In re Micromet: Court of Chancery Denies Stockholder-Plaintiffs’ Motion for Preliminary Injunction, Finding Market Check to Be Reasonable and Deal Protection Measures to Be Non-Preclusive
June 5, 2012
In In re Micromet, Inc. Shareholders Litigation, C.A. No. 7197-VCP (Del. Ch. Feb. 29, 2012), the Court of Chancery denied the plaintiffs’ motion to preliminarily enjoin Amgen, Inc.’s (“Amgen”) $1.16 billion acquisition of biopharmaceutical company Micromet, Inc. (“Micromet”) in a tender offer at $11 per share followed by a second-step cash-out merger. The Court concluded that the plaintiffs failed to show a reasonable likelihood of success on their claims and specifically rejected the plaintiffs’ challenges to Micromet’s market check and the merger agreement’s deal protection measures.
In 2010, Micromet and Amgen began a collaboration for certain cancer treatment technologies. Amgen’s interest in Micromet grew, and Amgen made several offers to purchase Micromet in 2011. Micromet’s board rejected Amgen’s offers as inadequate, and Micromet continued to look for partnership opportunities with larger, more capitalized biopharmaceutical companies for commercialization and distribution of its drugs. In January 2012, after having reviewed updated financial projections, Micromet’s board resolved to negotiate with Amgen regarding a sale.
While negotiating with Amgen regarding the key terms of the agreement, Micromet’s board simultaneously contacted seven large pharmaceutical companies that the board determined might be interested in acquiring Micromet, six of which had completed due diligence on the company during a potential partnering process. Of the seven companies contacted, three expressed interest and conducted additional due diligence, but none were ultimately interested in acquiring Micromet.
Following a three-week period of negotiation and due diligence efforts, Micromet’s board announced on January 26, 2012 that it had approved the merger agreement with Amgen at an $11 per share price—a 37 percent premium to Micromet’s stockholders. The merger agreement contained several deal protection measures, including a no-shop provision, matching rights, a termination fee of $40 million, and an amendment to Micromet’s rights agreement exempting Amgen from its poison pill, but otherwise leaving the pill in place. Several groups of Micromet stockholders filed complaints alleging that Micromet’s board failed to conduct a meaningful market check and that the agreed deal protections would preclude competing bids.
In denying the plaintiffs’ motion to enjoin the transaction, the Court of Chancery first found that the market check and week-long diligence period provided during the market check were reasonable given the Micromet board’s understanding of the industry and Micromet’s needs. Also, six of the seven companies had engaged in due diligence with Micromet during a prior partnering process and were therefore familiar with the company and the potential value of its products. The Court rejected the plaintiffs’ argument that Micromet’s board should have expanded its search to private equity buyers on the grounds that Micromet’s business needed not only capital but also technical expertise to develop and distribute its products.
The plaintiffs also failed to convince the Court that the deal protection measures in the merger agreement precluded potential bidders from making competing bids or that a termination fee of roughly 3 percent of equity value was unreasonable. In particular, the plaintiffs argued that a change of recommendation provision—giving Amgen a four-day period to negotiate with Micromet’s board in response to any superior offer, after which Micromet’s board would determine whether to change its recommendation—was problematic under the Court of Chancery’s recent opinion in In re Compellent Technologies, Inc. Shareholder Litigation, 2011 WL 6382523 (Del.Ch. Dec. 9, 2011). The Court, however, characterized the recommendation provision in Compellent as “less clear than in this case and could be read to mean that upon the Board’s having determined that it had a fiduciary duty to change its recommendation, it still would have had to wait four business days before satisfying those duties by, e.g., notifying its shareholders.” In contrast, the Court determined that the recommendation provision challenged by the plaintiffs was distinguishable because the provision could not be read as restricting the Micromet board’s ability to fulfill its fiduciary duties promptly after determining to change its recommendation.