Dent v. Ramtron: Disclosure of Management Projections Not Required Where Such Disclosure Would Be Merely Consistent With Other Information in Proxy Statement
March 11, 2013
In a bench ruling in Dent v. Ramtron International Corporation, C.A. No. 7950-VCP (Del. Ch. Nov. 19, 2012), Vice Chancellor Parsons of the Court of Chancery declined to preliminarily enjoin a stockholder vote on a proposed merger between Cypress Semiconductor Corporation (“Cypress”) and Ramtron International Corporation (“Ramtron” or the “Company”). The Court found that the plaintiff had not demonstrated a reasonable likelihood of success with respect to his claim that the Ramtron board of directors (the “Board”) was required, but failed, to disclose financial projections prepared by management upon which the Board’s financial advisor relied.
After over a year of courting that had been rebuffed by Ramtron, Cypress made an unsolicited offer to acquire Ramtron for $2.48 per share. The Board rejected the offer and began a process to consider strategic alternatives. During this process, Ramtron’s financial advisor reached out to 24 potential bidders, but did not receive any bids to acquire the Company. Cypress then raised its unsolicited offer to $2.68 per share and later to $2.88 per share. Thereafter, the Board entered into negotiations with Cypress and eventually agreed to a transaction whereby Cypress would acquire all publicly held shares of Ramtron for $3.10 per share. The parties structured the transaction as a tender offer to be followed by a back-end merger.
In connection with considering Cypress’s offer, Ramtron provided its financial advisor (Needham & Co.) certain internal projections. Although Ramtron had a history of badly missing its internal projections and had stopped providing guidance to the market for more than the next quarter, there was no evidence that Ramtron informed Needham that the projections were unreliable. Needham used the projections to prepare a discounted cash flow (“DCF”) analysis, which was presented to the Board in connection with the Board’s consideration of the Cypress offer. Needham also prepared comparable companies and comparable transactions analyses. The $3.10 per share deal price was within the range of values determined by both of the comparables analyses, but was below the range of values determined by the DCF.
During the course of the negotiations, Cypress never received Ramtron’s internal projections. In fact, Cypress publicly stated that it felt that Ramtron’s projections were unreliable given the difficulty of preparing accurate projections in the industry and the fact that Ramtron had missed its guidance for three of the past four years.
Cypress acquired 78 percent of Ramtron’s stock through the tender offer, which was below the number of shares needed to exercise the top-up option. Accordingly, Ramtron scheduled a stockholders meeting to consider completion of the acquisition through a long-form merger. The proxy statement described Needham’s financial analyses, including the DCF, and advised stockholders that the DCF was based on management’s projections. However, the proxy statement did not disclose the underlying management projections.
The plaintiff sought to preliminarily enjoin the stockholders’ meeting, alleging that the management projections were material information that should have been disclosed in the proxy statement. The Court refused to issue the injunction and concluded that the plaintiff had failed to demonstrate a reasonable likelihood of success on the disclosure claim. As an initial matter, the Court noted that “[t]here is no per se duty to disclose financial projections furnished to and relied upon by an investment banker. To be a subject of mandated disclosure, the projections must be material in the context of the specific case.” McMillan v. Intercargo Corp., 1999 WL 288128, at *6 (Del. Ch. May 3, 1999). The Court found that, in this instance, there were no facts suggesting that the undisclosed management projections were inconsistent with Needham’s DCF analysis, which was disclosed. The Court explained that the proxy statement disclosed that the DCF was based on management projections and resulted in a range of values fairly substantially above the merger price. Based on this disclosure, a reasonable stockholder would understand that management’s projections supported a higher price than the merger price. Thus, relying on Skeen v. Jo-Ann Stores, Inc., 750 A.2d 1170 (Del. 2000), the Court found that the disclosure of the management projections would be merely consistent with the DCF analysis that the stockholders were already given. The Court also found it significant that stockholders were informed that Ramtron attempted to achieve a higher price that would have been within the range of values determined by the DCF analysis, but neither Cypress nor any other bidder was willing to pay such a price.
The Court found that two cases relied on by the plaintiff in which the Court of Chancery found that management projections were material, Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175, 1178 (Del. Ch. 2010) and In re Netsmart Technologies Inc. S’holders Litig., 924 A.2d 171, 202-03 (Del. Ch. 2007), were factually distinguishable. The Court further noted that its decision did not turn on whether the projections were reliable. Rather, the Court indicated that the issue was whether disclosure of the projections would be substantially likely to alter the total mix of information provided to stockholders. For the reasons previously stated, the Court found that the plaintiff had failed to show a reasonable likelihood of success on this issue. However, the Court stated that if the plaintiff continued the litigation to trial and was ultimately able to show on a more complete record that there was a material non-disclosure, then quasi-appraisal may be an available remedy.