In re Trados Shareholders Litigation: Court of Chancery Finds Decision to Approve Merger Entirely Fair
August 16, 2013
In a 115-page post-trial opinion in In re Trados Inc. Shareholder Litigation, Consol. C.A. No. 1512-VCL, the Court of Chancery found entirely fair the decision to approve a merger in which common stockholders received no consideration.
In 2000, TRADOS Inc. (“Trados”) obtained venture capital to support a growth strategy intended to lead to an initial public offering. The venture capital firms received preferred stock and placed representatives on the Trados board of directors.
In July 2005, Trados was acquired by SDL plc for $60 million in cash and stock. The preferred stockholders received $52.2 million of that amount in their liquidation preference, and management received $7.8 million as part of an existing management incentive plan. The common stockholders received no merger consideration. Plaintiff, a common stockholder, sought appraisal and sued the Trados directors for breach of fiduciary duties. In 2009, then-Chancellor Chandler denied in part a motion to dismiss, ruling that the plaintiff had sufficiently alleged that the venture firms’ directors were interested in the decision to pursue the merger.
The Court reviewed the transaction for entire fairness and found that, although the process was not fair, the decision to approve the merger was entirely fair because the common stock had no economic value before the merger and its appraised value was zero. The Court also ordered the parties to enter into a schedule for briefing the issue of attorneys’ fees.