Tuesday, May 16, 2017

RetailMeNot tender offer: an in-progress case study in post-Trulia practice

By Mark S. Nelson, J.D.

Ashley Boening recently became one of three RetailMeNot, Inc. shareholders to sue the company within a span of a few days over allegedly lax disclosures regarding an upcoming tender offer for their RetailMeNot shares that would result in RetailMeNot joining Harland Clarke Holdings Corp.’s roster of operating companies with new efficiencies planned for Harland Clarke’s “consumer savings” business. Within days of Boening’s complaint, RetailMeNot announced that it had filed an amended Schedule 14D-9 which the company said addressed the plaintiffs’ concerns, and which spurred the plaintiff in at least one of the other cases against RetailMeNot to inform the court it would withdraw its motion to preliminarily enjoin the tender offer, which is set to expire May 22.

New disclosures. Specifically, RetailMeNot’s fourth amended Schedule 14D-9 added disclosures in three categories: past contracts; the solicitation recommendation; and financial projections. With respect to contracts, the company said its executives had no material discussions with the buyer about post-merger employment and that its board would be replaced by the buyer. The confidentiality agreements, which RetailMeNot said contain “customary ‘fall away’ provisions” that would end the standstill agreement, also do not contain a “don’t ask don’t waive” provision. The company’s disclosures will provide still more data about cash, cash equivalents, debt valuation, and the basis for its dilution projections. RetailMeNot also said it would furnish revised tabular information about unlevered free cash flow and non-GAAP operating income.

RetailMeNot said it opted to make supplemental disclosures to avoid potentially costly litigation although it still “disagrees with” allegations made by Boening and another lawsuit referred to as the Scarantino complaint, “denies” the claims asserted in both of these complaints, and further asserts that its SEC filings do not contain material omissions. RetailMeNot described the new disclosures as non-material and not legally required. Moreover, RetailMeNot said it, along with Boening and Scarantino, agreed to a memorandum of understanding under which Boening and Scarantino will seek to voluntarily dismiss their complaints.

RetailMeNot said it considered a third complaint filed by Edward McNally “no longer viable” because of the company’s supplemental disclosures. McNally too has indicated that he will voluntarily dismiss his case against RetailMeNot. Lawyers for McNally said in the court filing that the supplemental disclosures were a “substantial benefit” to shareholders that answered key questions about the RetailMeNot tender offer raised by McNally’s complaint.

Post-Trulia practice. The law suits regarding RetailMeNot are one example of cases where shareholders seeking additional disclosures regarding M&A deals can end up in federal court, at least in part, because of Delaware’s toughened standard for disclosure-only settlements. While it remains to be seen how federal courts more generally will receive Delaware’s Trulia decision, a divided Seventh Circuit favorably applied the Delaware case last year (a district judge who sat by designation on the Seventh Circuit panel has yet to file the text of her dissenting opinion). Trulia’s influence can be felt even in jurisdictions that have not yet had occasion to explicitly mull its reasoning.

Overall, the result has been for some disclosure-only cases to migrate from state to federal court, and for companies to try to moot litigation by voluntarily making supplemental disclosures. Delaware Chancellor Andre Bouchard, Trulia’s author, noted the preferability of the preliminary injunction and mootness approaches (both retain an adversarial component) over the disclosure-only settlement. Bouchard further observed in Trulia that “[t]he preferred scenario of a mootness dismissal appears to be catching on.”

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