An acquiring company that breached
confidentiality agreements with a target company was enjoined by the Delaware
Chancery Court for four months from prosecuting a proxy contest, making an
exchange or tender offer, or otherwise taking steps to acquire control of the
target’s shares or assets. A reasonably
tailored injunction was appropriate, reasoned Chancellor Strine in a lengthy opinion, since rewarding
the breaching party would have underscored the unreliability of confidential
agreements as a risk-reducing device enabling parties to more readily consider
voluntary, value-maximizing M&A transactions. Consistent with Delaware ’s
pro-contractarian public policy, said the Chancellor, the
parties’ agreement that the victim of any breach of the confidentiality
agreements should be entitled to injunctive relief should be respected. (Martin
Marietta Materials, Inc. v. Vulcan Materials Company, Civil Action No. 7102-CS,
May 4, 2012)
The
confidentiality agreements were entered into at a time when both companies were
intrigued by the possibility of a friendly merger and when neither wished to be
the subject of an unsolicited offer by the other or a third-party industry
rival. The court emphasized that one of the parties, especially the one who
evinced the most concern for confidentiality, should not be permitted to later
decide that evolving market circumstances made it comfortable enough to make a
hostile bid for the other and then without consequence freely use and disclose
publicly all the information that it had adamantly insisted be kept
confidential.
The
court rejected the acquiring company’s contention that all of its disclosures
were legally required because otherwise the S-4 and the proxy statement would
not have provided a full and fair description of all material facts related to
its exchange offer and proxy contest. The court agreed with the target
company’s claim that the company could have complied with SEC requirements with
far more limited disclosure and could have started with a barebones recitation
in the S-4 and waited for the SEC to ask for more.
The
Chancellor noted that the acquiring company went beyond any definition of
legally required by over-disclosing when it could have satisfied SEC
requirements with a much simpler recitation of the facts in its S-4. In the
court’s view, SEC regulations did not require that the acquiring company reveal
more than the fact that the parties discussed a merger, that they entered into
the confidentiality agreements, and that they ultimately could not come to
terms on the utility of doing a deal.
Instead,
said the court, the acquiring company viewed the SEC requirements as an
opportunity to work with what the Chancellor said were ``its public relations flacks
on a propaganda piece in aid of the Exchange Offer.’’ Despite being obliged
under the confidentiality agreements to take a begrudging, minimal approach to
disclosing information, continued the court, the company did the opposite.
Although the company cloaked its decision-making process in privilege, the
court found that the disclosure decisions were heavily guided and influenced by
public relations advisors, who advised the company to portray the target
company’s decisions for not proceeding with a deal in a bad light.