In H-P Ruling, Judge Strikes Blow Against Litigation that Follows Most Mergers
October 09 2015 - 2:30PM
Dow Jones News
By Liz Hoffman
A Delaware judge on Friday refused to approve a settlement of
shareholder lawsuit stemming from Hewlett-Packard Co.'s $2.7
billion purchase of Aruba Networks, a signal that the country's
most influential corporate court is taking a tougher stance against
merger litigation.
Vice Chancellor J. Travis Laster said the proposed settlement
offered little of value to Aruba's shareholders, on whose behalf
the case was filed. The agreement called for H-P to disclose
additional information about the sale process and pay the
plaintiffs' lawyers a fee of $387,500.
Such "disclosure-only" settlements are now the norm in the
litigation that follows nearly every corporate merger. Mr. Laster
and others on the Delaware Court of Chancery, where most such cases
are heard, have become increasingly critical of these pacts. Mr.
Laster on Friday signaled that his patience with such settlements
has run out.
"We've reached a point where have to acknowledge that settlement
for disclosures only has created a real, systemic problem," he
said. "We've all talked about it for a couple years. When you get
the sue-on-every-deal phenomenon, it is a problem."
He said the "formulaic" path of M&A lawsuits had created a
"misshapen legal regime" that doesn't benefit shareholders.
Mr. Laster sharply criticized the plaintiffs' case in Aruba as
thin and said they didn't do enough investigating to determine
whether there were actual problems with the transaction. He
dismissed the case on the grounds that the lawyers didn't
adequately represent shareholders' interests.
A lawyer for the plaintiffs declined to comment.
H-P agreed to buy Aruba, a provider of network software, in
March for $24.67 a share, a 34% premium to the stock's closing
price the day before the deal was announced. Seven lawsuits were
ultimately filed, alleging the price was unfair and that process
wasn't robust enough. The parties reached a settlement in
April.
As is typical in such settlements, H-P agreed to release
additional details about the deal and pay a fee in exchange for
immunity from future lawsuits over the deal. Mr. Laster and others
have criticized such releases as "intergalactic," saying they are
too broad and can paper over real misconduct that might have been
unearthed with a more vigorous investigation.
The proposed disclosures included that H-P offered Aruba Chief
Executive Dominic Orr a new employment contract earlier than H-P
had said in regulatory filings--a fact Mr. Laster said could have
been grounds for a full-fledged lawsuit seeking damages.
Friday's decision doesn't affect a separate lawsuit filed by a
group of Aruba shareholders who are seeking a higher price than the
$24.67 H-P. That appraisal lawsuit is pending.
Mr. Laster rejected a similar settlement in July stemming from
Cobham PLC's purchase of Aeroflex Holding Corp. The same week,
another judge in the same court withheld approval of a settlement
in litigation over Roche Holding AG's $8.3 billion acquisition of
InterMune. In September, a third judge approved a settlement
stemming from the private-equity buyout of Riverbed Technology Inc.
but put plaintiffs' lawyers and companies on notice that they
shouldn't expect him to do so in the future.
A tougher stance on settlements isn't necessarily a win for
companies, which, though they often complain about such lawsuits,
benefit from easy, relatively inexpensive settlements.
"The historical basis for [settlements] has been the defendants'
desire for complete peace," Mr. Laster said Friday. "Just because
you want it doesn't mean you get it."
Write to Liz Hoffman at liz.hoffman@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
October 09, 2015 14:15 ET (18:15 GMT)
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