In re CheckFree Corporation Shareholders Litigation
November 1, 2007
In In re CheckFree Corporation Shareholders Litigation, Consol. C.A. No. 3193-CC (Del. Ch. Nov. 1, 2007), the Court of Chancery denied plaintiffs’ motion for a preliminary injunction on disclosure grounds against a stockholder vote on a proposed $4.4 billion all-cash merger between CheckFree Corporation and Fiserv, Inc.
The plaintiffs contended primarily that CheckFree’s definitive proxy statement was deficient on its face because it failed to disclose all of the projections of the company’s future earnings prepared by management, even though the company had provided those projections both to Fiserv and to Goldman Sachs, CheckFree’s financial advisor, and even though Goldman Sachs had relied on those projections in preparing an illustrative discounted cash flow analysis that formed part of the basis for its fairness opinion. The proxy statement disclosed that Goldman Sachs had prepared its analysis based in part on “internal financial analyses and forecasts” prepared by CheckFree’s management, and that these forecasts extended through 2012. The proxy statement also disclosed information that allowed the reader to calculate management’s estimated earnings and EBITDA through fiscal 2009, but did not disclose projections for later years or the “raw” projections themselves.
The Court held that prior cases made clear that Delaware law does not require a corporation to disclose “all financial data needed to make an independent determination of fair value.” Rather, stockholders are entitled to a “fair summary of the substantive work performed by the investment bankers upon whose advice the recommendations of their board as to how to vote on a merger or tender rely.” Noting that “there is no ‘checklist’ of the sorts of things that must be disclosed relating to an investment bank fairness opinion,” the Court held that the CheckFree proxy statement met the “fair summary” test and consequently that the plaintiffs had not demonstrated a likelihood of success on the merits of their disclosure claim.
The Court distinguished its recent decision in In re Netsmart Technologies, Inc. Shareholders Litigation, 924 A.2d 171 (Del. Ch. 2007), in which the Court enjoined a vote pending disclosure of management forecasts, by noting that the proxy statement at issue in Netsmart had “affirmatively disclosed an early version of some of management’s projections.” In contrast to the Netsmart proxy’s partial disclosure of stale information, the Court indicated that CheckFree’s proxy statement “never purports to disclose these projections.” On the contrary, the CheckFree proxy statement explicitly stated that Goldman Sachs had held discussions with management concerning management’s “views on the risks and uncertainties associated with achieving” the forecasts. From that disclosure, the Court inferred that the projections given to Goldman Sachs did not themselves take those risks and uncertainties into account. Accordingly, the Court concluded, the projections were incomplete and potentially misleading, and not material.
Although the Court in CheckFree held that there is no per se rule requiring disclosure of management forecasts, it should be noted that the plaintiffs presented their application for preliminary injunctive relief on a record limited to CheckFree’s proxy statement and other public statements. Consequently, the plaintiffs were unable to carry their burden of showing that the forecasts were reliable or that the forecasts, if disclosed, would have been viewed by a reasonable stockholder as significantly altering the total mix of information made available.