • 4.2 In Re MFW Shareholders Litigation (edited)

      1
      IN RE MFW SHAREHOLDERS LITIGATION.
      2
      C.A. No. 6566-CS.
      3

      Court of Chancery of Delaware.

      4
      Submitted: March 11, 2013.
      5
      Decided: May 29, 2013.
      6

      Peter B. Andrews, Esquire, FARUQI & FARUQI, LLP, Wilmington, Delaware; Carmella P. Keener, Esquire, ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware; Carl L. Stine, Esquire, Matthew Insley-Pruitt, Esquire, WOLF POPPER LLP, New York, New York; Juan E. Monteverde, Esquire, FARUQI & FARUQI, LLP, New York, New York; Kira German, Esquire, GARDY & NOTIS LLP, Englewood Cliffs, New Jersey, Attorneys for Plaintiff MFW Stockholders.

      7

      Thomas J. Allingham II, Esquire, Joseph O. Larkin, Esquire, Christopher M. Foulds, Esquire, Jessica L. Raatz, Esquire, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware, Attorneys for Defendants MacAndrews & Forbes Holdings Inc., Ronald O. Perelman, Barry F. Schwartz, and William C. Bevins.

      8

      Stephen P. Lamb, Esquire, Meghan M. Dougherty, Esquire, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Daniel J. Leffell, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York, Attorneys for Defendants M&F; Worldwide Corp., Philip E. Beekman, Charles T. Dawson, Theo W. Folz, John M. Keane, Bruce Slovin, and Stephen G. Taub.

      9

      William M. Lafferty, Esquire, D. McKinley Measley, Esquire, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Tariq Mundiya, Esquire, Todd G. Cosenza, Esquire, Christopher J. Miritello, Esquire, Jill K. Grant, Esquire, WILLKIE FARR & GALLAGHER, LLP, Attorneys for Defendants Paul M. Meister, Martha L. Byorum, Viet D. Dinh, and Carl B. Webb.

      10
      OPINION
      11
      STRINE, Chancellor.
      12
      I. Introduction
      13

      This case presents a novel question of law. Here, MacAndrews & Forbes—a holding company whose equity is solely owned by defendant Ronald Perelman—owned 43% of M&F; Worldwide ("MFW"). MacAndrews & Forbes offered to purchase the rest of the corporation's equity in a going private merger for $24 per share. But upfront, MacAndrews & Forbes said it would not proceed with any going private transaction that was not approved: (i) by an independent special committee; and (ii) by a vote of a majority of the stockholders unaffiliated with the controlling stockholder (who, for simplicity's sake, are termed the "minority"). A special committee was formed, which picked its own legal and financial advisors. The committee met eight times during the course of three months and negotiated with MacAndrews & Forbes, eventually getting it to raise its bid by $1 per share, to $25 per share. The merger was then approved by an affirmative vote of the majority of the minority MFW stockholders, with 65% of them approving the merger.

      14

      MacAndrews & Forbes, Perelman, and the other directors of MFW were, of course, sued by stockholders alleging that the merger was unfair. After initially seeking a preliminary injunction hearing in advance of the merger vote with agreement from the defendants and receiving a good deal of expedited discovery, the plaintiffs changed direction and dropped their injunction motion in favor of seeking a post-closing damages remedy for breach of fiduciary duty.

      15

      The defendants have moved for summary judgment as to that claim. The defendants argue that there is no material issue of fact that the MFW special committee was comprised of independent directors, had the right to and did engage qualified legal and financial advisors to inform itself whether a going private merger was in the best interests of MFW's minority stockholders, was fully empowered to negotiate with Perelman over the terms of his offer and to say no definitively if it did not believe the ultimate terms were fair to the MFW minority stockholders, and after an extensive period of deliberation and negotiations, approved a merger agreement with Perelman. The defendants further argue that there is no dispute of fact that a majority of the minority stockholders supported the merger upon full disclosure and without coercion. Because, the defendants say, the merger was conditioned up front on two key procedural protections that, together, replicate an arm's-length merger—the employment of an active, unconflicted negotiating agent free to turn down the transaction and a requirement that any transaction negotiated by that agent be approved by the disinterested stockholders—they contend that the judicial standard of review should be the business judgment rule. Under that rule, the court is precluded from inquiring into the substantive fairness of the merger, and must dismiss the challenge to the merger unless the merger's terms were so disparate that no rational person acting in good faith could have thought the merger was fair to the minority.[1] On this record, the defendants say, it is clear that the merger, which occurred at a price that was a 47% premium to the stock price before Perelman's offer was made, cannot be deemed waste, a conclusion confirmed by the majority-of-the-minority vote itself.

      16

      In other words, the defendants argue that the effect of using both protective devices is to make the form of the going private transaction analogous to that of a third-party merger under Section 251 of the Delaware General Corporation Law. The approval of a special committee in a going private transaction is akin to that of the approval of the board in a third-party transaction, and the approval of the noncontrolling stockholders replicates the approval of all the stockholders.

      17

      The question of what standard of review should apply to a going private merger conditioned upfront by the controlling stockholder on approval by both a properly empowered, independent committee and an informed, uncoerced majority-of-the-minority vote has been a subject of debate for decades now. For various reasons, the question has never been put directly to this court or, more important, to our Supreme Court.

      18

      This is in part due to uncertainty arising from a question that has been answered. Almost twenty years ago, in Kahn v. Lynch, our Supreme Court held that the approval by either a special committee or the majority of the noncontrolling stockholders of a merger with a buying controlling stockholder would shift the burden of proof under the entire fairness standard from the defendant to the plaintiff.[2] Although Lynch did not involve a merger conditioned by a controlling stockholder on both procedural protections, statements in the decision could be, and were, read as suggesting that a controlling stockholder who consented to both procedural protections for the minority would receive no extra legal credit for doing so, and that regardless of employing both procedural protections, the merger would be subject to review under the entire fairness standard.

      19

      Uncertainty about the answer to a question that had not been put to our Supreme Court thus left controllers with an incentive system all of us who were adolescents (or are now parents or grandparents of adolescents) can understand. Assume you have a teenager with math and English assignments due Monday morning. If you tell the teenager that she can go to the movies Saturday night if she completes her math or English homework Saturday morning, she is unlikely to do both assignments Saturday morning. She is likely to do only that which is necessary to get to go to the movies—i.e., complete one of the assignments—leaving her parents and siblings to endure her stressful last-minute scramble to finish the other Sunday night.

      20

      For controlling stockholders who knew that they would get a burden shift if they did one of the procedural protections, but who did not know if they would get any additional benefit for taking the certain business risk of assenting to an additional and potent procedural protection for the minority stockholders, the incentive to use both procedural devices and thus replicate the key elements of the arm's-length merger process was therefore minimal to downright discouraging.

      21

      Because of these and other incentives, the underlying question has never been squarely presented to our courts, and lawyers, investment bankers, managers, stockholders, and scholars have wondered what would be the effect on the standard of review of using both of these procedural devices.[3] In this decision, Perelman and his codefendants ask this court to answer that question by arguing that because the merger proposal that led to the merger challenged here was conditioned from the time of its proposal on both procedural protections, the business judgment rule standard applies and requires a grant of summary judgment against the plaintiffs' claims.

      22

      In this decision, the court answers the question the defendants ask, but only after assuring itself that an answer is in fact necessary. For that answer to be necessary, certain conditions have to exist.

      23

      First, it has to be clear that the procedural protections employed qualify to be given cleansing credit under the business judgment rule. For example, if the MFW special committee was not comprised of directors who qualify as independent under our law, the defendants would not be entitled to summary judgment under their own argument. Likewise, if the majority-of-the-minority vote were tainted by a disclosure violation or coercion, the defendants' motion would fail.

      24

      The court therefore analyzes whether the defendants are correct that the MFW special committee and the majority-of-the-minority vote qualify as cleansing devices under our law. As to the special committee, the court concludes that the special committee does qualify because there is no triable issue of fact regarding (i) the independence of the special committee, (ii) its ability to employ financial and legal advisors and its exercise of that ability, and (iii) its empowerment to negotiate the merger and definitively to say no to the transaction. The special committee met on eight occasions and there are no grounds for the plaintiffs to allege that the committee did not fulfill its duty of care. As to the majority-of-the-minority vote, the plaintiffs admit that it was a fully informed vote, as they fail to point to any failure of disclosure. Nor is there any evidence of coercion of the electorate.

      25

      Second, the court has to satisfy itself that our Supreme Court has not already answered the question. If our Supreme Court has done so, this court is bound by that answer, which may only be altered by the Supreme Court itself or by legislative action. Therefore, the court considers whether the plaintiffs are correct in saying that the Supreme Court has held, as a matter of law, that a controlling stockholder merger conditioned up front on special committee negotiation and approval, and an informed, uncoerced majority-of-the-minority vote must be reviewed under the entire fairness standard, rather than the business judgment rule standard. Although admitting that there is language in prior Supreme Court decisions that can be read as indicating that there are no circumstances when a merger with a controlling stockholder can escape fairness review, the court concludes that this language does not constitute a holding of our Supreme Court as to a question it was never afforded the opportunity to answer. In no prior case was our Supreme Court given the chance to determine whether a controlling stockholder merger conditioned on both independent committee approval and a majority-of-the-minority vote should receive the protection of the business judgment rule. Like the U.S. Supreme Court, our Supreme Court treats as dictum statements in opinions that are unnecessary to the resolution of the case before the court.[4] The plaintiffs here admit that under this definition of what constitutes binding precedent, our Supreme Court has not spoken to the question, because it has never been asked to answer the question. After reading the prior authority again, the court concludes that the question remains open and that this court must give its own answer in the first instance, while giving important weight to the reasoning of our Supreme Court in its prior jurisprudence.

      26

      After resolving these two predicate issues, the court answers the important question asked by the defendants in the affirmative. Although rational minds may differ on the subject, the court concludes that when a controlling stockholder merger has, from the time of the controller's first overture, been subject to (i) negotiation and approval by a special committee of independent directors fully empowered to say no, and (ii) approval by an uncoerced, fully informed vote of a majority of the minority investors, the business judgment rule standard of review applies. This conclusion is consistent with the central tradition of Delaware law, which defers to the informed decisions of impartial directors, especially when those decisions have been approved by the disinterested stockholders on full information and without coercion. Not only that, the adoption of this rule will be of benefit to minority stockholders because it will provide a strong incentive for controlling stockholders to accord minority investors the transactional structure that respected scholars believe will provide them the best protection,[5] a structure where stockholders get the benefits of independent, empowered negotiating agents to bargain for the best price and say no if the agents believe the deal is not advisable for any proper reason, plus the critical ability to determine for themselves whether to accept any deal that their negotiating agents recommend to them. A transactional structure with both these protections is fundamentally different from one with only one protection. A special committee alone ensures only that there is a bargaining agent who can negotiate price and address the collective action problem facing stockholders, but it does not provide stockholders any chance to protect themselves. A majority-of-the-minority vote provides stockholders a chance to vote on a merger proposed by a controller-dominated board, but with no chance to have an independent bargaining agent work on their behalf to negotiate the merger price, and determine whether it is a favorable one that the bargaining agent commends to the minority stockholders for acceptance at a vote. These protections are therefore incomplete and not substitutes, but are complementary and effective in tandem.

      27

      Not only that, a controller's promise that it will not proceed unless the special committee assents ensures that the committee will not be bypassed by the controller through the intrinsically more coercive setting of a tender offer. It was this threat of bypass that was of principal concern in Lynch and cast doubt on the special committee's ability to operate effectively.[6] Precisely because the controller can only get business judgment rule treatment if it foregoes the chance to go directly to stockholders, any potential for coercion is minimized. Indeed, given the high-profile promise the controller has to make not to proceed without the committee's approval, any retributive action would be difficult to conceal, and the potent tools entrusted to our courts to protect stockholders against violations of the duty of loyalty would be available to police retributive action. As important, market realities provide no rational basis for concluding that stockholders will not vote against a merger they do not favor. Stockholders, especially institutional investors who dominate market holdings, regularly vote against management on many issues, and do not hesitate to sue, or to speak up. Thus, when such stockholders are given a free opportunity to vote no on a merger negotiated by a special committee, and a majority of them choose to support the merger, it promises more cost than benefit to investors generally in terms of the impact on the overall cost of capital to have a standard of review other than the business judgment rule. That is especially the case because stockholders who vote no, and do not wish to accept the merger consideration in a going private transaction despite the other stockholders' decision to support the merger, will typically have the right to seek appraisal.[7]

      28

      In addition, if the approach taken were applied consistently to the equitable review of going private transactions proposed by controllers through tender offers, an across-the-board incentive would be created to provide minority stockholders with the best procedural protections in all going private transactions. Whether proceeding by a merger or a tender offer, a controlling stockholder would recognize that it would face entire fairness review unless it agreed not to proceed without the approval of an independent negotiator with the power to say no, and without the uncoerced, fully informed consent of a majority of the minority. This approach is consistent with Lynch and its progeny, as a controller who employed only one of the procedural protections would continue to get burden-shifting credit within the entire fairness rubric, but could not escape an ultimate judicial inquiry into substantive fairness. Importantly, by also providing transactional planners with a basis to structure transactions from the beginning in a manner that, if properly implemented, qualifies for the business judgment rule, the benefit-to-cost ratio of litigation challenging controlling stockholders for investors in Delaware corporations will improve, as suits will not have settlement value simply because there is no feasible way for defendants to get them dismissed on the pleadings.

      29

      This approach promises minority stockholders a great deal in terms of increasing the prevalence of employing both fairness-enhancing protections in more transactions—most notably, by giving investors a more constant chance to protect themselves at the ballot box through more prevalent majority-of-the-minority voting conditions. It also seems to come at very little cost, owing to the lack of evidence that entire fairness review in cases where both procedural protections are employed adds any real value that justifies the clear costs to diversified investors that such litigation imposes. Thus, respected scholars deeply concerned about the well-being of minority stockholders support this approach as beneficial for minority stockholders.[8] For the same reason, the court embraces it, and therefore grants the defendants' motion for summary judgment.

      30
      II. The Structure Of This Decision
      31

      Consistent with the introduction, this opinion will first address whether, under the undisputed facts of record, the defendants are correct that the MFW special committee and the majority-of-the minority provision qualify as cleansing devices under Delaware's approach to the business judgment rule. After addressing that issue, the court then considers whether our Supreme Court has answered the question of what judicial standard of review applies to a merger with a controlling stockholder conditioned upfront on a promise that no transaction will proceed without (i) special committee approval, and (ii) the affirmative vote of a majority of the minority stockholders. Finally, having concluded that the question has not been answered by our Supreme Court, this court answers the question itself.

      32

      In keeping with this structure, therefore, the court begins by discussing the undisputed facts that are relevant to deciding the legal issues raised by the pending motion for summary judgment, applying the familiar procedural standard.[9] That motion seeks summary judgment on the ground that the two procedural devices in question qualify as cleansing devices and, taken together, warrant application of the business judgment rule. Because the merger's terms are indisputably ones that a rational person could think fair to the minority stockholders, the defendants say that summary judgment is warranted.[10]

      33

      For their part, the plaintiffs argue that there are material questions of fact regarding the independence of the special committee. The plaintiffs also raise debatable issues of valuation, similar to those that are typically addressed in an appraisal or in the part of entire fairness analysis dealing with the substantive fairness of a merger price. Most important, however, the plaintiffs argue that regardless of whether the MFW special committee and the majority-of-the-minority vote qualify as cleansing devices, this court must still hold a trial and determine for itself whether the merger was entirely fair. At best, the defendants are entitled to a shift in the burden of persuasion on that point at trial under the preponderance of the evidence standard. But that slight tilt is all, the plaintiffs say, that is permitted under prior precedent.

      34
      III. The Procedural Devices Used To Protect The Minority Are Entitled To Cleansing Effect Under Delaware's Traditional Approach To The Business Judgment Rule
      35

      Determining whether the defendants are entitled to judgment that, as a matter of law, the MFW special committee and the majority-of-the-minority vote condition should be given cleansing effect, necessitates a discussion of how the merger came about.

      36
      A. MacAndrews & Forbes Proposes To Take MFW Private
      37

      MFW is a holding company incorporated in Delaware. Before the merger that is the subject of this dispute, MFW was 43.4% owned by MacAndrews & Forbes, which is entirely owned by Ron Perelman.[11] MFW had four business segments. Three of these were owned through a holding company, Harland Clarke Holding Corporation ("HCHC"). These are the Harland Clarke Corporation ("Harland"), which printed bank checks;[12] Harland Clarke Financial Solutions, which provided technology products and services to financial services companies;[13] and Scantron Corporation, which manufactured scanning equipment used for educational and other purposes.[14] The fourth segment, which was not part of HCHC, was Mafco Worldwide Corporation, a manufacturer of licorice flavorings.[15]

      38

      The MFW board had thirteen members. The members were Ron Perelman, Barry Schwartz, William Bevins, Bruce Slovin, Charles Dawson, Stephen Taub, John Keane, Theo Folz, Philip Beekman, Martha Byorum, Viet Dinh, Paul Meister, and Carl Webb.[16] Perelman, Schwartz, and Bevins had roles at both MFW and MacAndrews & Forbes. Perelman was the Chairman of MFW, and the Chairman and CEO of MacAndrews & Forbes; Schwartz was the President and CEO of MFW, and the Vice Chairman and Chief Administrative Officer of MacAndrews & Forbes; and Bevins was a Vice President at MacAndrews & Forbes.[17]

      39

      In May 2011, Perelman began to explore the possibility of taking MFW private. At that time, MFW's stock price traded in the $20 to $24 range.[18] MacAndrews & Forbes engaged the bank Moelis & Company to advise it. Moelis prepared valuations based on projections that had been supplied to lenders by MFW in April and May 2011.[19] Moelis valued MFW at between $10 and $32 a share.[20]

      40

      On June 10, 2011, MFW's shares closed on the New York Stock Exchange at $16.96.[21] The next business day, June 13, 2011, Schwartz sent a proposal to the MFW board to buy the remaining shares for $24 in cash.[22] The proposal stated, in relevant part:

      41
      The proposed transaction would be subject to the approval of the Board of Directors of the Company [i.e., MFW] and the negotiation and execution of mutually acceptable definitive transaction documents. It is our expectation that the Board of Directors will appoint a special committee of independent directors to consider our proposal and make a recommendation to the Board of Directors. We will not move forward with the transaction unless it is approved by such a special committee. In addition, the transaction will be subject to a non-waivable condition requiring the approval of a majority of the shares of the Company not owned by M&F; or its affiliates. . . .
      42
      . . . In considering this proposal, you should know that in our capacity as a stockholder of the Company we are interested only in acquiring the shares of the Company not already owned by us and that in such capacity we have no interest in selling any of the shares owned by us in the Company nor would we expect, in our capacity as a stockholder, to vote in favor of any alternative sale, merger or similar transaction involving the Company. If the special committee does not recommend or the public stockholders of the Company do not approve the proposed transaction, such determination would not adversely affect our future relationship with the Company and we would intend to remain as a long-term stockholder.
      43
      . . . .
      44
      In connection with this proposal, we have engaged Moelis & Company as our financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP as our legal advisor, and we encourage the special committee to retain its own legal and financial advisors to assist it in its review.[23]
      45

      MacAndrews & Forbes filed this letter with the SEC and issued a press release containing substantially the same information.[24]

      46
      B. The MFW Board Forms A Special Committee Of Independent Directors To Consider The Offer
      47

      The MFW board met the following day to consider the proposal.[25] At the meeting, Schwartz presented the offer on behalf of MacAndrews & Forbes. Schwartz and Bevins, as the two directors present who were also on the MacAndrews & Forbes board, then recused themselves from the meeting, as did Dawson, the CEO of HCHC, who had previously expressed support for the offer.[26] The independent directors then invited counsel from Willkie Farr & Gallagher, which had recently represented a special committee of MFW's independent directors in relation to a potential acquisition of a subsidiary of MacAndrews & Forbes, to join the meeting. The independent directors decided to form a special committee, and resolved further that:

      48
      [T]he Special Committee is empowered to: (i) make such investigation of the Proposal as the Special Committee deems appropriate; (ii) evaluate the terms of the Proposal; (iii) negotiate with Holdings [i.e., MacAndrews & Forbes] and its representatives any element of the Proposal; (iv) negotiate the terms of any definitive agreement with respect to the Proposal (it being understood that the execution thereof shall be subject to the approval of the Board); (v) report to the Board its recommendations and conclusions with respect to the Proposal, including a determination and recommendation as to whether the Proposal is fair and in the best interests of the stockholders of the Company other than Holdings and its affiliates and should be approved by the Board; and (vi) determine to elect not to pursue the Proposal. . . .
      49
      . . . .
      50
      . . . [T]he Board shall not approve the Proposal without a prior favorable recommendation of the Special Committee. . . .
      51
      . . . [T]he Special Committee [is] empowered to retain and employ legal counsel, a financial advisor, and such other agents as the Special Committee shall deem necessary or desirable in connection with these matters. . . .[27]
      52

      The special committee consisted of Byorum, Dinh, Meister (the chair), Slovin, and Webb.[28] The following day, Slovin recused himself because, although the board had determined that he qualified as an independent director under the rules of the New York Stock Exchange, he had "some current relationships that could raise questions about his independence for purposes of serving on the special committee."[29]

      53
      C. The Special Committee Was Empowered To Negotiate And Veto The Transaction
      54

      It is undisputed that the special committee was empowered to hire its own legal and financial advisors. Besides hiring Willkie Farr as its legal advisor, the special committee engaged Evercore Partners as its financial advisor.

      55

      It is also undisputed that the special committee was empowered not simply to "evaluate" the offer, like some special committees with weak mandates,[30] but to negotiate with MacAndrews & Forbes over the terms of its offer to buy out the noncontrolling stockholders. Critically, this negotiating power was accompanied by the clear authority to say no definitively to MacAndrews & Forbes. Thus, unlike in some prior situations that the court will discuss, MacAndrews & Forbes promised that it would not proceed with any going private proposal that did not have the support of the special committee. Therefore, the MFW committee did not have to fear that if it bargained too hard, MacAndrews & Forbes could bypass the committee and make a tender offer directly to the minority stockholders. Rather, the special committee was fully empowered to say no and make that decision stick.

      56

      Although the special committee had the authority to negotiate and say no, it did not have the practical authority to market MFW to other buyers. In its announcement, MacAndrews & Forbes plainly stated that it was not interested in selling its 43% stake. Under Delaware law, MacAndrews & Forbes had no duty to sell its block,[31] which was large enough, as a practical matter, to preclude any other buyer from succeeding unless it decided to become a seller. And absent MacAndrews & Forbes declaring that it was open to selling, it was unlikely that any potentially interested party would incur the costs and risks of exploring a purchase of MFW. This does not mean, however, that the MFW special committee did not have the leeway to get advice from its financial advisor about the strategic options available to MFW, including the potential interest that other buyers might have if MacAndrews & Forbes was willing to sell. The record is undisputed that the special committee did consider, with the help of its financial advisor, whether there were other buyers who might be interested in purchasing MFW,[32] and whether there were other strategic options, such as asset divestitures, that might generate more value for minority stockholders than a sale of their stock to MacAndrews & Forbes.[33]

      57

      For purposes of this motion, therefore, there is undisputed evidence that the special committee could and did hire qualified legal and financial advisors; that the special committee could definitely say no; that the special committee could and did study a full range of financial information to inform itself, including by evaluating other options that might be open to MFW; and that the special committee could and, as we shall see, did negotiate with MacAndrews & Forbes over the terms of its offer.

      58
      D. The Independence Of The Special Committee
      59

      One of the plaintiffs' major arguments against summary judgment is that the MFW special committee was not comprised of directors who meet the definition of independence under our law. Although the plaintiffs concede the independence of the special committee's chairman (Meister), they challenge the independence of each of the other three members, contending that various business and social ties between these members and MacAndrews & Forbes render them beholden to MacAndrews & Forbes and its controller Perelman, or at least create a permissible inference that that is so, thus defeating a key premise of the defendants' summary judgment motion.

      60

      To evaluate the parties' competing positions, the court applies settled authority of our Supreme Court. Under Delaware law, there is a presumption that directors are independent.[34] To show that a director is not independent, a plaintiff must demonstrate that the director is "beholden" to the controlling party "or so under [the controller's] influence that [the director's] discretion would be sterilized."[35] Our law is clear that mere allegations that directors are friendly with, travel in the same social circles, or have past business relationships with the proponent of a transaction or the person they are investigating, are not enough to rebut the presumption of independence.[36] Rather, the Supreme Court has made clear that a plaintiff seeking to show that a director was not independent must meet a materiality standard, under which the court must conclude that the director in question's material ties to the person whose proposal or actions she is evaluating are sufficiently substantial that she cannot objectively fulfill her fiduciary duties.[37] Consistent with the overarching requirement that any disqualifying tie be material, the simple fact that there are some financial ties between the interested party and the director is not disqualifying. Rather, the question is whether those ties are material, in the sense that the alleged ties could have affected the impartiality of the director.[38] Our Supreme Court has rejected the suggestion that the correct standard for materiality is a "reasonable person" standard; rather, it is necessary to look to the financial circumstances of the director in question to determine materiality.[39]

      61

      Before examining each director the plaintiffs challenge as lacking independence, it is useful to point out some overarching problems with the plaintiffs' arguments. Despite receiving the chance for extensive discovery, the plaintiffs have done nothing, as shall be seen, to compare the actual economic circumstances of the directors they challenge to the ties the plaintiffs contend affect their impartiality. In other words, the plaintiffs have ignored a key teaching of our Supreme Court, requiring a showing that a specific director's independence is compromised by factors material to her.[40] As to each of the specific directors the plaintiffs challenge, the plaintiffs fail to proffer any real evidence of their economic circumstances. Furthermore, MFW was a New York Stock Exchange-listed company. Although the fact that directors qualify as independent under the NYSE rules does not mean that they are necessarily independent under our law in particular circumstances,[41] the NYSE rules governing director independence were influenced by experience in Delaware and other states and were the subject of intensive study by expert parties. They cover many of the key factors that tend to bear on independence, including whether things like consulting fees rise to a level where they compromise a director's independence,[42] and they are a useful source for this court to consider when assessing an argument that a director lacks independence. Here, as will be seen, the plaintiffs fail to argue that any of the members of the special committee did not meet the specific, detailed independence requirements of the NYSE.

      62

      With those overarching considerations in mind, the court turns to a consideration of the plaintiffs' challenge to the members of the special committee. Here, an application of our Supreme Court's teachings to the challenged directors in alphabetical order reveals that the defendants are correct, and that there is no dispute of fact that the MFW special committee was comprised solely of directors who were independent under our Supreme Court's jurisprudence.

      63
      1. Byorum
      64

      Director Byorum is a vice president and co-head of the international group at Stephens, an investment bank.[43] She was a director of MFW from 2007, and served on the audit committee.[44] As was mentioned, the plaintiffs do nothing to illustrate the actual economic circumstances of Byorum, other than say she has worked in finance. Thus, the plaintiffs do nothing to show that there is a triable issue of fact that any of the factors they focus on were material to Byorum based on her actual economic circumstances.

      65

      The plaintiffs allege, in a cursory way, that Byorum has a personal relationship with Perelman, and that she had a business relationship with him while she worked at Citibank in the nineties.[45] Byorum got to know Barry Schwartz, the CEO of MFW, and Howard Gittis, Perelman's close aide and the CEO of MacAndrews & Forbes, while working at Citibank in the nineties.[46] Gittis asked her to serve on the MFW board.[47] In 2007, Byorum, while working on behalf of Stephens Cori, an affiliate of Stephens, initiated a project for Scientific Games, an entity in which MacAndrews & Forbes owns a 37.6% stake.[48] Stephens Cori received a $100,000 retainer fee for this work, and, if the project had been successful, would have received more.[49]

      66

      Taken together, these allegations and the record facts on which they are based do not create a triable issue of fact regarding Byorum's independence. The allegations of friendliness—for example, that Byorum has been to Perelman's house—are exactly of the immaterial and insubstantial kind our Supreme Court held were not material in Beam v. Stewart.[50] The plaintiffs do not specify the nature of the business relationship between Byorum and Perelman during Byorum's time at Citigroup, beyond claiming that Byorum would "come into contact" with him in her capacity as a senior executive.[51] This vague relationship does not cast her independence into doubt: the plaintiffs have made no showing that Byorum has an ongoing relationship with Perelman that was material to her in any way.[52] The plaintiffs even admit the unsurprising fact that Perelman had multiple dealings with the financial giant Citigroup over the years, thus undermining the relative importance of any connection that Byorum personally had with him.[53] And, the plaintiffs do not allege that Byorum has a deeper friendship with Schwartz and Gittis than she does with Perelman, and no facts in the record suggest any emotional depth to these relationships at all. Therefore, these allegations do not undermine her independence either.

      67

      More important, the plaintiffs have not made any genuine attempt to show that the $100,000 fee that Stephens Cori earned was material to Stephens Cori, much less to Byorum on a personal level given her personal economic and professional circumstances.[54] Nor have the plaintiffs tried to show that this modest transactional fee— which is only one tenth of the $1 million that Stephens Cori would have had to have received for Byorum not to be considered independent under the NYSE rules—created a "sense of beholdenness" on the part of Byorum.[55] Thus, there is no genuine issue of material fact as to Byorum's independence.

      68
      2. Dinh
      69

      The plaintiffs next challenge the independence of Dinh, who was a member of MFW's Nominating and Corporate Governance Committees.[56] Dinh is a professor at the Georgetown University Law Center and a cofounder of Bancroft, a Washington D.C. law firm.[57] Aside from these facts about Dinh's professional activities, the plaintiffs have not explained how they relate to Dinh's economic circumstances. The concept of materiality is an inherently comparative one, requiring consideration of whether something is material to something else.[58] As a result, the plaintiffs have done nothing to demonstrate that there is a triable issue of fact based on any of the factors they have brought up.

      70

      Dinh's firm, Bancroft, has advised MacAndrews & Forbes and Scientific Games since 2009, and it is undisputed that Bancroft received approximately $200,000 in fees in total from these two companies between 2009 and 2011.[59] The plaintiffs have also alleged that Dinh had a close personal and business relationship with Schwartz.[60] Schwartz sits on the Board of Visitors of the Georgetown University Law Center, where Dinh is a tenured professor, and Schwartz requested that Dinh join the board of another Perelman corporation, Revlon, in 2012.[61]

      71

      But these allegations do not create any issue of fact as to Dinh's independence. As is the case with Byorum, the plaintiffs have not put forth any evidence that tends to show that the $200,000 fee paid to Dinh's firm was material to Dinh personally, given his roles at both Georgetown and Bancroft.[62] The fees paid to Bancroft are, as in the case of the fees paid to Scientific Games on account of Byorum's work, a fraction of what would need to be paid for Dinh no longer to be considered an independent director under the New York Stock Exchange rules, and would not fund Bancroft's total costs for employing a junior associate for a year. Nor have the plaintiffs offered any evidence that might show that this payment was material in any way to Dinh, given his personal economic circumstances.

      72

      Furthermore, Dinh's relationship with Schwartz does not cast his independence into doubt. Dinh was a tenured professor long before he knew Schwartz.[63] And there is no evidence that Dinh has any role at Georgetown in raising funds from alumni or other possible donors, or any other evidence suggesting that the terms or conditions of Dinh's employment at Georgetown could be affected in any way by his recommendation on the merger.[64] Likewise, the fact that Dinh was offered a directorship on the board of Revlon, another Perelman company, after he served on the MFW special committee does not create a genuine issue of fact regarding his independence.[65]

      73
      3. Webb
      74

      Finally, the plaintiffs challenge the independence of Webb, who was a member of MFW's audit committee.[66] Webb was, at the time of the MFW transaction, a banking executive.[67] The plaintiffs allege that Webb has known Perelman since at least 1988, when Perelman invested in failed thrifts with the banker Gerald J. Ford, and that Webb was President and Chief Operating Officer of their investment vehicles.[68] According to the plaintiffs, Webb and Perelman both made a "significant" amount of money in turning around the thrifts, which they sold to Citigroup for $5 billion in 2002.[69] But, once again, the plaintiffs have ignored Webb's economic circumstances in attempting to create a triable issue of fact about his independence. Despite touting the business success that Webb enjoyed alongside Perelman, counsel for the plaintiffs claimed at oral argument that his wealth was not relevant to his independence, and only begrudgingly conceded that Webb might be "seriously rich."[70]

      75

      The profit that Webb realized from coinvesting with Perelman nine years before the transaction at issue in this case does not call into question his independence. In fact, it tends to strengthen the argument that Webb is independent, because his current relationship with Perelman would likely be economically inconsequential to him. And, there is no evidence that Webb and Perelman had any economic relationship in the nine years before this merger that was material to Webb, given his existing wealth. Therefore, the only challenge that the plaintiffs may make to Webb's independence is the existence of a distant business relationship—which is not sufficient to challenge his independence under our law.[71]

      76

      For all these reasons, therefore, the MFW special committee was, as a matter of law, comprised entirely of independent directors.

      77
      E. There Is No Dispute Of Fact That The MFW Special Committee Satisfied Its Duty Of Care
      78

      The plaintiffs do not make any attempt to show that the MFW special committee failed to meet its duty of care, in the sense of making an informed decision regarding the terms on which it would be advantageous for the minority stockholders to sell their shares to MacAndrews & Forbes.[72] At its first meeting, the special committee interviewed four financial advisors, before hiring Evercore Partners.[73] Such an interview process not only lets the client consider a number of qualified advisors and, one hopes, therefore get better financial terms from the winner because the winner knows it has competition. The process has another utility, which is that each of the pitching firms present "pitch books" relevant to the potential engagement, and give the committee a chance to hear preliminary thoughts from a variety of well qualified financial advisors, a process that therefore helps the committee begin to get fully grounded in the relevant economic factors.

      79

      From the outset, the special committee and Evercore had projections that had been prepared by MFW's business segments in April and May 2011.[74] Early in its process, Evercore and the special committee requested MFW to produce new projections that reflected the management's most up-to-date, and presumably most accurate, thinking.[75] Mafco, the licorice business, told Evercore that all of its projections would remain the same.[76] Harland Clarke updated its projections.[77] On July 22, Evercore received new projections from HCHC, which incorporated the updated projections from Harland Clarke, and Evercore constructed a valuation model based on them.[78]

      80

      The updated projections forecast EBITDA for MFW of $491 million in 2015, as opposed to $535 million under the original projections.[79] On August 10, Evercore produced a range of valuations for MFW, based on the updated projections, of $15 to $45 per share.[80] Evercore valued MFW using a variety of accepted methods, including a DCF model, which generated a range of fair value of $22 to $38 per share, and a premiums paid analysis, with a resulting value range of $22 to $45.[81] MacAndrews & Forbes's $24 offer fell within the range of values produced by each of Evercore's valuation techniques.[82]

      81

      The special committee asked Evercore to analyze how the possible sale of Harland to a rival check printing company might affect the valuation.[83] Evercore produced this analysis a week later, at the next meeting of the special committee, on August 17.[84] Evercore opined that such a sale would not produce a higher valuation for the company.[85] The special committee rejected the $24 proposal, and countered at $30 a share.[86] MacAndrews & Forbes was disappointed by this counteroffer.[87] On September 9, 2011, MacAndrews & Forbes rejected the special committee's $30 counteroffer, and reiterated its $24 offer.[88] Meister informed Schwartz that he would not recommend the $24 to the special committee.[89] Schwartz then obtained approval from Perelman to make a "best and final" offer of $25 a share.[90] At their eighth, and final, meeting, on September 10, 2011, Evercore opined that the price was fair, and the special committee unanimously decided to accept the offer.[91]

      82

      The MFW board then discussed the offer. Perelman, Schwartz, and Bevins, the three directors affiliated with MacAndrews & Forbes, and Dawson and Taub, the CEOs of HCHC and Mafco, recused themselves.[92] The remaining eight directors voted unanimously to recommend the offer to the stockholders.[93]

      83

      In their briefs, the plaintiffs make a number of arguments in which they question the business judgment of the special committee, in terms of issues such as whether the special committee could have extracted another higher bid from MacAndrews & Forbes if it had said no to the $25 per share offer, and whether the special committee was too conservative in valuing MFW's future prospects. These are the sorts of questions that can be asked about any business negotiation, and that are, of course, the core of an appraisal proceeding and relevant when a court has to make a determination itself about the financial fairness of a merger transaction under the entire fairness standard.

      84

      What is not in question is that the plaintiffs do not point to any evidence indicating that the independent members of the special committee did not meet their duty of care in evaluating, negotiating and ultimately agreeing to a merger at $25 per share. The record is clear that the special committee met frequently and was presented with a rich body of financial information relevant to whether and at what price a going private transaction was advisable, and thus there is no triable issue of fact as to its satisfaction of its duty of care.[94] Because the special committee was comprised entirely of independent directors, there is no basis to infer that they did not attempt in good faith to obtain the most favorable price they could secure for the minority or believe they had done so.

      85
      F. A Fully Informed, Uncoerced Majority Of The Minority Votes To Support The Merger
      86

      On November 18, 2011, the stockholders were provided with a proxy statement containing the history of the merger and recommending that they vote in favor of the transaction. The proxy statement made clear, among other things, that the special committee had countered at $30 per share, but only was able to get a final offer of $25 per share.[95] The proxy statement indicated that the MFW business divisions discussed with Evercore whether the initial projections that Evercore received reflected management's latest thinking, and that plainly stated that the new projections were lower.[96] The proxy also gave the five separate ranges for the value of MFW's stock that Evercore had produced with different analyses.[97]

      87

      When the votes were counted on December 21, 2011, stockholders representing 65% of the shares not owned by MacAndrews & Forbes voted to accept the offer.[98] The merger closed that same day.[99]

      88

      Under settled authority, the uncoerced, fully informed vote of disinterested stockholders is entitled to substantial weight under our law. Traditionally, such a vote on a third-party merger would, in itself, be sufficient to invoke the business judgment standard of review.[100] In the controlling stockholder merger context, it is settled that an uncoerced, informed majority-of-the-minority vote, without any other procedural protection, is itself sufficient to shift the burden of persuasion to the plaintiff under the entire fairness standard.[101]

      89

      Here, therefore, it is clear that as a matter of law, the majority-of-the-minority vote condition qualifies as a cleansing device under traditional Delaware corporate law principles. The consequences of these determinations for the resolution of this motion are important. Absent both of the procedural protections qualifying as a cleansing device, there would be no reason to answer the ultimate question the defendants pose, because that question depends on both of the protections having sufficient integrity to invoke the business judgment standard.

      90

      The court concludes here that there is no triable issue of fact regarding the operation of these devices. For the reasons stated, the plaintiffs themselves do not dispute that that majority-of-the-minority vote was fully informed and uncoerced, because they fail to allege any failure of disclosure or any act of coercion.

      91

      As to the special committee, the court has rejected the plaintiffs' challenge to the independence of the committee membership. The court also finds, as a matter of law, that there is no issue that the special committee was sufficiently empowered to hire its own advisors, inform itself, negotiate, and to definitively say no. Lastly, there is no triable issue of fact regarding whether the special committee fulfilled its duty of care.

      92

      These conditions are sufficient, under a traditional approach, to be effective in influencing the intensity of review, and as to a conflict transaction not involving a controlling stockholder, to invoke the business judgment rule standard of review.

      93

      The court gives the committee such effect here. In doing so, the court eschews determining that the special committee was "effective" in a more colloquial sense. Although prior cases can potentially be read as requiring an assessment of whether a special committee was effective in the sense of being substantively good at its appointed task,[102] such a precondition is fundamentally inconsistent with the application of the business judgment rule standard of review. For a court to determine whether a special committee was effective in obtaining a good economic outcome involves the sort of second-guessing that the business judgment rule precludes. When a committee is structurally independent, has a sufficient mandate and cannot be bypassed, and fulfills its duty of care, it should be given standard-shifting effect. Any other approach as a matter of fact involves the application of a form of entire fairness review or at least the type of heightened reasonableness scrutiny required under the Unocal or Revlon standards, i.e., standards that intentionally involve judges in reviewing director behavior in a manner not permitted under the business judgment rule.[103] Furthermore, adhering to this approach is consistent with a close reading of prior cases. In many of the cases where special committees were not given cleansing effect, the reason was not that the court second-guessed tactical decisions made by a concededly independent committee with a sufficient mandate to protect the minority investors.[104] Rather, it was precisely because the special committee lacked one of these essential attributes that the committee was not given weight. For example, in Lynch, the committee's effectiveness was undermined because the controller made plain that if the committee did not consensually agree to a transaction, the controller would end-run the committee and go to the stockholders with a tender offer, a form of transaction that is generally considered intrinsically more coercive than one preceded by a merger vote.[105] Likewise, in Tremont, the committee was ineffective because two of the three directors breached their duty of care by "abdicat[ing] their responsibility" in favor of the chair, who had been lucratively employed as a consultant by the controller and did not come close to the standard of independence required of what was for practical purposes a one-person committee.[106]

      94

      To the extent that the fundamental rule is that a special committee should be given standard-influencing effect if it replicates arm's-length bargaining, that test is met if the committee is independent, can hire its own advisors, has a sufficient mandate to negotiate and the power to say no, and meets its duty of care. Under that approach, the MFW special committee qualifies.

      95
      G. There Is No Triable Issue Of Fact That The Merger Was A Transaction That A Rational Person Could Believe Was Favorable To MFW's Minority Stockholders
      96

      If the business judgment rule standard of review applies, the claims against the defendants must be dismissed unless no rational person could have believed that the merger was favorable to MFW's minority stockholders.[107] Although the plaintiffs raise arguments as to why the merger should have been at a higher price, these arguments, and the scant facts supporting them, do not raise a triable issue of fact under the business judgment rule.[108] The merger was effected at a 47% premium to the closing price before MacAndrews & Forbes's offer. A financial advisor for the special committee found that the price was fair in light of various analyses, including a DCF analysis, which mirrors the valuation standard applicable in an appraisal case. MFW's businesses faced long-term challenges, particularly its check-printing business, Harland Clarke, which faced serious pricing pressure as its primary contract was put out to bid by the grantor and a seemingly irrevocable long-term decline in its industry because of global trends to eliminate as many checks as possible and conduct all transactions online. After disclosure of the material facts, 65% of the minority stockholders decided for themselves that the price was favorable.[109]

      97

      The plaintiffs' argument that many of these stockholders were arbitrageurs who had bought from longer-term stockholders and whose views should be discounted has a fundamental logical problem. The fact that long-term MFW stockholders sold at a price that was substantially higher than the market price when MacAndrews & Forbes made its offer but less than $25 per share merger price does not suggest that the price was one that long-term stockholders viewed as unfavorable. Rather, it suggests the opposite. The value of most stocks is highly debatable. What is not debatable here is that a rational mind could have believed the merger price fair, and that is what is relevant under the business judgment rule, which precludes judicial second-guessing when that is the case.

      98
      IV. The Supreme Court Has Never Had A Chance To Answer The Question The Defendants Now Pose And Therefore It Remains Open For Consideration
      99

      The next issue the court must determine is whether the question that the defendants pose has already been answered in a binding way by our Supreme Court. The defendants accurately argue, as will be explained, that the Supreme Court has never been asked to consider whether the business judgment rule applies if a controlling stockholder conditions the merger upfront on approval by an adequately empowered independent committee that acts with due care, and on the informed, uncoerced approval of a majority of the minority stockholders. To their credit, the plaintiffs admit that the defendants are transaction as fair. If fully informed, uncoerced, independent stockholders have approved the correct in their argument that the Supreme Court has never been asked this question and that none of its prior decisions hinged on this question.[110]

      100

      But the plaintiffs, also accurately, note that there are broad statements in certain Supreme Court decisions that, if read literally and as binding holdings of law, say that the entire fairness standard applies to any merger with a controlling stockholder, regardless of the circumstances. In particular, the plaintiffs rely on language from the Supreme Court's decision in Lynch, which, they say, requires this court to review the MFW transaction under the entire fairness standard: "A controlling or dominating shareholder standing on both sides of a transaction, as in a parent-subsidiary context, bears the burden of proving its entire fairness."[111] The plaintiffs claim that this general principle controls this case. They then claim that our Supreme Court has affirmed this principle three times, in Kahn v. Tremont Corp.,[112] Emerald Partners v. Berlin,[113] and most recently in Americas Mining Corp. v. Theriault.[114]

      101

      There is no question that, if the Supreme Court has clearly spoken on a question of law necessary to deciding a case before it, this court must follow its answer. But, when the Supreme Court has not had a chance to answer the question in a case where the answer matters—or in this situation, a chance to answer the question at all—there is no answer for the trial courts to follow. As will be shown, our Supreme Court has never had the opportunity to decide what should be the correct standard of review in a situation like this, because it has never been presented with the question.

      102

      Our Supreme Court follows the traditional definition of "dictum," describing it as judicial statements on issues that "would have no effect on the outcome of [the] case."[115] In Delaware, such dictum is "without precedential effect."[116] Thus, broad judicial statements, when taken out of context, do not constitute binding holdings.[117] In addition, the Supreme Court treats as dictum language on an issue if the record before the court was "not sufficient to permit the question to be passed on."[118] If an issue is not presented to a court with the benefit of full argument and record, any statement on that issue by that court is not a holding with binding force.[119]

      103

      Both parties agree that no case has turned on the question of the effect of conditioning a merger upfront on the approval of a special committee and a majority of the noncontrolling stockholders. And, the parties agree that this issue has never been briefed or argued to a Delaware court. Therefore, under the Supreme Court's definition of dictum, the question in this case is still open.

      104

      The plaintiffs, although admitting that the question presented to the court here was never squarely presented to the Supreme Court, argue that three prior cases nonetheless preclude the application of any standard of review other than entire fairness. But, a close, if terse, discussion of them in chronological order shows that none of them constitutes binding precedent on the novel question now presented.

      105

      The plaintiffs rely most heavily on Lynch itself because of the broad statement previously quoted. There is a transactional similarity to the context here. The transaction that gave rise to the Lynch case was a merger between a parent corporation, Alcatel, and the subsidiary that it controlled, Lynch. Alcatel owned 43% of Lynch, and sought to obtain the rest of Lynch through a cash-out merger. And Lynch created a special committee to negotiate with Alcatel. But that is the critical point where the similarity ends.

      106

      In this case, MacAndrews & Forbes made two promises that were not made in Lynch. MacAndrews & Forbes said it would not proceed with any transaction unless the special committee approved it, and that it would subject any merger to a majority-of-the-minority vote condition.[120] In Lynch, the conduct was of a very different and more troubling nature, in terms of the effectiveness of the special committee and the ability of the minority stockholders to protect themselves. Instead of committing not to bypass the special committee, Alcatel threatened to proceed with a hostile tender offer at a lower price if the special committee did not recommend the transaction to the board.[121] The special committee, which the Supreme Court perceived to be itself coerced by this threat, recommended the offer and signed up a merger agreement, and the stockholders voted in favor of the transaction.[122] A stockholder objected to the price paid, and brought an action for breach of fiduciary duty. The question of the equitable standard of review of the transaction was raised on appeal, and the Supreme Court stated: "Entire fairness remains the proper focus of judicial analysis in examining an interested merger, irrespective of whether the burden of proof remains upon or is shifted away from the controlling or dominating shareholder, because the unchanging nature of the underlying `interested' transaction requires careful scrutiny."[123] This language, the plaintiffs say, dictates the standard of review to be applied to this case.

      107

      But, as indicated, the situation in Lynch was very different from the transaction in this case. The Lynch merger was conditioned only on the approval of the special committee, not on the approval of the non-Alcatel stockholders as well. Furthermore, the special committee in Lynch was not empowered to say no, because Alcatel reserved the right to and did in fact threaten to approach the stockholders with a tender offer at a lower price. The Lynch CEO testified that one Alcatel representative on the Lynch board "scared [the non-Alcatel directors] to death," and one of the three directors on the special committee testified that he thought that the price paid was unfair.[124] In this case, by contrast, there is no dispute that the special committee did have the power to say no to the transaction. And, unlike in Lynch, the transaction in this case was conditioned upfront on the approval of both the special committee and the majority of the noncontrolling stockholders; in Lynch, by contrast, the transaction was conditioned on neither.

      108

      Moreover, as the defendants point out, even if the special committee in Lynch was entitled to credit for purposes of establishing the standard of review or the burden of proof within a standard of review, the Supreme Court was only asked to determine what the standard of review was when a merger was approved by a special committee, not by a special committee and a non-waivable majority-of-the-minority vote. Thus, the defendants accurately point out that the binding holding of Lynch is narrower and consists in this key statement from the decision: "[E]ven 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 judicial review."[125] The plaintiffs might wish the disciplined use of "or" by our Supreme Court was inadvertent, but this court does not believe that was the case.

      109

      Neither of the decisions succeeding Lynch that the plaintiffs rely upon speaks to the question presented here.[126] For example, Kahn v. Tremont was a derivative suit in which this court evaluated whether a corporation, Tremont, had overpaid for stock owned by its controlling stockholder.[127] As in Lynch, Tremont formed a special committee of three independent directors to determine whether it should carry out the purchase, and the committee approved the transaction.[128] As in Lynch, the transaction was not conditioned on the approval of the minority stockholders. As in Lynch, the Supreme Court held that the entire fairness standard would apply because it was an interested transaction involving a controlling stockholder, and that the special committee's role would at most serve to shift the burden of persuasion on the ultimate question of fairness.[129] As in Lynch, the Supreme Court viewed there to be serious issues regarding whether the special committee should be given even burden-shifting credit because two of the directors abdicated their duties, and the third had been a well-paid consultant to one of the controlling stockholder's companies.[130] Thus, unlike this case, both of the procedural protections were not used. Unlike this case, the independence of the special committee was in doubt. As with Lynch, therefore, Tremont did not present our Supreme Court with any occasion to speak to whether the use of both a properly empowered, careful, and independent special committee and a non-waivable condition that an informed, uncoerced majority of the minority approve the transaction would invoke the business judgment rule standard. Because of this, the broad language in Tremont that suggests that whenever a controlling stockholder stands on both sides of a transaction, entire fairness is the correct standard of review, does not, in the court's view, decide this case.[131]

      110

      The third case the plaintiffs quote is Southern Peru.[132] In Southern Peru, the Supreme Court affirmed this court's finding that a merger with a controlling stockholder was not entirely fair to the noncontrolling stockholders. The Supreme Court discussed at what point the burden of proof should shift in a transaction with a controlling stockholder, and, in that context, stated: "When a transaction involving self-dealing by a controlling shareholder is challenged, the applicable standard of judicial review is entire fairness, with the defendants having the burden of persuasion."[133] But it did so in a case where the defendants had expressly eschewed any argument that any standard of review other than entire fairness applied.[134] Given that concession, there was no need to address the question now presented and no answer was given by this court or the Supreme Court in that case.

      111

      Admittedly, there is broad language in each of these decisions, and in some other cases, that can be read to control the question asked in this case.[135] But this, like all judicial language, needs to be read in full context, as our Supreme Court itself has emphasized.[136] Of course, the ultimate authority regarding the Supreme Court's prior decisions, and whether they constitute a binding holding that the employment of two potent procedural protections on behalf of the minority has no greater effect than employing one of those, is the Supreme Court itself. If this court is incorrect and the Supreme Court believes that it has answered this question in the prior cases, it will doubtless say so. But, given that no prior case's outcome turned on that issue, and no prior case involved any party who asked the question now posed, this court concludes that under traditional jurisprudential principles, the question remains an open one for this court to address in the first instance.[137]

      112

      That conclusion, of course, does not mean that the decisions dealing with similar contexts have no relevance.[138] To the contrary, this court must and will give heavy consideration to the reasoning of our Supreme Court's prior decisions. In particular, the prior cases make emphatic the strong public policy interest our common law of corporations has in the fair treatment of minority stockholders and the need to ensure that controlling stockholders do not extract unfair rents using their influence. Fidelity to not just Lynch, but cases like Weinberger, requires that the question before the court receive an answer that gives that public policy interest heavy weight.[139] With that in mind, the court turns to the task of answering the question posed now.

      113
      V. The Business Judgment Rule Governs And Summary Judgment Is Granted
      114

      This case thus presents, for the first time, the question of what should be the correct standard of review for mergers between a controlling stockholder and its subsidiary, when the merger is conditioned on the approval of both an independent, adequately empowered special committee that fulfills its duty of care, and the uncoerced, informed vote of a majority of the minority stockholders.

      115

      In prior cases, this court has outlined the development of the case law in this area,[140] as have distinguished scholars,[141] and there is no need to repeat that recitation. The core legal question is framed by the parties' contending positions. For their part, the defendants say that it would be beneficial systemically to minority stockholders to review transactions structured with both procedural protections under the business judgment rule. Absent an incentive to do so, the defendants argue that controlling stockholders will not agree upfront to both protections, thus denying minority stockholders access to the transaction structure most protective of their interests—one that gives them the benefit of an active and empowered bargaining agent to negotiate price and to say no, plus the ability to freely decide for themselves on full information whether to accept any deal approved by that agent. This structure is not common now because controlling stockholders have no incentive under the law to agree to it, and such an incentive is needed because it involves the controller ceding potent power to the independent directors and minority stockholders.[142] The defendants argue that the benefits of their preferred approach are considerable, and that the costs are negligible because there is little utility to having an expensive, judicially intensive standard of review when stockholders can protect themselves by voting no if they do not like the recommendation of a fully empowered independent committee that exercised due care. In support of that argument, the defendants can cite to empirical evidence showing that the absence of a legally recognized transaction structure that can invoke the business judgment rule standard of review has resulted not in litigation that generates tangible positive results for minority stockholders in the form of additional money in their pockets, but in litigation that is settled for fees because there is no practical way of getting the case dismissed at the pleading stage and the costs of discovery and entanglement in multiyear litigation exceed the costs of paying attorneys' fees.[143] Finally, the defendants note that Delaware law on controlling stockholder going private transactions is now inconsistent, with the intrinsically more coercive route of using a tender offer to accomplish a going private transaction escaping the full force of equitable review, when a similarly structured merger where a less coercive chance to say no exists would not.[144]

      116

      In response, the plaintiffs argue that a requirement that every controlling stockholder transaction be subject to fairness review is good for minority stockholders. The plaintiffs, rather surprisingly, argue that giving stockholders the protection of a majority-of-the-minority vote in addition to a special committee adds little value because, in their view, stockholders will always vote for a good premium deal, and long-term stockholders will sell out to arbitrageurs in advance of the vote, leaving the minority vote in the hands of stockholders who will invariably vote for the deal.[145] That said, the plaintiffs conceded in their briefing that minority stockholders would benefit if more controlling stockholders would use a structure that gave minority stockholders an independent bargaining and veto agent as well as a majority-of-the-minority vote.[146] But they contend that the cost of not having an invariable judicial inquiry into fairness outweighs that benefit.

      117

      After considering these arguments, the court concludes that the rule of equitable common law that best protects minority investors is one that encourages controlling stockholders to accord the minority this potent combination of procedural protections.

      118

      There are several reasons for this conclusion. The court begins with a Delaware tradition. Under Delaware law, it has long been thought beneficial to investors for courts, which are not experts in business, to defer to the disinterested decisions of directors, who are expert, and stockholders, whose money is at stake.[147] Thus, when no fiduciary has a personal self-interest adverse to that of the company and its other stockholders, the fiduciary is well-informed, and there is no statutory requirement for a vote, the business judgment rule standard of review applies and precludes judicial second-guessing so long as the board's decision "can be attributed to any rational business purpose."[148] Outside the controlling stockholder merger context, it has long been the law that even when a transaction is an interested one but not requiring a stockholder vote, Delaware law has invoked the protections of the business judgment rule when the transaction was approved by disinterested directors acting with due care.[149]

      119

      This tradition of respecting the value of impartial decisionmaking by disinterested fiduciaries was maintained even when Delaware confronted the takeover boom that started in the late 1970s. The innovative standards that emerged in Unocal and Revlon required more judicially intensive review, but gave heavy credit for empowering the independent elements of the board.[150] And when arm's-length cash mergers were approved by fully informed, uncoerced votes of the disinterested stockholders, the business judgment rule standard of review was applied to any class-action claim for monetary relief based on the inadequacy of the merger price.[151]

      120

      But tradition should admittedly not persist if it lacks current value.[152] If providing an incentive for a disinterested bargaining agent and a disinterested approval vote are of no utility to minority investors, it would not make sense to shape a rule that encourages their use.

      121

      But even the plaintiffs here admit that this transactional structure is the optimal one for minority stockholders.[153] They just claim that there is some magical way to have it spread that involves no cost.[154] That is not so, however. Absent doing something that is in fact inconsistent with binding precedent—requiring controlling stockholders to use both protections in order to get any credit under the entire fairness standard—there is no way to create an incentive for the use of both protections other than to give controllers who grant both protections to the minority the benefit of business judgment rule review.

      122

      A choice about our common law of corporations must therefore be made, and the court is persuaded that what is optimal for the protection of stockholders and the creation of wealth through the corporate form is adopting a form of the rule the defendants advocate. By giving controlling stockholders the opportunity to have a going private transaction reviewed under the business judgment rule, a strong incentive is created to give minority stockholders much broader access to the transactional structure that is most likely to effectively protect their interests. In fact, this incentive may make this structure 663 A.2d 1194, 1205 (Del. Ch. 1995); see also Smith v. Van Gorkom, 488 A.2d 858, 890 (Del. 1985). the common one, which would be highly beneficial to minority stockholders. That structure, it is important to note, is critically different than a structure that uses only one of the procedural protections. The "or" structure does not replicate the protections of a third-party merger under the DGCL approval process, because it only requires that one, and not both, of the statutory requirements of director and stockholder approval be accomplished by impartial decisionmakers.[155] The "both" structure, by contrast, replicates the arm's-length merger steps of the DGCL by "requir[ing] two independent approvals, which it is fair to say serve independent integrity-enforcing functions."[156]

      123

      When these two protections are established up-front, a potent tool to extract good value for the minority is established. From inception, the controlling stockholder knows that it cannot bypass the special committee's ability to say no. And, the controlling stockholder knows it cannot dangle a majority-of-the-minority vote before the special committee late in the process as a deal-closer rather than having to make a price move. From inception, the controller has had to accept that any deal agreed to by the special committee will also have to be supported by a majority of the minority stockholders. That understanding also affects the incentives of the special committee in an important way. The special committee will understand that those for whom it is bargaining will get a chance to express whether they think the special committee did a good or poor job. Although it is possible that there are independent directors who have little regard for their duties or for being perceived by their company's stockholders (and the larger network of institutional investors) as being effective at protecting public stockholders, the court thinks they are likely to be exceptional, and certainly our Supreme Court's jurisprudence does not embrace such a skeptical view.[157] The Supreme Court has held that independent directors are presumed to be motivated to do their duty with fidelity, like most other people,[158] and has also observed that directors have a more self-protective interest in retaining their reputations as faithful, diligent fiduciaries.[159] The requirement that a majority of the minority approve the special committee's recommendation enhances both motivations, because most directors will want to procure a deal that their minority stockholders think is a favorable one, and virtually all will not want to suffer the reputational embarrassment of repudiation at the ballot box.[160] That is especially so in a market where many independent directors serve on several boards, and where institutional investors and their voting advisors, such as ISS and Glass Lewis, have computer-aided memory banks available to remind them of the past record of directors when considering whether to vote for them or withhold votes at annual meetings of companies on whose boards they serve.[161]

      124

      The premise that independent directors with the right incentives can play an effective role on behalf of minority investors is one shared by respected scholars sincerely concerned with protecting minority investors from unfair treatment by controlling stockholders. Their scholarship and empirical evidence indicates that special committees have played a valuable role in generating outcomes for minority investors in going private transactions that compare favorably with the premiums received in third-party merger transactions.[162]

      125

      But, like these scholars, the court is aware that even impartial directors acting in good faith and with due care can sometimes come out with an outcome that minority investors themselves do not find favorable. Conditioning the going private transaction's consummation on a majority-of-the-minority vote deals with this problem in two important and distinct ways. The first was just described. Because a special committee in this structure knows from the get-go that its work will be subject to disapproval by the minority stockholders, the special committee has a strong incentive to get a deal that will gain their approval. And, critically, so does another key party: the controlling stockholder itself, which will want to close the deal, having sunk substantial costs into the process.

      126

      But the second is equally important. If, despite these incentives, the special committee approves a transaction that the minority investors do not like, the minority investors get to vote it down, on a full information base and without coercion. In the Unitrin case nearly a generation ago, our Supreme Court noted the prevalence of institutional investors in the target company's stockholder base in concluding that a proxy contest centering on the price of a takeover offer was viable, despite insiders having increased their stock ownership to 28%, stating that "[i]nstitutions are more likely than other shareholders to vote at all [and] more likely to vote against manager proposals."[163] Market developments in the score of years since have made it far easier, not harder, for stockholders to protect themselves. With the development of the internet, there is more public information than ever about various commentators', analysts', institutional investors', journalists' and others' views about the wisdom of transactions. Likewise, the internet facilitates campaigns to defeat management recommendations. Not only that, institutional investor holdings have only grown since 1994, making it easier for a blocking position of minority investors to be assembled.[164] Perhaps most important, it is difficult to look at the past generation of experience and conclude that stockholders are reluctant to express positions contrary to those espoused by company management. Stockholders have been effective in using their voting rights to adopt precatory proposals that have resulted in a sharp increase in so-called majority voting policies and a sharp decrease in structural takeover defenses.[165] Stockholders have mounted more proxy fights, and, as important, wielded the threat of a proxy fight or a "withhold vote" campaign to secure changes in both corporate policies and the composition of corporate boards.[166] Stockholders have voted against mergers they did not find favorable, or forced increases in price.[167] Nor has timidity characterized stockholder behavior in companies with large blockholders or even majority stockholders; such companies still face stockholder activism in various forms, and are frequently the subject of lawsuits if stockholders suspect wrongdoing.[168]

      127

      As our Supreme Court has recognized more than once, the application of fiduciary duty principles must be influenced by current corporate practices.[169] Given the evident and growing power of modern stockholders, there seems to be little basis to doubt the fairness-assuring effectiveness of an upfront majority-of-the-minority vote condition when that condition is combined, as it was here, by a promise that the controller would not proceed with a transaction without both the approval of the special committee and the approval of a majority of the minority. Although one of the rationales identified in Lynch for fairness review of a going private merger with only one of the protections was that minority stockholders might be too afraid in any circumstance to vote freely, that rationale was one advanced in the context of a deal structure where the minority was expressly faced with a situation where a controller informed the special committee that it would put a lower priced offer directly to the stockholders in the intrinsically more coercive form of a tender offer.[170] One of the things two very distinguished but very different corporate governance experts—Lucian Bebchuk and Marty Lipton—agree upon is that a tender offer, particularly one where there is the possibility that a non-tendering stockholder will be left as part of a stub minority or receive an even lower value than if she tenders, is intrinsically more coercive than a merger vote where a stockholder can vote no and still get the merger consideration if the other stockholders vote in sufficient numbers to approve the deal.[171] The "both" structure limits coercion like this because the controller cannot end run the special committee in this way, and thus addresses the rationale advanced in Lynch.

      128

      So does another element of the structure. Lynch suggested that minority stockholders might be inhibited from voting freely because the controller could engage in retribution. The upfront promise not to bypass the special committee or the majority-of-the-minority condition limits the potential for any retributive going private effort. A controller who violated this promise would face withering scrutiny from stockholders. As important, the past generation has demonstrated, time and again, the willingness of the Delaware Supreme Court to uphold strong medicine against violations of the duty of loyalty,[172] and even to reverse this court when it failed to deliver a remedy the Supreme Court viewed as sufficient.[173] Given the increasing concentration of institutional investors and the demonstrated willingness of stockholders to vote against management's recommended course of actions, the potency of remedies available under our law, and statutory protections that prevent controlling stockholders from discriminating against minority stockholders and thus require them to engage in nihilism if they wish to try to starve minority investors who are probably more diversified than themselves and thus less dependent on the cash flows from the controlled company, there seems no rational reason to conclude that a majority-of-the-minority condition employed in the manner described will not provide an extremely valuable, fairness-assuring protection to minority investors. Again, distinguished scholars known for being skeptical of managerial authority in the M&A; arena agree, and support using the business judgment rule standard of review when a going private merger is conditioned upfront on both the negotiation and approval of an empowered independent committee and an uncoerced, fully informed majority-of-the-minority vote.[174] And to their credit, the plaintiffs themselves do not argue that minority stockholders will vote against a going private transaction because of fear of retribution, they just believe that most investors like a premium and will tend to vote for a deal that delivers one and that many long-term investors will sell out when they can obtain most of the premium without waiting for the ultimate vote.[175] But that argument is not one that suggests that the voting decision is not voluntary, it is simply an editorial about the motives of investors and does not contradict the premise that a majority-of-the-minority condition gives minority investors a free and voluntary opportunity to decide what is fair for themselves.

      129

      Of course, as with any choice in making common law, there are costs. The loss from invoking the business judgment rule standard of review is whatever residual value it provides to minority investors to have the potential for a judicial review of fairness even in cases where a going private transaction has been conditioned upfront on the approval of a special committee comprised of independent directors with the absolute authority to say no and a majority-of-the-minority vote, that special committee has met its duty of care and negotiated and approved a deal, and the deal is approved by the minority stockholders on fair disclosures and without coercion. The difficulty for the plaintiffs is that what evidence exists suggests that the systemic benefits of the possibility of such review in cases like this are slim to non-existent.[176] Indeed, the evidence that the possibility of such review provides real benefits to stockholders even in cases where a special committee is the only procedural protection is very slim at best, and there is a good case to be made that it is negative overall.[177] The lack of demonstrable benefit is contrasted with the clear evidence of costs, because, absent the ability of defendants to bring an effective motion to dismiss, every case has settlement value, not for merits reasons, but because the cost of paying an attorneys' fee to settle litigation and obtain a release without having to pay the minority stockholders in excess of the price agreed to by the special committee exceeds the cost in terms of dollars and time consumed of going through the discovery process under a standard of review in which a substantive review of financial fairness is supposedly inescapable.[178] This incentive structure has therefore resulted in frequent payouts of attorneys' fees but without anything close to a corresponding record of settlements or litigation results where the minority stockholders got more than the special committee had already secured. In fact, it is easier to find a case where a special committee got more than the price at which plaintiffs were willing to settle than it is to find the opposite.[179] And it is unavoidable that it is investors themselves who are injured if the litigation system does not function with a rational benefit-to-cost ratio. Ultimately, litigation costs are borne by investors in the form of higher D&O; insurance fees and other costs of capital to issuers that reduce the return to diversified investors. If those costs are not justified in a particular context by larger benefits, stockholders are hurt, not aided. Relatedly and as important, if no credit is given for the use of both procedural protections in tandem, minority investors will be denied access to the transactional structure that gives them the most power to protect themselves. Without any clear benefit to controllers for the clear costs of agreeing upfront to a majority-of-the-minority condition—a condition that controllers know creates uncertainty for their ability to consummate a deal and that puts pressure on them to put more money on the table—those conditions are now much less common than special committees,[180] and when used are often done as part of a late stage deal-closing exercise in lieu of price moves.[181] Under an approach where the business judgment rule standard is available if a controller uses a majority-of-the-minority condition upfront, minority investors will have an incentive for this potent fairness protection to become the market standard and to be able more consistently to protect themselves in the most cost-effective way, at the ballot box.[182]

      130

      Nor are the litigation rights of minority investors unimportant even under this structure. The business judgment rule is only invoked if: (i) the controller conditions the procession of the transaction on the approval of both a special committee and a majority of the minority stockholders; (ii) the special committee is independent; (iii) the special committee is empowered to freely select its own advisors and to say no definitively; (iv) the special committee meets its duty of care; (v) the vote of the minority is informed; and (vi) there is no coercion of the minority. A plaintiff that can plead facts supporting a rational inference that any of those conditions did not exist could state a claim and go on to receive discovery. If, after discovery, triable issues of fact remain about any of those conditions, the plaintiff can go to trial and if those conditions are not found to exist by the court, the court will conduct a substantive fairness review. And any minority stockholder who voted no on a going private merger where appraisal is available, which is frequently the case, may also exercise her appraisal rights.[183] Although appraisal is not a cost-free remedy, institutional ownership concentration has made it an increasingly effective one, and there are obvious examples of where it has been used effectively.[184]

      131

      Importantly, this incentive structure can be made even more effective as an efficient and powerful way of ensuring fair treatment of the minority in going private transactions.[185] In the area of takeover defense, Delaware jurisprudence has not varied the power or equitable duties of directors because an acquirer has made an acquisition bid directly to stockholders through a tender offer not requiring director action to be consummated. Rather, our Supreme Court has made clear that the directors have the duty to respond to any takeover they believe threatens the corporation and its stockholders by reasonable means, regardless of the form of the offer.[186] In the going private area, it is not clear that a controlling stockholder who proceeds by the more coercive route of a tender offer is subject to the same equitable duties as a controller that proceeds in the manner less coercive to the minority stockholders, a merger.[187] That is so even though stockholders would seem to need the protection of independent directors more when responding to a self-interested offer by a controller than in reacting to a third party's tender offer. As this court has pointed out, if the equitable duties of controlling stockholders seeking to acquire the rest of the controlled company's shares were 513 (Del. 1999) (affirming appraisal remedy award of $85 per share for dissenting minority stockholders in short-form merger, as opposed to merger consideration of $41 per share). consistent, regardless of transactional method, a sensible, across-the-board incentive system would be created to ensure fair treatment of minority stockholders.[188]

      132

      When all these factors are considered, the court believes that the approach most consistent with Delaware's corporate law tradition is the one best for investors in Delaware corporations, which is the application of the business judgment rule. That approach will provide a strong incentive for the wide employment of a transactional structure highly beneficial to minority investors, a benefit that seems to far exceed any cost to investors, given the conditions a controller must meet in order to qualify for business judgment rule protection. Obviously, rational minds can disagree about this question, and our Supreme Court will be able to bring its own judgment to bear if the plaintiffs appeal. But, this court determines that on the conditions employed in connection with MacAndrews & Forbes's acquisition by merger of MFW, the business judgment rule applies and summary judgment is therefore entered for the defendants on all counts. IT IS SO ORDERED.

      133

      [1] E.g., Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971) ("A board of directors enjoys a presumption of sound business judgment, and its decisions will not be disturbed if they can be attributed to any rational business purpose.").

      134

      [2] Kahn v. Lynch Commc'n Sys. (Lynch I), 638 A.2d 1110, 1117 (Del. 1994).

      135

      [3] See, e.g., Ronald J. Gilson & Jeffrey N. Gordon, Controlling Controlling Shareholders, 152 U. Pa. L. Rev. 785, 839-40 (2003) [hereinafter Gilson & Gordon, Controlling Shareholders]; Peter V. Letsou & Steven M. Haas, The Dilemma That Should Never Have Been: Minority Freeze-Outs in Delaware, 61 Bus. Law. 25, 81-93 (2005) [hereinafter Letsou & Haas, Dilemma]; Guhan Subramanian, Fixing Freezeouts, 115 Yale L.J. 2, 60-61 (2005) [hereinafter Subramanian, Fixing Freezeouts]; see also William T. Allen et al., Function over Form: A Reassessment of Standards of Review in Delaware Corporation Law, 56 Bus. Law. 1287, 1306-09 (2001) [hereinafter Allen et al., Function over Form].

      136

      [4] See, e.g., Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 66-67 (1996) (defining the binding holding of an opinion as "the result [and] also those portions of the opinion necessary to that result," and contrasting it with dictum); Brown v. United Water Del., Inc., 3 A.3d 272, 276 & n.17 (Del. 2010) (describing as dictum judicial statements that "would have no effect on the outcome of the case") (citation and internal quotation omitted); Crown EMAK P'rs, LLC v. Kurz, 992 A.2d 377, 398 (Del. 2010) (noting that a lower court ruling was "unnecessary . . . to decide [the] issue," and thus dictum "without precedential effect"); Black's Law Dictionary (9th ed. 2009) (illustrating dictum in opinions as "passages [that] are not essential to the deciding of the very case" (quoting William M. Lile et al., Brief Making and the Use of Law Books 307 (3d ed. 1914)).

      137

      [5] E.g., Gilson & Gordon, Controlling Shareholders, at 839-40; Subramanian, Fixing Freezeouts, at 60-61.

      138

      [6] Lynch I, 638 A.2d 1110; see also, e.g., Am. Gen. Corp. v. Tex. Air Corp., 1987 WL 6337, at *181 (Del. Ch. Feb. 5, 1987) (noting, on an application for a preliminary injunction, that when the special committee members were told that they must accept the controller's proposal or the transaction would proceed without their input, the burden to prove the entire fairness of the transaction likely would not shift at trial).

      139

      [7] See 8 Del. C. § 262.

      140

      [8] Gilson & Gordon, Controlling Shareholders, at 839-40; Subramanian, Fixing Freezeouts, at 60-61.

      141

      [9] "Summary judgment may be granted if there are no material issues of fact in dispute and the moving party is entitled to judgment as a matter of law. The facts, and all reasonable inferences, must be considered in the light most favorable to the nonmoving party." Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 241 (Del. 2009) (citation omitted).

      142

      [10] See, e.g., Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971).

      143

      [11] Defs.' Ex. 2, at 18 (M & F Worldwide Corp., Proxy Statement (Schedule 14A) (Nov. 18, 2011)) [hereinafter Proxy].

      144

      [12] Id. at 97.

      145

      [13] Id.

      146

      [14] Id.

      147

      [15] Id.

      148

      [16] Id. at 97-100.

      149

      [17] Id.

      150

      [18] Id. at 39.

      151

      [19] Defs.' Ex. 17 (Moelis discussion materials (June 9, 2011)).

      152

      [20] Id.

      153

      [21] Proxy 50.

      154

      [22] Defs.' Ex. 18 (MacAndrews & Forbes proposal letter (June 13, 2011)).

      155

      [23] Id. (emphasis added).

      156

      [24] See id.

      157

      [25] Defs.' Ex. 19 (MFW board minutes (June 14, 2011)).

      158

      [26] See id.

      159

      [27] Id.

      160

      [28] Id.

      161

      [29] Defs.' Ex. 28 (email from Michael Schwartz to the special committee (June 15, 2011)).

      162

      [30] See, e.g., Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1244-46 (Del. 2012) (noting that a special committee that could only "evaluate" an offer had a "narrow mandate"); Brinckerhoff v. Tex. E. Prods. Pipeline Co., LLC, 986 A.2d 370, 381 (Del. Ch. 2010) (observing that a special committee should have the mandate to "review, evaluate, negotiate, and to recommend, or reject, a proposed merger").

      163

      [31] E.g., Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 844-45 (Del. 1987).

      164

      [32] Meister Dep. 116:3-117:9 (testifying that Evercore analyzed the possibility of selling MFW to a private equity buyer, and that, after this analysis, the special committee did not believe that such a sale was likely to create value); id. at 118:23-119:12 (testifying that Evercore had received "one or two . . . fishing expedition phone calls," but that Evercore did not believe that they had been from anyone "capable or interested"); Defs.' Ex. 24 (minutes of special committee (Aug. 10, 2011)) (stating that Evercore and the special committee discussed the option of selling MFW).

      165

      [33] Defs.' Ex. 13 (Evercore discussion materials (June 20, 2011)) (stating that the special committee had leverage by being able to "explor[e] alternative paths to value creation, such as breaking up the Company or sale of selected assets"); Defs.' Ex. 31 (Evercore discussion materials (Aug. 17, 2011)) (illustrative transaction of value of company if Harland Clarke payments business was sold to a competitor, for cash); Defs.' Ex. 25 (minutes of special committee (Aug. 17, 2011)) (stating that Evercore informed the special committee that Harland Clarke's main competitor, Deluxe, would not make a bid for Harland Clarke that would increase MFW's stock price); Dinh Dep. 168:6-14 (testifying that Evercore informed the special committee that financial buyers would be unlikely to want to bid for parts of MFW).

      166

      [34] Aronson v. Lewis, 473 A.2d 805, 815 (Del. 1984).

      167

      [35] Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993) (citing Aronson, 473 A.2d at 815).

      168

      [36] Beam ex rel. Martha Stewart Living Omnimedia v. Stewart, 845 A.2d 1040, 1051-52 (Del. 2004).

      169

      [37] Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167 (Del. 1995) ("[A] shareholder plaintiff [must] show the materiality of a director's self-interest to the . . . director's independence. . . .") (citation omitted); see Brehm v. Eisner,746 A.2d 244, 259 n.49 (Del. 2000) ("The term `material' is used in this context to mean relevant and of a magnitude to be important to directors in carrying out their fiduciary duty of care in decisionmaking.").

      170

      Even in the context of personal, rather than financial, relationships, the materiality requirement does not mean that the test cannot be met. For example, it is sometimes blithely written that "mere allegations of personal friendship" do not cut it. More properly, this statement would read "mere allegations of mere friendship" do not qualify. If the friendship was one where the parties had served as each other's maids of honor, had been each other's college roommates, shared a beach house with their families each summer for a decade, and are as thick as blood relations, that context would be different from parties who occasionally had dinner over the years, go to some of the same parties and gatherings annually, and call themselves "friends." See, e.g., Telxon Corp. v. Meyerson, 802 A.2d 257, 264 (Del. 2002) (noting that a director may lack independence on account of a "close personal or familial relationship").

      171

      [38] E.g., Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 363 (Del. 1993) (affirming Court of Chancery's requirement that a "a shareholder show . . . the materiality of a director's self-interest to the given director's independence" as a "restatement of established Delaware law"); see also, e.g., Grimes v. Donald, 673 A.2d 1207, 1216 (Del. 1996) (stating, in the context of demand futility, that a stockholder must show that "a majority of the board has a material financial or familial interest" (emphasis added and citation omitted)).

      172

      [39] Cede, 634 A.2d at 364.

      173

      [40] King v. VeriFone Hldgs., Inc., 12 A.3d 1140, 1145 n.24 (Del. 2011) (citation omitted); Grimes, 673 A.2d at 1216.

      174

      [41] In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 941 n.62 (Del. Ch. 2003).

      175

      [42] See N.Y. Stock Exchange, Listed Company Manual § 303A.02 (2013), http://nysemanual.nyse.com/lcm [hereinafter NYSE Rules] ("Independence Tests").

      176

      [43] Byorum Dep. 11:17-21.

      177

      [44] Id. at 13:15-16, 88:20-23.

      178

      [45] Pls.' Br. in Opp'n 13-14; Byorum Dep. 56:6-60:3.

      179

      [46] Byorum Dep. 14:2-9.

      180

      [47] Id. at 20:15-20.

      181

      [48] Id. at 57:12-17, 60:22-61:4.

      182

      [49] Id. at 59:14-20.

      183

      [50] Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1050-54 (Del. 2004); see Byorum Dep. 19:4-6.

      184

      [51] Byorum Dep. 16:5-9.

      185

      [52] See, e.g., Crescent/Mach I P'rs, L.P. v. Turner, 846 A.2d 963, 980-81 (Del. Ch. 2000) (holding that an allegation that there was a "long-standing 15-year professional and personal relationship" between the controlling stockholder and a director "alone fails to raise a reasonable doubt that [the director] could not exercise his independent business judgment in approving the transaction"); State of Wisc. Inv. Bd. v. Bartlett, 2000 WL 238026, at *6 (Del. Ch. Feb. 24, 2000) ("Evidence of personal and/or past business relationships does not raise an inference of self-interest.").

      186

      [53] Pls.' Br. in Opp'n 13.

      187

      [54] The plaintiffs acknowledge that Byorum is wealthy: they describe her as a banking "big shot" and point out that she owns a house in the Hamptons. Id. at 13-14.

      188

      [55] Randy J. Holland, Delaware Directors' Fiduciary Duties: The Focus on Loyalty, 11 U. Pa. J. Bus. L. 675, 688 (2009) (citation and quotation marks omitted); see Beam, 845 A.2d at 1054 & n.37 (discussing the concept of beholdenness); Byorum Dep. 56:6-60:3; NYSE Rules § 303A.02(b)(v) (providing that a director is not independent if he or she "is a current employee . . . of a company that has . . . received payments from, the listed company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues"). And, even if the amount paid to Stephens Cori exceeded $1 million, Byorum would still be considered independent under the NYSE rules, because that relationship is stale (i.e., she was paid over three years before the MFW transaction).

      189

      [56] Dinh Dep. 173:4-10.

      190

      [57] Id. at 14:8-15:4, 80:17-24.

      191

      [58] See Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167 (Del. 1995); see also, e.g., Gantler v. Stephens, 965 A.2d 695, 708 (Del. 2009) (holding that the plaintiffs had adequately alleged that a defendant director was not disinterested on account of his business relationship with the company whose board he sat on, because he was a "man of comparatively modest means").

      192

      [59] Dinh Dep. 72:5-75:21.

      193

      [60] Pls.' Br. in Opp'n 15-16.

      194

      [61] Dinh Dep. 18:25-19:7, 23:15-17, 80:17-81:5.

      195

      [62] See, e.g., In re Freeport-McMoran Sulphur, Inc. S'holders Litig., 2001 WL 50203, at *4-5 (Del. Ch. Jan. 11, 2001) (finding that a consulting fee of $230,000, increased to $330,000 after the merger, did not cast doubt on a director's independence, where the plaintiffs had not alleged that the fee was material to the director); In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 360 (Del. Ch. 1998), rev'd in part on other grounds sub nom. Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (finding that legal and consulting fees of $175,000 paid by Disney to Senator George Mitchell and his law firm did not cast doubt on his independence, where the plaintiffs had not alleged that the fees were material to Mitchell).

      196

      [63] Dinh Dep. 80:25-81:5.

      197

      [64] If Dinh were the Dean, that fact would be contextually important. Likewise, if Dinh were the head of a distinct organization within the law school (e.g., a center for corporate governance or for the study of some subject in which he has an interest) that sought funds from alumni such as Schwartz, that context would be important to consider in applying the Supreme Court's materiality test. But even then, that relationship would have to be contextually material. See In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 930 & n.21 (Del. Ch. 2003) (discussing cases in which this court has decided the independence of directors with fundraising responsibilities at universities).

      198

      [65] If Dinh's directorship of Revlon were to be relevant to his independence at the time of the MFW transaction, the plaintiffs would need to provide record evidence creating a triable issue of fact that he was offered the directorship before the special committee approved the deal, or that it had at least been discussed with him before this time. The only record evidence is to the contrary. Dinh Dep. 24:6-9.

      199

      [66] Pls.' Br. in Opp'n 15-18.

      200

      [67] Webb Dep. 19:18-22.

      201

      [68] Pls.' Br. in Opp'n 15-18; Webb Dep. 7:8-9:5.

      202

      [69] Pls.' Br. in Opp'n 17; Webb Dep. 15:16-17.

      203

      [70] Oral Arg. Tr. 115:4-7.

      204

      [71] Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1051 (Del. 2004) ("Allegations that [the controller] and the other directors . . . developed business relationships before joining the board . . . are insufficient, without more, to rebut the presumption of independence."); see also Crescent/Mach I P'rs, L.P. v. Turner, 846 A.2d 963, 980 (Del. Ch. 2000).

      205

      [72] "[A] director's duty to exercise an informed judgment is in the nature of a duty of care. . . ." Smith v. Van Gorkom, 488 A.2d 858, 872-73 (Del. 1985); see also Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 367 (Del. 1993) ("[W]e find the defendant directors, as a board, to have breached their duty of care by reaching an uninformed decision. . . .").

      206

      [73] Defs.' Ex. 20 (minutes of MFW special committee (June 21, 2011)); Defs.' Ex. 33 (Evercore engagement letter (June 22, 2011)).

      207

      [74] Defs.' Ex. 16 (email to Evercore with HCHC and Mafco lending projections (June 27, 2011)).

      208

      [75] Defs.' Ex. 22 (minutes of MFW special committee (July 13, 2011)); Defs.' Ex. 34 (email from Gus Christensen, Evercore, to Charles Dawson and Stephen Taub, MFW (July 15, 2011)).

      209

      [76] Defs.' Ex. 38 (email from Gus Christensen to Paul Meister (July 18, 2011)).

      210

      [77] Id.

      211

      [78] Proxy 23.

      212

      [79] Id. at 59-60.

      213

      [80] Defs.' Ex. 45 (Evercore discussion materials (Aug. 10, 2011)).

      214

      [81] Id.

      215

      [82] Id.

      216

      [83] Defs.' Ex. 24 (minutes of MFW special committee (Aug. 10, 2011)).

      217

      [84] Defs.' Ex. 25 (minutes of MFW special committee (Aug. 17, 2011)); Defs.' Ex. 45 (Evercore discussion materials (Aug. 17, 2011)).

      218

      [85] Defs.' Ex. 25.

      219

      [86] Id.

      220

      [87] Defs.' Ex. 26 (minutes of MFW special committee (Sept. 6, 2011)).

      221

      [88] Defs.' Ex. 27 (minutes of MFW special committee (Sept. 10, 2011)).

      222

      [89] Meister Dep. 160:3-9.

      223

      [90] Schwartz Dep. 31:21-32:5.

      224

      [91] Defs.' Ex. 27; Defs.' Ex. 32 (letter to the special committee from Evercore (Sept. 10, 2011)).

      225

      [92] Defs.' Ex. 51 (MFW board minutes (Sept. 11, 2011)).

      226

      [93] Id.

      227

      [94] See Smith v. Van Gorkom, 488 A.2d 858, 873 (Del. 1985) ("In the specific context of a proposed merger of domestic corporations, a director has a duty . . . to act in an informed and deliberate manner in determining whether to approve an agreement of merger before submitting the proposal to the stockholders.").

      228

      [95] Proxy 24-25.

      229

      [96] Id. at 23-24, 59-63.

      230

      [97] Id. at 41-48.

      231

      [98] Defs.' Br. in Supp. 23.

      232

      [99] Defs.' Ex. 12 (M & F Worldwide Corp., Current Report (Form 8-K) (Dec. 22, 2011)).

      233

      [100] Smith v. Van Gorkom, 488 A.2d 858, 890 (Del. 1985) (stating that the "settled rule" was that if fully informed stockholders approved a transaction approved by even interested directors, the business judgment rule standard would be invoked, but that in the case of a third-party cash merger before the court, the stockholders' vote did not qualify because of disclosure inadequacies (citing Gerlach v. Gillam, 139 A.2d 591, 593 (Del. Ch. 1958))). This rule has deep roots in the common law. See, e.g., Cole v. Nat'l Cash Credit Ass'n, 156 A. 183, 187 (Del. Ch. 1931) ("As long as [the directors] act in good faith, with honest motives, for honest ends, the exercise of their discretion will not be interfered with. . . . The same presumption of fairness that supports the discretionary judgment of the managing directors must also be accorded to the majority of stockholders whenever they are called upon to speak for the corporation in matters assigned to them for decision, as is the case at one stage of the proceedings leading up to a sale of assets or a merger." (citation omitted)); see also In re Lukens Inc. S'holders Litig., 757 A.2d 720, 736-38 (Del. Ch. 1999) (applying the rule in Van Gorkom to invoke the business judgment standard of review, and dismiss a claim that the directors of a corporation breached their duty of care in selling the corporation, where the stockholders were fully informed and voted to approve the deal); Harbor Fin. P'rs v. Huizenga, 751 A.2d 879, 890 (Del. Ch. 1999) ("[T]he effect of untainted stockholder approval of the Merger is to invoke the protection of the business judgment rule and to insulate the Merger from all attacks other than on the ground of waste." (citation omitted)); In re Wheelabrator Techs., Inc. S'holders Litig., 663 A.2d 1194, 1196 (Del. Ch. 1995) (ruling that a fully informed, non-coercive stockholder vote on a merger extinguishes a duty of a care claim, and causes a duty of loyalty claim to be reviewed under the business judgment standard).

      234

      [101] Lynch I, 638 A.2d at 1117; see also Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 846 (Del. 1987); Rosenblatt v. Getty Oil Co., 493 A.2d 929, 937 (Del. 1985).

      235

      [102] See Kahn v. Tremont Corp., 694 A.2d 422, 433-34 (Del. 1997) (Quillen, J., concurring); see also In re S. Peru Copper Corp., 52 A.3d 761, 790-91 (Del. Ch. 2011), aff'd sub nom. Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) (discussing Tremont).

      236

      [103] Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985); Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986).

      237

      [104] E.g., Tremont, 694 A.2d at 429-30; Lynch I, 638 A.2d at 1118-19; see also In re Loral Space & Commc'ns Inc., 2008 WL 4293781, at *22-26 (Del. Ch. Sept. 19, 2008); Gesoff v. IIC Indus. Inc., 902 A.2d 1130, 1150-52 (Del. Ch. 2006); In re Tele-Commc'ns, Inc. S'holders Litig., 2005 WL 3642727, at *4-6 (Del. Ch. Jan. 10, 2006); In re Emerging Commc'ns, Inc. S'holders Litig., 2004 WL 1305745, at *33 (Del. Ch. June 4, 2004).

      238

      [105] Lynch I, 638 A.2d at 1118-19.

      239

      [106] Tremont Corp., 694 A.2d at 429-30.

      240

      [107] E.g., In re Walt Disney Co. Deriv. Litig., 906 A.2d 27, 74 (Del. 2006) ("[W]here business judgment presumptions are applicable, the board's decision will be upheld unless it cannot be `attributed to any rational business purpose.'" (quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971))); Brehm v. Eisner, 746 A.2d 244, 264 (Del. 2000) ("We do not even decide if [directors' decisions] are reasonable in this context." (emphasis added)); see generally Stephen Bainbridge, The Business Judgment Rule as Abstention Doctrine, 57 Vand. L. Rev. 83 (2004) [hereinafter Bainbridge, Abstention Doctrine].

      241

      [108] The plaintiffs have not produced a valuation report by an expert opining that the merger price was unfair. The defendants make much of this, but, at oral argument, the plaintiffs explained that the defendants did not move for summary judgment on the fundamental issue of fairness. Oral Arg. Tr. 64:20-65:7. Rather, the motion and opening brief in support of the motion for summary judgment only argued that judgment in favor of the defendants should be granted because the effective special committee and the majority-of-the-minority vote invoked the business judgment rule standard of review, and the merger survived that standard as a matter of law; or, in the alternative and as a minimum, that the defendants were entitled to the benefit of a burden shift if the entire fairness standard applied. Although the defendants tried in their reply brief to broaden their motion to contend that there was no triable issue of fact regarding the substantive fairness of the merger, the plaintiffs are correct that this was procedurally unfair and improper. See PharmAthene, Inc. v. SIGA Techs., Inc., 2011 WL 6392906, at *2 (Del. Ch. Dec. 16, 2011) ("[A] party waives any argument it fails properly to raise. . . ."), rev'd in part on other grounds,No. 314, 2012 (Del. May 24, 2013).

      242

      Nonetheless, the plaintiffs knew that they needed to point to record facts supporting a triable issue of fact that the merger's terms constituted waste, such that they could not be terms that a rational fiduciary could accept in good faith. Oral Arg. Tr. 67:13-68:3. They have not come close to meeting that burden.

      243

      [109] See Harbor Fin. P'rs v. Huizenga, 751 A.2d 879, 901 (Del. Ch. 1999) ("[It is] logically difficult to conceptualize how a plaintiff can ultimately prove a waste or gift claim in the face of a decision by fully informed, uncoerced, independent stockholders to ratify the transaction. The test for waste is whether any person of ordinary sound business judgment could view the transaction, they have . . . made the decision that the transaction is a fair exchange." (citing Saxe v. Brady, 184 A.2d 602, 611-12 (Del. Ch. 1962) (observing that a stockholder vote approving of a transaction and authorizing future similar ones was "[s]urely . . . some indication" that the transaction was reasonable)).

      244

      [110] Oral Arg. Tr. 128:22-130:12.

      245

      [111] Lynch I, 638 A.2d at 1115.

      246

      [112] 694 A.2d 422 (Del. 1997).

      247

      [113] 726 A.2d 1215 (Del. 1999).

      248

      [114] 51 A.3d 1213 (Del. 2012).

      249

      [115] Brown v. United Water Del., Inc., 3 A.3d 272, 276 & n.17 (Del. 2010) (citation and internal quotation omitted); see also Seminole Tribe of Fla. v. Florida, 517 U.S. 44, 66-67 (1996); Black's Law Dictionary (9th ed. 2009).

      250

      [116] Crown EMAK P'rs, LLC v. Kurz, 992 A.2d 377, 398 (Del. 2010); United Water, 3 A.3d at 275.

      251

      [117] E.g., Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 142-43 (Del. 1997) (describing as dictum language in In re Tri-Star Pictures, Inc. Litig., 634 A.2d 319 (Del. 1993), and ruling that it "should not be read to stand for any broader proposition" than the context permitted); see also Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 399-400 (1821) ("It is a maxim not to be disregarded, that general expressions, in every opinion, are to be taken in connection with the case in which those expressions are used.").

      252

      [118] State ex rel. State Highway Dep't v. 9.88 Acres of Land, 253 A.2d 509, 511 (Del. 1969).

      253

      [119] E.g., Gatz Props., LLC v. Auriga Capital Corp., 59 A.3d 1206, 1218 (Del. 2012) (statements on issues "no[t] contested by the parties" are dictum) (internal quotation marks omitted); see also Cent. Va. Cmty. Coll. v. Katz, 546 U.S. 356, 363 (2006) ("[W]e are not bound to follow our dicta in a prior case in which the point now at issue was not fully debated.") (citing Cohens, 19 U.S. (6 Wheat.) at 399-400).

      254

      [120] Defs.' Ex. 18 (MacAndrews & Forbes proposal letter (June 13, 2011)).

      255

      [121] Lynch I, 638 A.2d at 1120-21.

      256

      [122] Kahn v. Lynch Commc'n Sys., 669 A.2d 79, 89 (Del. 1995).

      257

      [123] Lynch I, 638 A.2d at 1116.

      258

      [124] Id. at 1114, 1118 (quoting Kahn v. Lynch Commc'n Sys., 1993 WL 290193, at *789 (Del. Ch. July 9, 1993)).

      259

      [125] Id. at 1117 (emphasis added); Oral Arg. Tr. 16:14-19.

      260

      [126] The plaintiffs do not rely upon Emerald Partners v. Berlin, except to note that in that case, the Supreme Court upheld the application of the entire fairness standard to a merger between a Delaware corporation and other corporations owned by the same controlling stockholder. 726 A.2d 1215 (Del. 1999); Pls.' Br. in Opp'n 40. The plaintiffs quote no language from that case, and it did not present the question posed now.

      261

      [127] See Kahn v. Tremont Corp., 694 A.2d 422 (Del. 1997).

      262

      [128] Id. at 426.

      263

      [129] Id. at 428-29.

      264

      [130] Id. at 429-30.

      265

      [131] The plaintiffs do not rely on the actual holding of the court necessary to address the precise issues raised in Tremont, but instead quote this sentence: "Regardless of where the burden lies, when a controlling shareholder stands on both sides of the transaction the conduct of the parties will be viewed under the more exacting standard of entire fairness as opposed to the more deferential business judgment standard." Id. at 428.

      266

      [132] Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012).

      267

      [133] Id. at 1239.

      268

      [134] In re S. Peru Copper Corp. S'holder Litig., 52 A.3d 761, 766 (Del. Ch. 2011) ("The parties agree that the appropriate standard of review is entire fairness.").

      269

      [135] E.g., Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983) ("The requirement of fairness is unflinching in its demand that where one stands on both sides of a transaction, he has the burden of establishing its entire fairness, sufficient to pass the test of careful scrutiny by the courts.").

      270

      [136] See, e.g., Sternberg v. O'Neil, 550 A.2d 1105, 1116 (Del. 1988) (noting that statements from Shaffer v. Heitner, 433 U.S. 186 (1977), must be "read in context"); Rabkin v. Philip A. Hunt Chem. Corp., 498 A.2d 1099, 1104 (Del. 1985) (holding that it is necessary "to take account of the entire context" of Weinberger, 457 A.2d 701, when determining remedies in a cash-out merger).

      271

      [137] See In re CNX Gas Corp. S'holders Litig., 4 A.3d 397 (Del. Ch. 2010) (reviewing cases, and concluding that the question of the standard of review is an open one).

      272

      [138] See, e.g., Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137, 147 (2002) (noting that even "isolated sentences" may be considered "persuasive authority"); Bata v. Bata, 163 A.2d 493, 510 (Del. 1960) (finding dictum "none the less persuasive").

      273

      [139] Lynch I, 638 A.2d 1110; Weinberger, 457 A.2d 701.

      274

      [140] E.g., In re Pure Res., Inc., S'holders Litig., 808 A.2d 421 (Del. Ch. 2002); In re Cysive, Inc. S'holders Litig., 836 A.2d 531 (Del. Ch. 2003); In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 604 (Del. Ch. 2005); CNX, 4 A.3d 397; see also Allen et al., Function over Form, at 1306-09; Leo E. Strine, Jr., The Inescapably Empirical Foundation of the Common Law of Corporations, 27 Del. J. Corp. L. 499, 506-13 (2002).

      275

      [141] E.g., Gilson & Gordon, Controlling Shareholders, at 796-803, 805-27; Subramanian, Fixing Freezeouts, at 11-22.

      276

      [142] See, e.g., Subramanian, Fixing Freezeouts, at 59.

      277

      [143] See generally Elliott J. Weiss & Lawrence J. White, File Early, Then Free Ride: How Delaware Law (Mis)Shapes Shareholder Class Actions, 57 Vand. L. Rev. 1797 (2004) [hereinafter Weiss & White, File Early]; see also Cox, 879 A. 2d at 613-14 (discussing Weiss & White, File Early); Aff. of Lawrence J. White, Cox, C.A. No. 613-N (Del. Ch. Jan. 13, 2005) (summarizing Weiss & White, File Early).

      278

      [144] Compare In re Siliconix Inc. S'holders Litig., 2001 WL 716787 (Del. Ch. June 21, 2001), with Lynch I, 638 A.2d 1110. The implication of the Supreme Court's decision in Solomon v. Pathe and cases following it, such as Siliconix, is that a going private transaction proposed by a controller by the tender offer method is not subject to equitable review. Solomon v. Pathe Commc'ns Corp., 672 A.2d 35 (1996). Although this implication has been affected by later cases such Pure and Cox, it remains the case that it is not certain that a controlling stockholder owes the same equitable obligations when it seeks to acquire the rest of a corporation's equity by a tender offer, rather than by a statutory merger. See Gilson & Gordon, Controlling Shareholders, at 796-832; Subramanian, Fixing Freezeouts, at 11-22.

      279

      [145] Oral Arg. Tr. 80:12-18.

      280

      [146] Pls.' Br. in Opp'n 46.

      281

      [147] E.g., Trenwick Am. Litig. Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 205 (Del. Ch. 2006), aff'd, 931 A.2d 438 (Del. 2007) (TABLE) (describing the business judgment rule as being designed to "provid[e] directors with sufficient insulation so that they can seek to create wealth through the good faith pursuit of business strategies that involve a risk of failure"); Gagliardi v. TriFoods Int'l, Inc., 683 A.2d 1049, 1052 (Del. Ch. 1996) ("[The business judgment rule] protects shareholder investment interests against the uneconomic consequences that the presence of judicial second-guessing risk would have on director action and shareholder wealth in a number of ways."); Bainbridge, Abstention Doctrine, at 110 (describing part of the role of the business judgment rule as "encouraging optimal risk taking").

      282

      [148] Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971); see Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) ("To rebut the [business judgment] rule, a shareholder plaintiff assumes the burden of providing evidence that directors, in reaching their challenged decision, breached [the duties of] loyalty or due care. If a shareholder plaintiff fails to meet this evidentiary burden, the business judgment rule attaches to protect corporate officers and directors and the decisions they make, and our courts will not second-guess these business judgments." (citations omitted)).

      283

      [149] E.g., Beard v. Elster, 160 A.2d 731, 737 (Del. 1960) ("Implicit in the [court's decision in Gottlieb v. Heyden Chemical Corp., 90 A.2d 660 (Del. 1952), not to grant business judgment review to a board's decision to approve a stock option plan] is, of course, that a different situation would have presented itself had the Board of Directors been in fact disinterested. It follows that in such cases the sound business judgment rule might well have come to the aid of the proponents of the plan."); Blish v. Thompson Automatic Arms Corp., 64 A.2d 581, 603 (Del. 1948) (finding that disinterested directors had the power to approve a grant of stock to other directors, and that, "in the absence of fraud, . . . their unanimous action [was] final"); Puma v. Marriott, 283 A.2d 693, 696 (Del. Ch. 1971) ("[S]ince the transaction complained of was accomplished as a result of the exercise of independent business judgment of the outside, independent directors whose sole interest was the furtherance of the corporate enterprise, the court is precluded from substituting its uninformed opinion for that of the experienced, independent board members. . . .").

      284

      [150] Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 955 (Del. 1985) (holding that as part of a new standard of review requiring directors taking defensive actions to show that those actions were reasonable in relation to threat posed, "such proof is materially enhanced . . . by the approval of a board comprised of a majority of outside independent directors" (citations omitted)); Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173, 176 n.3 (Del. 1986) (noting that the Revlon board was not "entitled to certain presumptions that generally attach to the decisions of a board whose majority consists of truly outside independent directors").

      285

      [151] In re Lukens Inc. S'holders Litig., 757 A.2d 720, 736-38 (Del. Ch. 1999); Harbor Fin. P'rs v. Huizenga, 751 A.2d 879, 890 (Del. Ch. 1999); In re Wheelabrator Techs., Inc. S'holders Litig.,

      286

      [152] The Supreme Court has noted the wisdom of not following a rule simply because it was "laid down in the time of Henry IV." Keeler v. Hartford Mut. Ins. Co., 672 A.2d 1012, 1017 n.6 (Del. 1996) (quoting Oliver Wendell Holmes, The Path of the Law, 10 Harv. L. Rev. 457, 469 (1897)).

      287

      [153] Pls.' Br. in Opp'n 46; see also Oral Arg. Tr. 102:13-18 (plaintiffs' counsel acknowledging that majority-of-the-minority conditions have been used to block going private transactions).

      288

      [154] Oral Arg. Tr. 80:2-4.

      289

      [155] 8 Del. C. § 251(b)-(c) (requiring that mergers be approved by the board of directors and the stockholders of each merging corporation).

      290

      [156] In re Cox Commc'ns, Inc. S'holders Litig., 879 A.2d 604, 618 (Del. Ch. 2005).

      291

      [157] See, e.g., Aronson v. Lewis, 473 A.2d 805, 814-15 (Del. 1984) (holding that independent directors can be entrusted with the decision to sue other directors on behalf of the corporation); Weinberger v. UOP, Inc., 457 A.2d 701, 709 n.7 (Del. 1983) ("[T]he result here could have been entirely different if UOP had appointed an independent negotiating committee of its outside directors to deal with Signal at arm's length.").

      292

      [158] Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048 (Del. 2004) ("[D]irectors are entitled to a presumption that they were faithful to their fiduciary duties." (citing Aronson, 473 A.2d at 812)).

      293

      [159] Id. at 1052 ("To create a reasonable doubt about an outside director's independence, a plaintiff must plead facts that would support the inference that . . . the non-interested director would be more willing to risk his or her reputation than risk the relationship with the interested director." (citation omitted)).

      294

      [160] A 2006 amendment to the DGCL provides that stockholders may, by bylaw, specify "the votes that shall be necessary for the election of directors." 75 Del. Laws. ch. 306, § 5 (2006) (amending 8 Del. C. § 216). Majority voting provisions, allowing stockholders to run withhold vote campaigns and unseat particular directors, have become standard in recent years, especially in large companies. Marcel Kahan & Edward Rock, The Insignificance of Proxy Access, 97 Va. L. Rev. 1347, 1359-60 (2011) [hereinafter Kahan & Rock, Proxy Access]; Claudia H. Allen, Study of Majority Voting in Director Elections (Nov. 12, 2007), http://www.ngelaw.com/files/ Uploads/Documents/majoritystudy111207.pdf. Professors Kahan and Rock analyzed majority withhold votes at Russell 3000 companies in 2008 and 2009. They found that, of the companies whose directors did not leave the board within one year of a majority withhold vote and that were not acquired in that time, two-thirds addressed the issues motivating the withhold vote to the satisfaction of stockholders, and large companies were particularly responsive. Kahan & Rock, Proxy Access, at 1420-22; see also 2012 Proxy Season Review: World Markets, Inst. S'holder Servs. (Feb. 27, 2013), at 178-85, http://www.issgovernance.com/files/private/ 2012CombinedPostseasonReport.pdf (detailing the increased use of proxy contests and withhold campaigns in recent years, and the ability of activist investors to not only prevail at the actual ballot box in contested situations, but to use the threat of a proxy contest or withhold campaign as a successful method to procure changes in corporate strategy and board composition, even at large cap companies).

      295

      [161] E.g., Proxy Paper Guidelines: 2013 Proxy Season, Glass Lewis & Co. (2012), at 1, http:// www.glasslewis.com/assets/uploads/2012/02/Guidelines_UnitedStates_2013_Abridged.pdf ("[W]hen assessing the independence of directors we will also examine when a director's service track record on multiple boards indicates a lack of objective decision-making."); 2012-2013 Policy Survey Summary of Results, Inst. S'holder Servs. (Jan. 31, 2013), at 3, http://www.issgovernance.com/files/private/ISSPolicySurveyResults2012.pdf (reporting that 61% of ISS survey respondents stated that a director's track record on other boards was "very important" in voting for a new board nominee); 2013 U.S. Proxy Voting Summary Guidelines, Inst. S'holder Servs. § 2.1.19 (Jan. 31, 2013), http://www.issgovernance.com/files/2013ISSUSSummary Guidelines1312013.pdf (providing for a withhold vote recommendation on account of "[e]gregious actions related to a director's service on other boards").

      296

      [162] See, e.g., Guhan Subramanian, Post-Siliconix Freeze-Outs: Theory and Evidence, 36 J. Legal Stud. 1, 13 tbl. 1 (2007) [hereinafter, Subramanian, Post-Siliconix] (reporting long-term cumulative abnormal returns of 39% in completed going private transactions between 2001 and 2005, almost all of which used a special committee).

      297

      [163] Unitrin, Inc. v. Am. Gen. Corp., 651 A.2d 1361, 1382 (Del. 1995) (citation and internal quotation marks omitted).

      298

      [164] See, e.g., Marshall E. Blume & Donald B. Keim, Institutional Investors and Stock Market Liquidity: Trends and Relationships (Aug. 21, 2012), at 4, http://www.wharton.upenn.edu/ jacobslevycenter/files/14.12.Keim.pdf (showing that institutional investors by the end of 2010 held 67% of equities, compared with only about 5% in 1945); Matteo Tonello & Stephan Rabimov, The 2010 Institutional Investment Report: Trends In Asset Allocation and Portfolio Composition, Conference Bd. (2009), at 26, http://www.conferenceboard.org/retrievefile.cfm? filename=Institutional%20Investment%20Report.pdf&type;=subsite (showing that institutional ownership of equities in the 1,000 largest U.S. companies increased from 57% in 1994 to 69% in 2008).

      299

      [165] See, e.g., 2012 Report, S'holder Rights Project, http://srp.law.harvard.edu/releases/SRP-2012-Annual-Report.pdf (noting that, from the beginning of 1999 to the beginning of 2012, the number of S&P; 500 companies with staggered boards declined from 303 to 126, and that over 40 of these 126 companies declassified their boards in 2012 alone); Andrew L. Bab & Sean P. Neenan, Poison Pills in 2011, Conference Bd. (Dec. 2011), at 2, http://www.conference-board.org/retrievefile.cfm?filename=TCB%20DN-V3N5-11.pdf&type;=subsite (finding that, between 2001 and 2011, the number of companies with poison pills declined from 2,200 to 900).

      300

      [166] Kahan & Rock, Proxy Access, at 1420-25; accord Diane Del Guercio et al., Do Boards Pay Attention When Investor Activists "Just Vote No"?, 90 J. Fin. Econ. 84 (2008) (noting that withhold campaigns have become more frequent over time, and finding that withhold campaigns with 20% or more support often result in the board implementing all specific requests made by stockholders).

      301

      [167] A non-exclusive sampling from this court's own memory provides many examples of transactions that have been voted down, or come close to being voted down, by the stockholders. In 2007, stockholders voted down Carl Icahn's buyout of Lear Group, after this court issued a limited preliminary injunction requiring further disclosures. In re Lear Corp. S'holder Litig., 967 A.2d 640, 641 (Del. Ch. 2008). Again in 2007, stockholders in Inter-Tel threatened to vote down a merger with Mitel on the ground that the price was inadequate, forcing the stockholder vote to be delayed, until it appeared from new information about the capital markets that the Mitel offer was a good one. Mercier v. Inter-Tel. (Del.), Inc., 929 A.2d 786 (Del. Ch. 2007). In 2010, the stockholders of Dollar Thrifty voted down a merger with Hertz, only to accept a higher offer from Hertz two years later. Michael J. De La Merced & Peter Lattman, After Long Pursuit, Hertz To Buy Dollar Thrifty for $2.3 Billion, N.Y. Times, Aug. 26, 2012, http://dealbook.nytimes.com/2012/08/26/hertz-on-the-verge-of-buying-dollar-thrifty; see In re Dollar Thrifty S'holder Litig.,14 A.3d 573 (Del. Ch. 2010) (denying a motion to preliminarily enjoin the 2010 stockholder vote).

      302

      In fact, as this decision was being finalized, the telecommunications company Sprint was attempting to cash out the minority stockholders in Clearwire as part of its own sale to Softbank. The press reported that, faced with considerable opposition by the minority, Sprint raised its offer from $2.97 per share to $3.40, and delayed the vote on the transaction. Sinead Carew, Clearwire, Shareholders Brace for Fight over Sprint Bid (May 22, 2013), http://www.reuters.com/article/2013/05/22/us-clearwire-sprint-idUSBRE94K0JY20130522.

      303

      [168] For example, the minority Class A stockholders of Revlon, another Perelman-controlled corporation, twice rejected an exchange offer by Revlon that was premised on a non-waivable majority-of-the-minority condition. In re Revlon, Inc. S'holders. Litig., 990 A.2d 940, 950-51 (Del. Ch. 2010). As a further example, in 2007, Cablevision stockholders rejected the controller's (the Dolan family) $10.6 billion buyout. Andrew Ross Sorkin, Dolans' Bid To Take Cablevision Private Is Rejected by Shareholders, N.Y. Times, Oct. 25, 2007, http://www.nytimes.com/2007/10/25/business/media/25cable.html.

      304

      [169] Moran v. Household Int'l, Inc., 500 A.2d 1346, 1351 (Del. 1985) ("[O]ur corporate law is not static. It must grow and develop in response to, indeed in anticipation of, evolving concepts and needs." (quoting Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 957 (Del. 1985))); see also Jack B. Jacobs, Does the New Corporate Shareholder Profile Call for a New Corporate Law Paradigm?, 18 Fordham J. Corp. & Fin. L. 19, 31 (2012) (discussing going private transactions, and proposing that "the new shareholder profile is an irrefutable reality that justifies inquiring into whether courts should take that into account in formulating and applying fiduciary duty principles").

      305

      [170] Lynch I, 638 A.2d at 1116-17 (citations omitted).

      306

      [171] See Lucian Arye Bebchuk, The Case for Facilitating Competing Tender Offers, 95 Harv. L. Rev. 1028, 1039-40 (1982); Lucian Arye Bebchuk, Toward Undistorted Choice and Equal Treatment in Corporate Takeovers, 98 Harv. L. Rev. 1695, 1708-13 (1985); Martin Lipton, Takeover Bids in the Target's Boardroom, 35 Bus. Law. 101, 114 (1979).

      307

      [172] E.g., Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012), aff'g 52 A.3d 761 (Del. Ch. 2011) (awarding damages of over $2 billion to minority stockholders for unfair dealing in merger); Quickturn Design Sys., Inc. v. Shapiro, 721 A.2d 1281 (Del. 1998), aff'g on other grounds 728 A.2d 25 (Del. Ch. 1998) (invalidating a slow-hand poison pill under 8 Del. C. § 141(a)); Paramount Commc'ns Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1994), aff'g 635 A.2d 1245 (Del. Ch. 1993) (enjoining most of Paramount's measures protecting its merger with Viacom in the face of a bid by QVC); Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986), aff'g501 A.2d 1239 (Del. Ch. 1985) (enjoining Revlon's measures protecting its transaction with Forstmann Little in face of a bid by MacAndrews & Forbes).

      308

      And, of course, not all cases involving strong remedies are reviewed by the Supreme Court. E.g., In re Del Monte Foods Co. S'holders Litig., 25 A.3d 813 (Del. Ch. 2011) (preliminarily enjoining a stockholder vote on an LBO where the sell-side bank manipulated the buy-out to generate buy-side fees, thereby extending the contractual go-shop period for an additional twenty days to allow the company to further shop itself); In re Loral Space & Commc'ns Inc. Cons. Litig., 2008 WL 4293781 (Del. Ch. Sept. 19, 2008) (reforming the terms of preferred stock acquired in an interested transaction by converting those shares into non-voting common shares, a remedy that was worth at least $100 million); Carmody v. Toll Bros., Inc., 723 A.2d 1180 (Del. Ch. 1998) (suggesting that a so-called dead hand pill was invalid under Delaware law).

      309

      [173] E.g., Omnicare, Inc. v. NCS Healthcare, Inc., 818 A.2d 914 (Del. 2003), rev'g 825 A.2d 240 and 825 A.2d 264 (Del. Ch. 2002) (invalidating a vote lock-up); Thorpe v. CERBCO, Inc., 676 A.2d 436 (Del. 1996), rev'g 1995 WL 478954 (Del. Ch. Aug. 9, 1995) (granting a remedy for a breach of the duty of loyalty where the Court of Chancery had declined to do so on the ground that the corporation had suffered no transactional damages, and requiring the Court of Chancery to assess the interested party for the legal and other costs its actions imposed on the company); Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261 (Del. 1988), rev'g 1988 WL 108332 (Del. Ch. Oct. 18, 1988) (enjoining the lock-up granted by the Macmillan publishing company to Kohlberg Kravis Roberts in a unfair auction for the company); Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983), rev'g 426 A.2d 1333 (Del. Ch. 1982) (finding that UOP had to establish the entire fairness of the cash-out of the minority UOP stockholders). Famously, such strong medicine is not confined solely to enforce the duty of loyalty. Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), rev'g Smith v. Pritzker, 1982 WL 8774 (Del. Ch. July 6, 1982) (requiring the imposition of monetary damages upon independent directors who approved the sale of the Trans Union company at $55 per share, a premium of 47% over the closing price of the stock the day before the merger's announcement).

      310

      [174] Gilson & Gordon, Controlling Shareholders, at 839-40; Subramanian, Fixing Freezeouts, at 60-61.

      311

      [175] Pls.' Br. in Opp'n 46-50; Oral Arg. Tr. 80:12-18.

      312

      [176] See In re Cox Commc'ns, Inc., S'holders Litig., 879 A. 2d 604, 626-34 (Del. Ch. 2005) (explaining that the empirical evidence offered in that case and later published in Subramanian, Post-Siliconix tended to show that the bargaining power of the special committee is what drives the consideration paid in going private transactions, not the standard of judicial review).

      313

      [177] Weiss & White, File Early, at 1856-62; see also Suneela Jain et al., Examining Data Points in Minority Buy-Outs: A Practitioners' Report, 36 Del. J. Corp. L. 939 (2011) (examining twenty-seven going private transactions worth over $50 million between 2006 and 2010, and drawing conclusions consistent with Weiss & White, File Early).

      314

      [178] Cox, 879 A. 2d at 630-31; In re Cysive, Inc. S'holders Litig., 836 A.2d 531, 550-51 (Del. Ch. 2003).

      315

      [179] See, e.g., Settlement Hr'g, In re Donna Karan Int'l Inc. S'holders Litig., C.A. No. 18559-VCS (Del. Ch. Sept. 10, 2002) (where, following an initial proposal of $8.50 per share, plaintiffs agreed to settle at $10.50 per share, but the special committee refused to consummate the transaction at that price and ultimately secured a price of $10.75 per share).

      316

      [180] See, e.g., Subramanian, Post-Siliconix, at 11 & fig. 1.

      317

      [181] For example, such a condition was added at the last moment in the Cox Communications transaction. Cox, 879 A.2d at 609-12.

      318

      [182] See Williams v. Geier, 671 A.2d 1368, 1381 (Del. 1996) ("[T]he stockholders control their own destiny through informed voting. This is the highest and best form of corporate democracy.").

      319

      [183] 8 Del. C. § 262(a).

      320

      [184] E.g., Golden Telecom, Inc. v. Global GT LP, 11 A.3d 214 (Del. 2010) (affirming appraisal remedy award of $125.49 per share, as opposed to merger consideration of $105 per share); Montgomery Cellular Hldg. Co. v. Dobler, 880 A.2d 206 (Del. 2005) (affirming appraisal remedy award of $19,621.74 per share for stockholders in short-form merger, as opposed to $8,102.23 per share in merger consideration); M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d

      321

      [185] See generally Cox, 879 A.2d at 642-48 (suggesting why controlling stockholders can be encouraged to condition a transaction on both a vote of the minority stockholders and the approval of a special committee); In re Pure Res., Inc., S'holders Litig., 808 A.2d 421, 443-44 & n.43 (Del. Ch. 2002) (same).

      322

      [186] See Moran v. Household Int'l, Inc., 500 A.2d 1346, 1350 (Del. 1985) ("When a board addresses a pending takeover bid it has an obligation to determine whether the offer is in the best interests of the corporation and its shareholders. In that respect a board's duty is no different from any other responsibility it shoulders. . . ." (quoting Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946, 954 (Del. 1985))).

      323

      [187] See Pure, 808 A.2d at 445-46 (explaining the reason for this lack of clarity); Gilson & Gordon, Controlling Shareholders, at 805-27 (same); Subramanian, Fixing Freezeouts, at 11-22 (same).

      324

      [188] Cox, 879 A.2d at 642-48; see also In re CNX Gas Corp. S'holders Litig., 4 A.3d 397, 406-14 (Del. Ch. 2010); Pure, 808 A.2d at 443-44.

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