In Re BGC Partners, Inc. Derivative Litigation
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Opinion
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE BGC PARTNERS, INC. ) CONSOLIDATED DERIVATIVE LITIGATION ) C.A. No. 2018-0722-LWW
MEMORANDUM OPINION Date Submitted: May 13, 2022 Date Decided: August 19, 2022
Christine M. Mackintosh, Michael D. Bell, and Vivek Upadhya, GRANT & EISENHOFER P.A., Wilmington, Delaware; Gregory V. Varallo and Andrew E. Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen and Christopher J. Orrico, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Counsel for Plaintiffs Roofers Local 149 Pension Fund and Northern California Pipe Trades Trust Funds Raymond J. DiCamillo and Kevin M. Gallagher, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Joseph De Simone, Michelle J. Annunziata, and Michael Rayfield, MAYER BROWN LLP, New York, New York; Matthew E. Fenn, MAYER BROWN LLP, Chicago, Illinois; Counsel for Defendants Linda Bell, Stephen Curwood, and William Moran
C. Barr Flinn, Paul Loughman, and Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Eric Leon and Nathan Taylor, LATHAM & WATKINS LLP, New York, New York; Counsel for Defendants Howard Lutnick, CF Group Management, Inc., and Cantor Fitzgerald, L.P.
WILL, Vice Chancellor This is a derivative action challenging the fairness of nominal defendant BGC
Partners, Inc.’s acquisition of Berkeley Point Financial, LLC from an affiliate of
Cantor Fitzgerald, L.P. BGC purchased the entity for $875 million and
simultaneously invested $100 million in a Cantor affiliate’s mortgage-backed
securities business. The theory of the lawsuit is that Howard Lutnick—the
controlling stockholder of both BGC and Cantor—caused BGC to undertake a deal
that benefitted him at the expense of BGC’s stockholders. The plaintiffs maintain
that the transaction was not entirely fair to BGC and cannot pass muster in terms of
price or process.
The plaintiffs originally sued Lutnick, two Cantor entities, and the four special
committee members who approved the transaction—Dr. Linda Bell, Stephen
Curwood, Secretary John Dalton, and William Moran. At the pleadings stage, the
court denied motions to dismiss for failure to establish demand futility and failure to
state a claim. At summary judgment, the court reiterated that demand was
excused but dismissed the special committee members other than Moran, whose
actions and uncertain independence created triable questions of fact. The remaining
claims to be tried were breach of fiduciary duty claims against Lutnick (and the
Cantor entities he controlled) and Moran. The question of demand futility was also
presented for resolution at trial. This is the court’s post-trial decision.
1 Going into trial, the plaintiffs highlighted a series of problems with the
potential to fatally undermine the fairness of the transaction. They asserted that the
transaction was a fait accompli constructed by Lutnick. They painted the special
committee as ineffective, repeatedly acceding to Lutnick’s whims. They accused
Cantor of withholding valuation information from the special committee. In terms
of the economics, they argued that the special committee accepted an inflated price
for Berkeley Point designed to cover Cantor’s tax liability despite a lower figure
being floated months before. And they described the $100 million investment as
money losing.
The plaintiffs scored some points at trial. Lutnick initiated the deal. He had
a financial incentive to cause BGC to overpay for Berkeley Point. He overstepped
in identifying advisors for the special committee and asking its co-chairs to serve.
Moran had one-off discussions with Lutnick that should never have happened.
When it came time for the final negotiations, the special committee’s written
counterproposal did not reflect its preferred structure. And there remains some
mystery around how the ultimate deal was reached.
The evidence presented by the defendants, however, carried the day. The
special committee and its advisors were independent. Though the process was
marred by Lutnick and Moran’s actions, Lutnick extracted himself from the special
committee’s deliberations after it was fully empowered. Moran pushed back on
2 Lutnick when needed and worked tirelessly on the committee’s behalf. The special
committee’s diligence requests were met and it had the information it needed to
negotiate on a fully informed basis. The committee members—each engaged and
diligent—bargained with Cantor and obtained meaningful concessions.
Berkeley Point was, by all accounts, a unique asset particularly appealing to
BGC. The price the Special Committee agreed to pay for Berkeley Point was in line
with what its financial advisor determined to be appropriate and falls within what I
conclude to be the range of fairness. The size of the additional investment was cut
by a third while retaining its strategic benefits to BGC.
I therefore find that the Berkeley Point acquisition and associated investment
were entirely fair to BGC and its minority stockholders. Lutnick and the Cantor
entities did not breach their fiduciary duties. Nor did Moran, who did not act
disloyally. Judgment is for the defendants.
3 I. FACTUAL BACKGROUND
The following factual findings were stipulated to by the parties or proven by
a preponderance of the evidence at trial.1 Trial lasted five days, during which eleven
fact witnesses and two expert witnesses testified live.2 The parties introduced 1,260
exhibits including eighteen deposition transcripts.3
A. BGC, Cantor, and Lutnick
The nominal defendant in this case is BGC Partners, Inc., a brokerage and
financial technology company incorporated in Delaware and headquartered in New
York that trades on the NASDAQ.4 Its predecessor entity, BGC Partners L.P., was
formed in 2004 when it was spun off from defendant Cantor Fitzgerald, L.P., a
privately-owned financial services and brokerage firm. BGC became a public
company as the result of a merger with eSpeed Inc. in 2008.5
At the time of the transaction at issue in this litigation, defendant Howard
Lutnick was the Chairman and Chief Executive Officer of both Cantor and BGC.6
1 Dkt. 243 (“PTO”). Where facts are drawn from exhibits jointly submitted by the parties at trial, they are referred to according to the numbers provided on the parties’ joint exhibit list and cited as “JX __” unless defined. Pin cites refer to the page numbering overlaid on each joint exhibit. Trial testimony is cited as “[Name] Tr.” Deposition transcripts are cited as “[Name] Dep.” 2 Dkts. 252-57. 3 Dkt. 251. 4 PTO ¶¶ 53, 55. 5 Id. ¶ 54. 6 Id. ¶¶ 24-25.
4 He was also the sole stockholder of Cantor’s managing partner, defendant CF Group
Management, Inc. (“CFGM”).7 Lutnick had voting control of BGC through CFGM
and his indirect ownership of about 55% of Cantor.8 For purposes of this decision,
Cantor, CFGM, and Lutnick are together referred to as the “Cantor Defendants.”
In 2011, BGC began to build up its real estate platform. It acquired
commercial real estate services company Newmark (then-Newmark Grubb Knight
Frank).9 In 2014, Newmark acquired Apartment Realty Advisors (“ARA”), a
brokerage company that brokered the sale of multifamily properties.10
Still, Newmark was not a full service platform that could broker the sale of
properties, originate loans, and service those loans. In particular, it lacked a so-
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IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE BGC PARTNERS, INC. ) CONSOLIDATED DERIVATIVE LITIGATION ) C.A. No. 2018-0722-LWW
MEMORANDUM OPINION Date Submitted: May 13, 2022 Date Decided: August 19, 2022
Christine M. Mackintosh, Michael D. Bell, and Vivek Upadhya, GRANT & EISENHOFER P.A., Wilmington, Delaware; Gregory V. Varallo and Andrew E. Blumberg, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, Wilmington, Delaware; Jeroen van Kwawegen and Christopher J. Orrico, BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP, New York, New York; Counsel for Plaintiffs Roofers Local 149 Pension Fund and Northern California Pipe Trades Trust Funds Raymond J. DiCamillo and Kevin M. Gallagher, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Joseph De Simone, Michelle J. Annunziata, and Michael Rayfield, MAYER BROWN LLP, New York, New York; Matthew E. Fenn, MAYER BROWN LLP, Chicago, Illinois; Counsel for Defendants Linda Bell, Stephen Curwood, and William Moran
C. Barr Flinn, Paul Loughman, and Alberto E. Chávez, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Eric Leon and Nathan Taylor, LATHAM & WATKINS LLP, New York, New York; Counsel for Defendants Howard Lutnick, CF Group Management, Inc., and Cantor Fitzgerald, L.P.
WILL, Vice Chancellor This is a derivative action challenging the fairness of nominal defendant BGC
Partners, Inc.’s acquisition of Berkeley Point Financial, LLC from an affiliate of
Cantor Fitzgerald, L.P. BGC purchased the entity for $875 million and
simultaneously invested $100 million in a Cantor affiliate’s mortgage-backed
securities business. The theory of the lawsuit is that Howard Lutnick—the
controlling stockholder of both BGC and Cantor—caused BGC to undertake a deal
that benefitted him at the expense of BGC’s stockholders. The plaintiffs maintain
that the transaction was not entirely fair to BGC and cannot pass muster in terms of
price or process.
The plaintiffs originally sued Lutnick, two Cantor entities, and the four special
committee members who approved the transaction—Dr. Linda Bell, Stephen
Curwood, Secretary John Dalton, and William Moran. At the pleadings stage, the
court denied motions to dismiss for failure to establish demand futility and failure to
state a claim. At summary judgment, the court reiterated that demand was
excused but dismissed the special committee members other than Moran, whose
actions and uncertain independence created triable questions of fact. The remaining
claims to be tried were breach of fiduciary duty claims against Lutnick (and the
Cantor entities he controlled) and Moran. The question of demand futility was also
presented for resolution at trial. This is the court’s post-trial decision.
1 Going into trial, the plaintiffs highlighted a series of problems with the
potential to fatally undermine the fairness of the transaction. They asserted that the
transaction was a fait accompli constructed by Lutnick. They painted the special
committee as ineffective, repeatedly acceding to Lutnick’s whims. They accused
Cantor of withholding valuation information from the special committee. In terms
of the economics, they argued that the special committee accepted an inflated price
for Berkeley Point designed to cover Cantor’s tax liability despite a lower figure
being floated months before. And they described the $100 million investment as
money losing.
The plaintiffs scored some points at trial. Lutnick initiated the deal. He had
a financial incentive to cause BGC to overpay for Berkeley Point. He overstepped
in identifying advisors for the special committee and asking its co-chairs to serve.
Moran had one-off discussions with Lutnick that should never have happened.
When it came time for the final negotiations, the special committee’s written
counterproposal did not reflect its preferred structure. And there remains some
mystery around how the ultimate deal was reached.
The evidence presented by the defendants, however, carried the day. The
special committee and its advisors were independent. Though the process was
marred by Lutnick and Moran’s actions, Lutnick extracted himself from the special
committee’s deliberations after it was fully empowered. Moran pushed back on
2 Lutnick when needed and worked tirelessly on the committee’s behalf. The special
committee’s diligence requests were met and it had the information it needed to
negotiate on a fully informed basis. The committee members—each engaged and
diligent—bargained with Cantor and obtained meaningful concessions.
Berkeley Point was, by all accounts, a unique asset particularly appealing to
BGC. The price the Special Committee agreed to pay for Berkeley Point was in line
with what its financial advisor determined to be appropriate and falls within what I
conclude to be the range of fairness. The size of the additional investment was cut
by a third while retaining its strategic benefits to BGC.
I therefore find that the Berkeley Point acquisition and associated investment
were entirely fair to BGC and its minority stockholders. Lutnick and the Cantor
entities did not breach their fiduciary duties. Nor did Moran, who did not act
disloyally. Judgment is for the defendants.
3 I. FACTUAL BACKGROUND
The following factual findings were stipulated to by the parties or proven by
a preponderance of the evidence at trial.1 Trial lasted five days, during which eleven
fact witnesses and two expert witnesses testified live.2 The parties introduced 1,260
exhibits including eighteen deposition transcripts.3
A. BGC, Cantor, and Lutnick
The nominal defendant in this case is BGC Partners, Inc., a brokerage and
financial technology company incorporated in Delaware and headquartered in New
York that trades on the NASDAQ.4 Its predecessor entity, BGC Partners L.P., was
formed in 2004 when it was spun off from defendant Cantor Fitzgerald, L.P., a
privately-owned financial services and brokerage firm. BGC became a public
company as the result of a merger with eSpeed Inc. in 2008.5
At the time of the transaction at issue in this litigation, defendant Howard
Lutnick was the Chairman and Chief Executive Officer of both Cantor and BGC.6
1 Dkt. 243 (“PTO”). Where facts are drawn from exhibits jointly submitted by the parties at trial, they are referred to according to the numbers provided on the parties’ joint exhibit list and cited as “JX __” unless defined. Pin cites refer to the page numbering overlaid on each joint exhibit. Trial testimony is cited as “[Name] Tr.” Deposition transcripts are cited as “[Name] Dep.” 2 Dkts. 252-57. 3 Dkt. 251. 4 PTO ¶¶ 53, 55. 5 Id. ¶ 54. 6 Id. ¶¶ 24-25.
4 He was also the sole stockholder of Cantor’s managing partner, defendant CF Group
Management, Inc. (“CFGM”).7 Lutnick had voting control of BGC through CFGM
and his indirect ownership of about 55% of Cantor.8 For purposes of this decision,
Cantor, CFGM, and Lutnick are together referred to as the “Cantor Defendants.”
In 2011, BGC began to build up its real estate platform. It acquired
commercial real estate services company Newmark (then-Newmark Grubb Knight
Frank).9 In 2014, Newmark acquired Apartment Realty Advisors (“ARA”), a
brokerage company that brokered the sale of multifamily properties.10
Still, Newmark was not a full service platform that could broker the sale of
properties, originate loans, and service those loans. In particular, it lacked a so-
called “agency lender” to pair with its brokerage services.11 This gap in Newmark’s
business put it at a disadvantage relative to its competitors.12
Agency lenders are real estate finance companies that are pre-approved to
originate and sell multifamily and commercial real estate loans on behalf of
government-sponsored enterprises (“GSEs”) such as Fannie Mae and Freddie Mac.13
7 Id. ¶ 27. 8 Id. ¶¶ 26-28. 9 JX 880 at 7; see Gosin Tr. 970, 974. 10 JX 880 at 7; see Okland Tr. 94-96. 11 Okland Tr. 99-101, 105-07. 12 Id.; Day Tr. 31-32; Sterling Tr. 233-34. 13 PTO ¶ 56; JX 911 (“Bacon Report”) at 4.
5 They serve as intermediaries that can originate and underwrite loans for the GSEs
across the entire market.14
Historically, Fannie Mae and Freddie Mac have provided financing at lower
yields compared to other financial institutions. As a result, the volume of GSE loans
dwarfs the volume of loans from other potential funding sources, making agency
lenders particularly valuable.15 Agency lenders are also rare because GSEs limit the
number of lending licenses they issue. For example, Freddie Mac had 22 licensed
pre-approved lenders as of 2020.16
B. Berkeley Point
Before the transaction at issue in this litigation, Berkeley Point Financial LLC
was a private commercial real estate finance company. It was (and remains) one of
the few pre-approved agency lenders.17 It also services commercial real estate loans,
including those it originated.18
In April 2014, at a time when GSE loan origination volumes were falling
industry-wide, Berkeley Point was acquired by Cantor Commercial Real Estate
14 Bacon Report at 7. 15 Id. at 5. 16 Id. at 12-13. 17 PTO ¶ 56. 18 Id.
6 Company, LP (“CCRE”) for $259.3 million.19 CCRE was then owned by Cantor
and various outside investors.20
CCRE invested heavily in Berkeley Point and worked to integrate it into
Cantor’s commercial real estate platform. Between 2014 and 2016, Berkeley Point
experienced growth driven by factors including a strengthening multifamily real
estate market and certain synergies with Cantor-affiliated entities.21
In terms of the market, Berkeley Point’s growth coincided with an increase in
GSE loan origination volumes. For example, from 2014 to 2016, Fannie Mae and
Freddie Mac multifamily loan origination volumes grew roughly 96%22 and
Berkeley Point’s revenue and EBITDA grew by 80% and 73%, respectively.23
Berkeley Point’s market share of Fannie Mae and Freddie Mac loans increased from
5.4% to 6.0% during this time.24
In terms of synergies, Berkeley Point flourished in part due to its ties to other
Cantor affiliates, including Newmark and ARA.25 BGC, lacking agency lending
19 Id. ¶ 75. 20 Id. ¶¶ 76-77. 21 JX 405 at 22; Day Tr. 24. 22 JX 928 (“Hubbard Rebuttal Report”) at 60. 23 See JX 912 (“d’Almeida Opening Report”) ¶ 64; JX 611 at 14. Berkeley Point’s calculation of EBITDA is discussed in greater depth in Section II.B.2.a.iii below. 24 JX 792 at 30. 25 JX 405 at 22.
7 abilities, tried to fill the gap in its platform through a referral relationship with
Berkeley Point. Newmark and ARA brokers would refer potential borrowers to
Berkeley Point originators for GSE financing.26 Berkeley Point became increasingly
reliant on referrals from these BGC subsidiaries, which accounted for a steadily
growing proportion of Berkeley Point’s overall origination volume between 2014
and 2016.27
Both Newmark and Berkeley Point’s executives found this referral
relationship imperfect. The offering was not streamlined and the lack of integration
stood in contrast to Newmark and Berkeley Point’s competitors. 28 Newmark also
worried that, without in-house agency lending capabilities, it might lose ARA
brokers when it came time to renegotiate their contracts, imperiling its multifamily
platform.29 The only way for Newmark to secure the in-house GSE lending
capabilities it desired was by acquiring an agency lender like Berkeley Point.30
26 Okland Tr. 98. 27 JX 448 at 2, 4; Okland Tr. 123-24. 28 Day Tr. 30-31; Okland Tr. 98-99. 29 See Okland Tr. 101-02. 30 Bacon Tr. 156-57; see Day Tr. 31-32; Sterling Tr. 233-34.
8 C. The CCRE Investor Buyout
In 2016, Cantor commenced buyout discussions with the other CCRE
investors.31 At this point, CCRE was made up of two businesses: Berkeley Point
and a commercial mortgage-backed securities (“CMBS”) business.32 CCRE’s
CMBS business originates, underwrites, pools, securitizes, and sells commercial real
estate loans and securities.33
Lutnick had reached agreements in principle with each of CCRE’s investors
by February 2017.34 Cantor agreed to pay approximately $1.1 billion in the
aggregate for the 88% of CCRE it did not own.35 Cantor considered a sale of
Berkeley Point as a second step in a chain of transaction. If Cantor owned CCRE
outright, it could facilitate a sale of Berkeley Point to BGC, where it could be
combined with Newmark before taking Newmark public.36
On February 9, 2017, BGC announced that it had filed a confidential
registration statement with the SEC for an initial public offering of Newmark.37 The
next day, a representative of investment bank Sandler O’Neill + Partners, L.P.
31 PTO ¶ 76. 32 Id. ¶ 58. 33 Id. 34 PTO ¶ 77. 35 Id. ¶¶ 76-77. 36 Lutnick Dep. 30-33. 37 JX 235.
9 reached out to BGC’s Chief Financial Officer, Steve Bisgay, about a potential
underwriting role in the IPO.38 Sandler partner Brian Sterling had told his colleagues
that the bank’s “best access” to the IPO was through Bisgay.39 It is not clear whether
Bisgay ever responded. Sandler was not given a role in the IPO.
D. The Special Committee’s Formation
On February 11, 2017, the Audit Committee of BGC’s board of directors (the
“Board”) held a meeting.40 The Audit Committee consisted of the entire BGC board
of directors (the “Board”) save Lutnick—non-parties Dr. Linda A. Bell, Stephen T.
Curwood, Secretary John H. Dalton, and defendant William J. Moran.41 Bell is the
Provost, Dean of Faculty, and Claire Tow Professor of Economics at Barnard
College.42 Curwood is a Pulitzer-prize winning journalist who focuses on issues of
environmental justice.43 Dalton is a former Secretary of the Navy and president of
Ginnie Mae.44 Moran is a former General Auditor of JPMorgan Chase & Co.45
38 JX 240. 39 JX 237. 40 JX 241. 41 Id. 42 Bell Tr. 535. 43 Curwood Tr. 715, 721-22. 44 Dalton Dep. 24; Bell Tr. 575-76. 45 Moran Tr. 796.
10 At the meeting, Lutnick informed the Audit Committee that BGC
management was considering “a substantial acquisition.”46 He explained that Cantor
had come to an agreement in principle to buy out the other CCRE investors, which
“was expected to allow Cantor to sell Berkeley Point to [BGC]” and give BGC an
“[agency lending] business of scale to compete with” its competitors.47 He
“proposed that the Company be authorized to attempt to resolve terms and close the
transactions by the end of the quarter.”48
Lutnick commented “on [a] potential purchase price” for Berkeley Point “in
the low $700 million range.”49 At trial, he testified that the “low $700 million range”
was not based on any type of valuation modeling but a back-of-the-envelope
estimate.50 The other Board members did not view his comment during the meeting
as an offer.51
46 PTO ¶ 79. 47 JX 241. 48 Id. 49 Id. 50 Lutnick Tr. 1274-75; see Edelman Tr. 411-12. 51 See Bell Tr. 539; Moran Tr. 811-12.
11 Lutnick also “discussed related party considerations” for the potential
acquisition, given that he was an officer and controlling stockholder of both BGC
and Cantor.52 A special committee was formed as a result.53
The members of the Audit Committee—Moran, Bell, Curwood, and Dalton—
“unanimously authorized that the Audit Committee act as a special committee” (the
“Special Committee”) on BGC’s behalf with respect to the proposed transactions.54
They “approved the engagement of appropriate legal and financial advisors to
provide independent services to the Committee; and authorized management to
negotiate the transactions as generally discussed, with specific details to be
approved.”55
The full Board met after the Audit Committee meeting concluded.56 The
Board ratified the Audit Committee’s authorization to act as a Special Committee.
And it unanimously “authorized management to proceed to negotiate the
transactions as generally discussed.”57
52 JX 241. 53 Id.; see Moran Dep. 174. 54 JX 241. 55 Id. 56 Id. 57 Id.
12 Cantor began analyzing a workable deal structure for the sale of Berkeley
Point following the meeting. Cantor’s internal team, led by Charles Edelman (its
Head of Mergers & Acquisitions), modeled a transaction in which BGC purchased
“100% of Berkeley Point for ~$[700] million” and made a “~$[125] million
investment into CCRE[‘s] CMBS business.”58 The price and size of the investment
were rough approximations, as evidenced by the brackets.59
E. Advisor Outreach
Shortly after the February 11 Board meeting, Moran and Lutnick discussed
the Special Committee.60 Lutnick asked Moran if he would be willing to serve as
the Special Committee’s chair; Moran agreed.61 Days later (on February 22),
Lutnick asked Bell to act as Moran’s co-chair. She also agreed.62
After Moran spoke with Lutnick, Moran began seeking out advisors for the
Special Committee with the assistance of Caroline Koster, BGC’s Chief Counsel
and Cantor’s Associate General Counsel.63
58 JX 1228 at 5. 59 Edelman Tr. 410-11. 60 JX 249. 61 Moran Dep. 171-73. 62 JX 283. 63 PTO ¶ 65.
13 Moran hoped to engage Debevoise & Plimpton LLP to serve as the Special
Committee’s legal advisor. On February 13, Koster told Moran, “I let Howard know
you wanted to retain [William] Regner [of Debevoise], and he was generally fine
with that and wants me to help you connect with him.”64 Moran felt that it was a
“good business practice” to run the retention of advisors past Lutnick.65 Moran also
ran the retention of Regner by the other Special Committee members, who were
“fine” with the selection.66 Bell was not aware that Moran had raised the retention
of Debevoise with Lutnick.67
Moran also worked to identify a financial advisor for the Special Committee.
On February 14, he asked Koster to “send [him] info on bankers”—specifically,
Houlihan Lokey and Sandler.68 Sandler had performed some prior work for BGC,
overwhelmingly advising special committees against Lutnick and Cantor.69
Koster sent Moran contact information for individuals at Houlihan and told
Moran “[m]aybe I should ask [Lutnick] if this is who he had in mind or if there is
another name.”70 Koster wrote to Moran, “[Lutnick] says it’s fine for YOU to
64 JX 256. 65 Moran Tr. 895-96. 66 JX 266. 67 Bell Tr. 663-64, 666. 68 JX 266. 69 Sterling Tr. 389-390. 70 JX 266.
14 contact the banks and start talking to them—[h]e thinks it should not be the lawyer,
but should be you. So, feel free to reach out to them. I separately sent you the
Sandler info.”71
On February 16, Koster sent Moran a contact list that included information
for Houlihan, Brian Sterling at Sandler, and Ralph “Trey” Taylor III of the Taylor
Companies, who Dalton had suggested.72 Moran asked, “[h]ave you [run] [T]rey
past [Lutnick]?”73 Koster suggested that Moran “call [Taylor Companies] last . . .
I’m sure they are very reputable, and [Dalton’s] endorsement says a lot, but since
we don’t know them, let’s see if [Lutnick] wants to discuss first.” 74 Moran
“[a]gree[d].”75
Moran began his outreach to Sandler and Houlihan, first contacting Sandler.76
On February 16, 2017, Sterling wrote to Moran and Regner to reiterate his interest
in working with the Special Committee. Sterling relayed his understanding that the
engagement would include Sandler “providing financial advisory services to the
Special Committee, including negotiation of a transaction, and then delivering a
71 JX 268. 72 JX 269. 73 Id. (lightly edited for clarity). 74 Id. 75 Id. 76 See JX 270.
15 fairness opinion if the Special Committee determine[d] to enter into a deal.”77
Moran forwarded the email to Koster and Lutnick, asking, “are we going to want
them to negotiate price????”78 A few hours later, Lutnick wrote to Moran with the
subject line “Negotiate” and one word in the body: “Yes.”79
F. The Special Committee’s Reestablishment and Retention of Advisors
In early March, Sandler and Houlihan were interviewed as prospective
financial advisors to the Special Committee.80 Moran was the only Special
Committee member that participated in the telephonic meetings. Regner and
Lutnick joined.81 Bell was not made aware that Lutnick was involved in these
meetings.82
The meeting with Sandler was held on March 2. The next day, Sandler sent
Moran and Regner a draft engagement letter contemplating a total fee of $1 million,
with $350,000 contingent on the deal closing.83 Houlihan also provided a draft
77 Id. 78 Id. 79 JX 274. 80 See JX 290; JX 298; Bell Tr. 680. 81 See JX 290; JX 298. 82 Bell Tr. 680. 83 JX 299; JX 300.
16 engagement letter after its meeting with Moran and Lutnick that proposed a $3.5
million fee.84
On March 14, the Board met and formally reestablished the Special
Committee.85 The resolutions provided that the Special Committee was delegated
the “full and exclusive power and authority of the Board” to “evaluate and, if
appropriate, negotiate the terms of any Proposed Transaction and to make any
recommendations to the Board” that it “determine[d] in its sole discretion to be
advisable.”86 The Special Committee was also authorized to retain any advisors it
deemed appropriate.87
The Special Committee met the next day.88 Lutnick was not present. It voted
to designate Moran and Bell as its co-chairs. It then considered “two potential
financial advisors”: Sandler and Houlihan.89 Materials had been circulated to the
Committee in advance that detailed the bankers’ qualifications and proposed fees.
After discussing the “qualifications and experience” of each, the Committee voted
84 JX 305. 85 JX 313. 86 Id. 87 Id. 88 JX 319. 89 Id.
17 to retain Sandler—led by Sterling—as its financial advisor.90 It then voted to retain
Debevoise as legal counsel to the Committee.91
G. Diligence Begins The Special Committee’s process was underway by mid-March 2017.
Between March and June, the Special Committee met at least nine times.92
On March 17, Sterling emailed Moran to provide the data room index for the
materials received from Cantor. Moran forwarded the email to Lutnick, pressing
him for additional data.93 He also stated that he had expressed to Regner and Sterling
“that we are running a clock [] on this deal.”94 Bell testified that she did not believe
that the Special Committee was “running any clock.”95
Any apparent timeline shifted in late March. On March 21, Sandler sent its
initial due diligence requests to Cantor.96 A week later, Sterling emailed Cantor to
“check[] in on the status of [their] information requests and the process generally.”97
Still without the information requested, Regner sent a follow-up email on April 6.
90 Id. 91 Id. 92 See PTO ¶¶ 83-98. 93 JX 331. 94 Id. 95 Bell Tr. 685-86. 96 JX 377. 97 Id.
18 Cantor responded that the diligence requests were “in progress” and that materials
would be made available via the data room when ready.98
Moran forwarded the chain to Lutnick, asking whether Lutnick had “changed
our original timetable for execution???”99 Lutnick responded four days later, saying
that the deal “[s]hould start to move quickly [at the] end of th[at] week as we will
send lawyer and banker the full desk outline and structure.” “Structure,” he wrote,
“became the driver.”100 By that, Lutnick meant that Cantor was focused on devising
a transaction structure that would be more tax efficient for Cantor.101
Cantor had begun to assess the tax implications of possible transaction
structures and asked Kirkland & Ellis LLP and KMPG to conduct an analysis.102 On
April 13, Kirkland sent a “summary of the pros and cons from a tax perspective” of
various deal scenarios with an analysis from KPMG.103 Kirkland opined that an
outright sale of Berkeley Point to BGC “in a fully taxable transaction for $[725]
million” would cause Cantor to incur an immediate cash tax liability of $70
million.104
98 Id. 99 Id. 100 Id. 101 Lutnick Tr. 1375. 102 See JX 379; Lutnick Tr. 1375-78; Edelman Tr. 415-16. 103 JX 379. 104 Id.
19 Kirkland also considered a structure whereby BGC would invest in CCRE,
entitling it to 98% of the future profits from Berkeley Point’s business with Cantor
receiving the remaining 2%.105 Unlike the immediate tax liability triggered by the
first scenario, the investment would give rise to taxes recognizable over time.106
Cantor viewed this tax-efficient structure, through which it retained a small equity
interest in Berkeley Point, as its preferred option.107
Thus, Cantor settled on a structure involving a sale to BGC of a 95% economic
interest in Berkeley Point rather than an outright purchase.108
H. The April 21 Meeting and Term Sheet
The Board met on April 21, 2017. Lutnick provided an update on the
transaction. According to the minutes, he “indicated that [BGC] management would
distribute a term sheet to the directors to facilitate discussion on the Company’s
proposed investment in CCRE in a tax-efficient structure.”109 He explained that
Cantor’s proposed structure would have BGC would own “virtually all of CCRE’s
105 Id. 106 Id. 107 Edelman Tr. 416-17. 108 Id. 109 JX 383.
20 Berkeley Point business (with Cantor maintaining a small ownership percentage),
and make a $150 million investment in CCRE’s CMBS business.”110
In terms of next steps, Lutnick said that he (on behalf of Cantor) would
provide the Special Committee with “a presentation indicating valuation of the
CCRE business.”111 According to the minutes, Lutnick indicated that Newmark’s
Chief Executive Officer Barry Gosin “would consider Cantor’s valuation analysis
and respond with an analysis based on the Company’s perspective of value.”112 “The
Special Committee could then discuss, consult its financial and legal advisors, and
negotiate the framework for a transaction.”113
That night, Koster sent Cantor’s proposed term sheet to the Special
Committee members and Regner.114 The term sheet contemplated the structure that
Lutnick had described during the Board meeting. Under Cantor’s proposal, BGC
would purchase a 95% interest in Berkeley Point for $850 million and would have
the option to purchase the remaining 5% of Berkeley Point for $30 million no sooner
than five years after closing. BGC would also invest $150 million in CCRE’s CMBS
business with a preferred return and an option to exit the investment after five
110 Id. 111 Id. 112 Id. 113 Id. 114 JX 385; JX 386.
21 years.115 Cantor viewed the April 21 term sheet as the first true offer for Berkeley
Point—earlier discussions were “more of a concept.”116
When Sandler and Debevoise spoke to Cantor representatives about the
proposal several days later, they “expressed surprise” at the change in structure.117
Until that point, the parties had discussed BGC acquiring 100% of Berkeley Point.118
Cantor representatives told Lutnick that, after discussion, Sandler and Debevoise
“appear[ed] to appreciate the tax deferral aspect and to understand the general
structure.”119
Lutnick and Edelman formally presented Cantor’s proposal to the Special
Committee on May 11, 2017.120 Their presentation included Cantor’s view on
Berkeley Point’s value.121
I. Due Diligence Continues
Due diligence continued through late April and into May 2017. By April 21,
Cantor had provided responses to many of Sandler’s diligence questions and had
115 JX 386; Edelman Tr. 418-20. 116 Edelman Tr. 422. 117 JX 397. 118 See Sterling Tr. 221-28. 119 JX 397. 120 JX 465; JX 406. 121 See, e.g., JX 406 at 8, 17-18.
22 uploaded corresponding materials to the data room.122 By April 23, Lutnick said that
the data room “ha[d] been properly populated and information requests
answered.”123
On May 2, Lutnick attended an Audit Committee meeting. According to the
minutes, Lutnick discussed the timing of the transaction and said that “the plan was
for [BGC] and Cantor to work towards an agreement by the end of the month of May
with an announcement of the deal negotiated.”124 Koster recounted to Edelman that
“[Lutnick] [had] lit a fire under” the Special Committee during the meeting.125
The Special Committee pressed forward with its information requests. On
May 5, Sandler sent Cantor a list of outstanding diligence requests, including the
terms of Berkley Point’s acquisition by CCRE in 2014 and of Cantor’s buyouts of
CCRE’s outside investors in 2017.126 The list was forwarded to Lutnick, who asked,
“[h]ow are we working on [this] and deciding what to give them[?]”127 Edelman
responded that some of the information, “for example, the terms of the CCRE
122 JX 387. 123 JX 389. 124 JX 412. 125 JX 423. 126 JX 445. 127 Id.
23 investor buy-outs” were “not [the Special Committee’s] concern.”128 “Agreed,” said
Lutnick. “Choose what to tell them. You decide.”129
Edelman did not initially send the information. He felt that the information
about the 2014 acquisition of Berkeley Point “was essentially irrelevant and likely
to obfuscate the value of the company” and that the details of the 2017 buyouts were
likewise “irrelevant” and could “be used against [Cantor] in the negotiations.”130
J. Berkeley Point Projections
Sandler had also requested multi-year projections for Berkeley Point’s
business.131 Berkeley Point did not create projections in the ordinary course.132
Cantor directed Berkeley Point’s Chief Financial Officer Ira Strassberg to develop a
set in connection with the 2017 transaction.133 Strassberg proceeded to review
Berkeley Point’s historical financial performance, analyze its pipeline of future
business, and meet with Berkeley Point employees as well as the Cantor deal team.134
He developed a set of projections that he felt were “conservative.”135
128 Id. 129 Id. 130 Edelman Tr. 425-26. 131 JX 422; JX 445. 132 Strassberg Tr. 1121, 1165-66. 133 Id. at 1121-22. 134 Id. at 1122-23. 135 Id. at 1140-41.
24 On May 1, Strassberg sent Lutnick the draft projections.136 Strassberg
expressed a view that “there [was] an opportunity to increase [Berkeley Point’s]
capture rate” in the future.137 The “capture rate” referred to is the share of ARA
investment sales Berkeley Point converted into loan originations.138 Lutnick agreed,
writing that the capture rate was “way too low” and asked Strassberg to run a
sensitivity analysis with a series of higher capture rates for 2017 and 2018.139
Separately, Strassberg increased certain other figures from his May 1 draft
after he received more granular forecasts for April and May 2017 and spoke to more
individuals.140 For example, the May 8 version he sent to Cantor included roughly
6% higher revenue and origination volume projections, which were hard-coded in
by a series of increases.141 The adjustments were not made at Lutnick’s request.142
Sandler received Strassberg’s final projections on May 19, discussed them
with Cantor, provided them to the Special Committee, and later considered the
projections when concluding that the acquisition was fair.143
136 JX 408; JX 416. 137 JX 416. 138 Strassberg 1132-34; see JX 408. 139 JX 416. 140 Strassberg Tr. 1133-35, 1137-38. 141 Id. at 1138-40; JX 976 (“Origination volumes” tab at cells B6-B14). 142 Strassberg Tr. 1138. 143 See JX 491; JX 451; JX 663; JX 1223; see Sterling Tr. 288-89; Bell Tr. 695-96; Moran Tr. 926-27.
25 K. Gosin’s Meeting with the Committee
On May 4, Koster emailed Gosin, “[t]he Special Committee is asking for a
meeting/presentation from you regarding your interest in the [Berkeley Point] and
CMBS business, etc. Howard said he would speak with you about this today.”144
Gosin subsequently contacted Shekar Narasimhan, the Managing Partner of
Beekman Advisors, for input. Beekman had advised CCRE in its 2014 acquisition
of Berkeley Point and ARA in connection with its sale to BGC.145
Narasimhan sent Gosin “a background piece on the multifamily debt market
and the GSE multifamily business in particular.”146 In a later communication,
Narasimhan told Gosin that that he believed that Berkeley Point’s value was
“probably $462M-$672M.”147 Gosin testified that he questioned the reliability of
Narasimhan’s analysis.148
On May 19, Gosin met with the Special Committee as planned and provided
it with a qualitative assessment of the potential Berkeley Point transaction. 149 He
relayed his perspective that an acquisition of a majority interest in Berkeley Point
144 JX 443. 145 JX 454. 146 JX 457. 147 JX 490. 148 Gosin Tr. 1096-97. 149 JX 488; Bell Tr. 605-06.
26 could be “transformative” for BGC due to “potential future growth opportunities and
synergies with Newmark’s existing business.”150 He did not provide any
quantitative analysis of value—nor did the Special Committee expect him to.151
Gosin also did not relay Narasimhan’s views.152
L. Negotiations Proceed
On May 21, Lutnick sent Bell and Moran an instant message to “check[]
in.”153 A few days later, Moran told Lutnick that the Special Committee was “[i]n
full support of [the] deal” so long as the “price [was] right.”154
Meanwhile, Sandler continued to request information about the terms of the
2017 buyout and of CCRE’s 2014 acquisition of Berkeley Point.155 At a May 25
meeting, the Special Committee expressed “the need to better understand the
economic terms, including valuation, of CCRE’s acquisition of Berkeley Point in
2014, and the prices at which CCRE’s outside investors invested and will exit.”156
150 JX 488; Gosin Tr. 997-98. 151 Bell Tr. 606-07; see Moran 961-62. 152 Bell Tr. 610-11; Gosin Tr. 1089-90. 153 JX 496. 154 JX 509. 155 JX 515. 156 JX 510.
27 Also during its May 25 meeting, the Special Committee discussed an updated
term sheet that Cantor had sent dated May 23.157 The term sheet continued to
contemplate a $1 billion total investment by BGC across Berkeley Point and the
CMBS business.158
On May 30, Cantor provided Sandler with the information it had been
requesting about the terms of the 2014 transaction and 2017 buyouts.159 On June 1,
Sandler told the Special Committee that several diligence items remained
outstanding and that it “would be in a position to discuss valuation with the
Committee” after receiving them.160 Sandler was eventually “successful in getting
the due diligence materials it needed.”161 The Special Committee understood that it
was “important to take the time it need[ed] to digest the diligence items and better
understand the strategic rationale for the Proposed Investment and valuation of
Berkeley Point before responding to Cantor.”162
157 JX 510; JX 514. 158 JX 503. 159 JX 521. 160 JX 526. 161 Sterling Tr. 219-220. 162 JX 526; see Bell Tr. 559-60.
28 M. The Special Committee’s Counterproposal
Sandler worked to prepare a presentation for the Special Committee that
summarized its views on Berkeley Point and responded to Cantor’s May 23
proposal. Sandler’s presentation was shared with the Special Committee at a June 4
meeting.163 The presentation included an “advocacy piece” intended for use against
Cantor at the bargaining table.164 That advocacy piece was sent to Cantor on the
morning of June 6, with a note that the deck contained “valuation considerations and
the response to the Cantor proposal.”165
The deck explained why the Special Committee believed Berkeley Point was
not worth the $880 million Cantor had offered (which reflected an $850 million
initial payment for 95% of Berkeley Point, plus BGC’s $30 million put option on
the remaining 5% that could be exercised in five years).166 It proposed that the price
be reduced from $880 million to $720 million, which it said “represent[ed] an
appropriate value for Berkeley Point.”167 The $720 million price was based on a
163 JX 553; JX 554. 164 JX 554 at 29-44; see Bell Tr. 562-66. 165 JX 571. 166 JX 554 at 13; JX 566; see Edelman Tr. 443. 167 JX 566 at 11.
29 number of considerations, including that a 25% illiquidity discount to the $880
million ask could be warranted.168
In terms of the CMBS investment, the presentation stated that an investment
in CCRE’s CMBS business could be “helpful to Newmark strategically” but was
“not compelling” for BGC on the terms Cantor had proposed.169 It explained that
Cantor had “provided no support or justification for the investment to be sized at
$150 million.”170 The Special Committee therefore proposed that the investment
size be reduced to $100 million.171
N. The June 6 Meeting
Later on June 6, the Special Committee, Cantor, and their representatives met
to negotiate a potential deal.172 According to the minutes, Cantor’s proposal going
into the meeting was for BGC “to acquire a majority interest in Berkeley Point for
$880 million, or acquire all of Berkeley Point for $1 billion, and invest $150 million
in the CMBS Business.”173
168 JX 566 at 11; Sterling Tr. 262; see Bell Tr. 564, 703. 169 JX 566 at 13. 170 Id. at 14. 171 Id. at 15. 172 JX 570. 173 Id.
30 The Special Committee members and advisors testified at trial that acquiring
100% of Berkeley Point had become their top priority as the process unfolded and
would be a walkaway point for them in final negotiations without a major concession
on price.174 As Bell explained, they “believed strongly in the value of liquidity and
control.”175 Before the meeting, Sandler had expressed to Cantor the Committee’s
preference for the outright purchase structure.176 Cantor made its $1 billion proposal
for BGC to acquire 100% of Berkeley Point as an “alternative proposal and
structure” in response.177
At trial, Cantor witnesses testified that the $1 billion price reflected what
Cantor thought it could get for Berkeley Point on the open market.178 Edelman
testified that the disproportionately large jump in price for the final 5% of Berkeley
Point was intended to cover the additional tax liability that would be incurred by an
outright sale.179
The minutes of the June 6 meeting provide that Sterling began by walking the
meeting participants through the Special Committee’s response to Cantor’s proposal
174 Sterling Tr. 220-22; Bell Tr. 569-70; Curwood Tr. 744-45; Moran Tr. 836-37; see Edelman 521-24. 175 Bell Tr. 572. 176 Sterling Tr. 220-21, 225-26, 368; Edelman Tr. 433-34. 177 JX 565. 178 Edelman 434-45; Lutnick Tr. 1244-45. 179 Edelman Tr. 434-35; Sterling Tr. 368-69; see JX 379; Lutnick Tr. 1285.
31 using the advocacy piece.180 He next conveyed the Special Committee’s
counteroffer: “to acquire a majority interest in Berkeley Point for $720 million and
invest $100 million in the CMBS Business, with several additional changes to the
security proposed by Cantor.”181
Cantor was displeased with the Special Committee’s $720 million
counteroffer.182 The Special Committee indicated it could get closer to Cantor’s
price if they could buy the business outright.183 After discussion, Cantor’s
representatives and outside counsel left the meeting to caucus.184 The Special
Committee dispatched Moran, then Bell, to meet with Lutnick and his advisors
separately.185 Moran told Lutnick that the deal would not happen as Cantor had
constructed it.186 Bell hoped to come to terms since she viewed the transaction as a
good opportunity for BGC and Newmark.187
180 JX 570; see Bell Tr. 627. 181 JX 570; see Bell Tr. 627. 182 Edelman Tr. 522; Moran Tr. 823-44. 183 Edelman Tr. 521-24. 184 JX 570; see Sterling Tr. 403-05. 185 Sterling Tr. 270; Bell Tr. 571-72; Moran Tr. 944-45. 186 Moran Tr. 844. 187 Bell Tr. 632.
32 At 3:15 p.m., Cantor rejoined the meeting and “conveyed Cantor’s
counterproposal.”188 No witness at trial could recall what exactly Cantor counter-
proposed.189 The minutes provide that approximately thirty minutes of “discussion,
debate and negotiation over the terms of the transaction ensued.”190
The two sides subsequently reached a handshake agreement. BGC was to
purchase Berkeley Point outright for $875 million and invest $100 million into
CCRE’s CMBS business for a five-year period.191 BGC would receive a preferred
5% return on the CMBS investment, with Cantor prohibited from receiving
distributions from the business until the preferred return was met.192 The parties also
agreed that Berkeley Point would be delivered to BGC at closing with a book value
as of March 31, 2017.193
188 JX 570 at 2. 189 See, e.g., Sterling Tr. 264, 404-05; Bell Tr. 630-31; Lutnick 1405-06. 190 JX 570. 191 Id. 192 Id. 193 JX 572; Edelman Tr. 482-84.
33 O. Sandler’s Fairness Opinion and the Special Committee’s Approval
The parties’ June 6 agreement was “subject to the completion of due diligence
and negotiation of definitive agreements.”194 Sterling took the next five weeks to
complete diligence and analyze the potential deal.195
On July 13, 2017, Sandler presented its fairness opinion for the Berkeley Point
acquisition and reasonableness opinion for the CMBS investment to the Special
Committee.196 It concluded that the Berkeley Point acquisition was fair to BGC and
that the terms of the CMBS investment were reasonable.197
Sandler’s presentation included slides comparing the implied multiples for the
Berkeley Point acquisition to market multiples of a number of companies, focusing
in particular on Walker & Dunlop, a real estate finance company with a business
“very comparable to Berkeley Point.”198 Sandler opined that the comparison
demonstrated that a price of $875 million for Berkeley Point was “well within [the]
imputed valuations.”199
194 JX 570. 195 JX 658; JX 659. 196 JX 658; JX 659; JX 663. 197 PTO ¶ 106; JX 658; JX 659. 198 JX 663 at 19-20; Strassberg Dep. 314. 199 JX 663 at 21; Sterling Tr. 284-85.
34 Sandler did not conduct a comparable transactions analysis or a discounted
cash flow analysis. With respect to the former, Sterling testified that Sandler could
not find a comparable transaction with publicly available metrics.200 As to the latter,
Sterling explained that a discounted cash flow analysis was not useful in valuing real
estate finance companies.201
In terms of the $100 million CMBS investment, Sandler opined that it was
reasonable after reviewing various scenarios surrounding the investment’s potential
returns and comparing the investment’s terms to comparable secured debt
offerings.202 Sandler observed that although comparable market offerings had yields
to maturity of 2-5%, BGC was effectively “getting a [set] 5% coupon” along with
other upside.203
That same day, the Special Committee unanimously resolved that the
transaction was in the best interest of BGC and recommended to the Board that it
approve the Transaction.204 On July 16, the Board adopted the Special Committee’s
200 Sterling Tr. 396. 201 Id. at 395. 202 JX 663 at 2, 23-25. 203 Id. at 24; Sterling Tr. 286-87. 204 PTO ¶ 107.
35 recommendation and voted to approve the transaction.205 The transaction
agreements were executed the next day.206
P. Deal Announcement and Closing On July 18, 2017, BGC publicly disclosed the transaction.207 Its press release
included projections of Berkeley Point’s 2017 and 2018 revenues, pre-tax GAAP
income, and adjusted pre-tax income. On July 21, BGC filed a Form 8-K with the
Securities and Exchange Commission that included the transaction agreements.208
The Berkeley Point acquisition and CMBS investment closed on September 8,
2017.209 Cantor invested about $267 million into the CMBS business alongside
BGC.210 That same day—prior to closing—Berkeley Point paid CCRE roughly
$66.8 million in order to adjust its estimated GAAP equity back to its value as of
March 31, 2017, as required by the transaction agreement’s terms.211 Similarly,
BGC paid Cantor an additional $22.4 million true-up in November 2017.212
205 Id. ¶ 108. 206 Id. ¶ 109. 207 Id. ¶ 110. The press release noted that the total consideration for Berkeley Point was $875 million and that Berkeley Point would be purchased at a book value of approximately $509 million. JX 685. It also stated that BGC would invest $100 million for roughly 27% of CCRE’s CMBS business. Id. 208 PTO ¶ 111. 209 Id. ¶ 114. 210 Lutnick Tr. 1289-91; JX 916 (“Hubbard Opening Report”) at 64. 211 PTO ¶ 113; JX 739. 212 PTO ¶ 115; see JX 750.
36 Q. Procedural History
On October 5, 2018 and November 5, 2019, respectively, plaintiffs Roofers
Local 149 Pension Fund and Northern California Pipe Trades Trust Funds—both
BGC stockholders—filed verified stockholder derivative complaints against
Lutnick, Bell, Curwood, Moran, Dalton, CFGM, and Cantor.213 The actions were
consolidated on December 4, 2018.214 The plaintiffs filed the operative Amended
Verified Stockholder Derivative Complaint on February 12, 2019.215
The Complaint alleges that the Cantor Defendants (in their capacity as
controlling stockholders of BGC) and Lutnick (in his capacity as an officer and
director) breached their fiduciary duties by causing BGC to enter into the transaction
to their gain and BGC stockholders’ detriment.216 The Special Committee
members—Moran, Bell, Curwood, and Dalton—were also charged with breaching
their fiduciary duties.217
On March 19, 2019, the Special Committee defendants and the Cantor
Defendants filed separate motions to dismiss pursuant to Court of Chancery Rules
213 Dkt. 1; PTO ¶¶ 4-5; see Dkt. 6. 214 PTO ¶ 6. 215 Id. 216 Am. Compl. ¶¶ 140-148. 217 Id. ¶¶ 136-138.
37 23.1 and 12(b)(6).218 Chancellor Bouchard denied the motions on September 30,
2019.219
On February 10, 2021, the Special Committee defendants and the Cantor
Defendants moved for summary judgment.220 On April 20, 2021, the plaintiffs
voluntarily dismissed the claims against Dalton with prejudice.221
After the case was transferred to me upon Chancellor Bouchard’s retirement
from the bench, I granted in part and denied in part the director defendants’ motion
and denied the Cantor Defendants’ motion.222 Specifically, summary judgment was
entered in Bell and Curwood’s favor but otherwise denied.
Trial was held from October 11 to October 15, 2021.223 Post-trial arguments
took place on March 2, 2022.224
Following post-trial argument, I requested supplemental briefing on matters
related to the valuation of Berkeley Point.225 The parties’ supplemental submissions
218 PTO ¶ 8. 219 In re BGC P’rs, Inc. Deriv. Litig., 2019 WL 4745121, at *1 (Del. Ch. Sept. 30, 2019). 220 PTO ¶ 16. 221 Id. ¶ 17. 222 In re BGC P’rs, Inc. Deriv. Litig., 2021 WL 4271788, at *10 (Del. Ch. Sept. 20, 2021). 223 Dkt. 252. 224 Dkt. 278. 225 Dkt. 280. The plaintiffs Cantor Defendants were asked to address issues related to whether Berkeley Point’s GAAP net income required adjustment in the context of their experts’ valuation models. Id.
38 were filed on May 13, 2022.226 The case was deemed submitted for decision as of
that date.
II. LEGAL CONCLUSIONS Derivative breach of fiduciary duty claims against the Cantor Defendants and
Moran remain post trial. I begin by considering the question of whether the demand
requirement was excused. I then address the claims against the Cantor Defendants,
which I assess under the entire fairness standard of review, and the claim against
Moran.
A. Demand Futility
Demand futility is a fundamental issue in derivative litigation. It flows from
a core tenet of Delaware corporate law: “[t]he decision whether to initiate or pursue
a lawsuit on behalf of the corporation is generally within the power and
responsibility of the board of directors.”227 As a threshold question, it is often
litigated in connection with the procedural requirements of Court of Chancery Rule
23.1 at the pleading stage. Still, demand futility can remain as an issue to be litigated
later in the case.228 That is the situation here.
226 Dkts. 283, 284. 227 In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 120 (Del. Ch. 2009); see 8 Del. C. § 141(a). 228 See In re BGC P’rs, 2021 WL 4271788, at *5-6; see Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993) (noting that Rule 23.1 “constitutes the procedural embodiment” of a “substantive principle of corporation law”).
39 At the summary judgment stage, I dismissed Bell and Curwood due to a dearth
of evidence supporting a non-exculpated claim against them. Given remaining
issues of material fact regarding Curwood and Moran’s independence and Moran’s
potential liability, however, the Cantor Defendants’ motion for summary judgment
on the basis of demand futility was denied.229 The defendants ask me to reconsider
that conclusion with the benefit of the evidence presented at trial. If I find either
Curwood or Moran to be disinterested and independent, they maintain I must hold
that the demand requirement was not excused and rule in the defendants’ favor.
A director is disqualified from exercising judgment about a litigation demand
if she “lacks independence from someone who received a material personal benefit
from the alleged misconduct that would be the subject of the litigation demand or
who would face a substantial likelihood of liability on any of the claims that are the
subject of the litigation demand.”230 Facts pertaining to a director’s independence
are considered in their totality.231 An independent director may also be disqualified
229 Moran, Curwood, and Lutnick formed a majority of the demand board. See In re Zimmer Biomet Hldgs., Inc. Deriv. Litig., 2021 WL 3779155, at *10 (Del. Ch. Aug. 25, 2021) (explaining that the court “counts heads” to determine whether a majority of a board’s members could have impartially considered a demand), aff’d, 2022 WL 2165342 (Del. June 16, 2022) (ORDER). 230 United Food & Com. Workers Union v. Zuckerberg, 262 A.3d 1034, 1059 (Del. 2021). 231 See, e.g., In re Oracle Corp. Deriv. Litig., 824 A.2d 917, 937 (Del. Ch. 2003); Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (noting that “things other than money, such as ‘love, friendship, and collegiality’” can be considered (quoting In re Oracle, 824 A.2d at 938)); Del. Cty. Empls. Ret. Fund v. Sanchez, 124 A.3d 1017, 1019 40 when faced with “a substantial likelihood of liability on any of the claims that would
be the subject of the litigation demand.”232
The plaintiffs acknowledge that they had the burden of proving demand
futility at trial.233 They say they met that burden because the record demonstrates
that Curwood and Moran not only lacked independence from Lutnick but also faced
a substantial likelihood of liability. On the latter point, the plaintiffs argue that
Curwood and Moran are not disinterested because the claims against them survived
a motion to dismiss and, in Moran’s case, a motion for summary judgment.234
The parties have cited no case where the court ruled for the defendants at trial
because demand was not excused (and I am aware of none). In the usual course, the
plaintiffs are right. Yet I am not as sanguine as the plaintiffs that a claim surviving
the pleadings stage is the final word on demand futility for the remainder of the
action. One can imagine a situation where, for example, claims survived a motion
to dismiss based on allegations in a complaint that proved baseless after discovery.
In that scenario, why should the defendant be barred from asking the court to revisit
(Del. 2015) (explaining that a demand futility analysis considers alleged facts “in their totality and not in isolation from each other”). 232 Zuckerberg, 262 A.3d at 1059. 233 Post-trial Hr’g Tr. March 2, 2022, at 97 (Dkt. 279). 234 Pls.’ Post-trial Br. 104, 107 (Dkt. 268). The plaintiffs also assert that “Bell was incapable of considering a demand.” Pls.’ Post-trial Br. 104 n.476. The law of the case held otherwise. In re BGC P’rs, 2021 WL 4271788, at *7-8.
41 demand excusal with the benefit of a developed record? The defendant surely did
not face a substantial likelihood of liability in that scenario.
This is, however, not such a case. The needle did not move meaningfully on
the question of demand futility between summary judgment and trial. I find that
Curwood could not have impartially considered a demand to sue Lutnick. Though
the plaintiffs have not met their burden of showing that Moran lacked independence,
I conclude that he faced a substantial likelihood of liability on claims that would
have been implicated in a hypothetical litigation demand. Consistent with earlier
decisions in this case, I hold that demand was excused.
1. Stephen Curwood
The plaintiffs contend that Curwood could not have impartially considered
whether to authorize a lawsuit against Lutnick because he is financially dependent
on Lutnick.235 Curwood’s service on the BGC Board provided him with more than
half of his household income from 2010 to 2017.236
The defendants assert that Curwood’s personal beliefs “push[] him ‘towards
simplicity’” while noting that he has sizeable pensions and owns properties in
Maine, New Hampshire, and South Africa.237 They maintain that Curwood is
235 Pls.’ Post-trial Br. 107. 236 PTO ¶ 45. The portion of his annual income attributable to his Board position steadily increased from 47% to 64% from 2014 to 2017. Id. 237 Cantor Defs.’ Post-trial Br. 3-4 (Dkt. 265).
42 independent regardless of the relative importance of his BGC income because he
could have pursued other avenues of work.238 I do not doubt that is true. But I
cannot conclude that Curwood’s desire to continue in his role as a BGC director
would not have clouded his judgment had he been faced with a demand to sue
Lutnick for breach of fiduciary duty.
“[T]he existence of some financial ties between the interested party and the
director, without more, is not disqualifying.”239 The question is “whether, applying
a subjective standard, those [financial] ties were material, in the sense that the
alleged ties could have affected the impartiality of the individual director.”240 Even
then, the court has rightly questioned whether a director should be viewed as
dominated by another fiduciary “merely because of the relatively substantial
compensation provided by the board membership compared to their outside
salaries.”241
238 See Moran Post-trial Br. 58 (Dkt. 265). 239 Kahn v. M & F Worldwide Corp., 88 A.3d 635, 649 (Del. 2014), overruled on other grounds by Flood v. Synutra Int’l, Inc., 195 A.3d 754 (Del. 2018). 240 Kahn, 88 A.3d at 649. 241 In re Walt Disney Co. Deriv. Litig., 731 A.2d 342, 360 (Del. Ch. 1998) (explaining that to find otherwise would “discourage the membership on corporate boards of people of less- than extraordinary means” because “[s]uch ‘regular folks’ would face allegations of being dominated by other board members”); see Chester Cty. Empls’ Ret. Fund v. New Residential Inv. Corp., 2017 WL 4461131, at *8 (Del. Ch. Oct. 6, 2017); In re BGC P’rs, 2021 WL 4271788, at *8 (recognizing “the public policy concerns at play when wealth is used as a factor in analyzing independence”).
43 The factors that lead me to conclude that Curwood is not independent for
demand futility purposes are not a mere matter of dollars. My analysis is not driven
solely by rote assessment of a percentage of one’s director fees relative to other
income. Rather, I look to subjective factors to assess how Curwood might behave
based upon the information I have about him.242
In his deposition testimony, Curwood acknowledged that he “was grateful that
[the director position] would allow [him] to both feed [his] family and [continue his
career in] public radio.”243 That testimony was confirmed at trial.244 The plaintiffs
presented evidence that Curwood viewed Lutnick and the opportunity Lutnick gave
him “to serve on his board and to make the money that [Curwood] needed to support
[his] family for the last three years” as a “blessing.”245
“It is difficult to imagine more personally motivating factors” than supporting
one’s family and pursuing one’s passions.246 These are among the most important
things in life and, to my mind, would likely bear on one’s decision-making. That is
242 Oracle, 824 A.2d at 942 (discussing the so-called “subjective ‘actual person’ standard’” (quoting Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1167 (Del. 1995))). 243 Curwood Dep. 124. 244 Curwood Tr. 773-74. 245 JX 66. 246 In re BGC P’rs, 2021 WL 4271788, at *8; see In re Student Loan Corp. Deriv. Litig., 2002 WL 75479, at *3 n.3 (Del. Ch. Jan. 8, 2002) (describing the renumeration “by which bills get paid, health insurance is affordably procured, children's educations are funded, and retirement savings are accumulated” as “typically of great consequence” to the recipient).
44 not to critique Curwood, whose strength of character is obvious. It is a matter of
human nature coupled with the lack of precision inherent in assessing how one might
respond to a demand that was never, in fact, made.247
Curwood understood that Lutnick had the power to remove him from his
position on the Board.248 In view of the stability and personal freedom that his Board
position created, I conclude that Curwood’s partiality would likely have been
impaired had he been asked to accuse Lutnick of breaching his fiduciary duties and
to authorize litigation against him.
It must be emphasized that this conclusion does not resolve the question of
whether there is sufficient evidence that Curwood lacked independence from
Lutnick during the Special Committee’s negotiations with Cantor. As the court
explained in Sciabacucchi v. Liberty Broadband Corporation, there are meaningful
distinctions between an independence inquiry in the contexts of a special litigation
committee, demand futility, and with respect to voting on a deal or corporate
247 See Del. Cty. Empls. Ret. Fund v. Sanchez, 124 A.3d 1017, 1020-21 (Del. 2015) (considering whether director compensation was material where it allegedly constituted 30% to 40% of defendant’s total annual income as part of a holistic analysis of “[h]uman relationships”); In re Oracle, 824 A.2d at 938 (noting that although “Delaware law should not be based on a reductionist view of human nature that simplifies human motivations on the lines of the least sophisticated notions of the law and economics movement,” it should not “ignore the social nature of humans”). 248 Curwood Dep. 119-21.
45 governance matter.249 The lens through which I analyze the evidence differs
between demand futility and the ultimate claims about the transaction. The latter is
addressed later in this decision.250
2. William Moran At summary judgment, I found that Moran does not rely on his BGC Board
compensation and lacks close social or other ties to Lutnick that would call his
independence into question.251 No new evidence was introduced that causes me to
reconsider that view. In terms of Moran’s independence, the remaining question for
trial was whether his admiration for Lutnick would sterilize his discretion if faced
with a demand.
The plaintiffs had argued earlier in this case that Moran’s “teary-eyed”
deposition testimony about his respect for Lutnick casts doubt on Moran’s ability to
consider a demand to sue him.252 Stripped of the inference favoring their position
and with the burden of proof upon them, the plaintiffs’ argument falls flat. I am
convinced that Moran’s emotional testimony was driven by his own connection to
249 2022 WL 1301859, at *14 (Del. Ch. May 2, 2022). 250 See infra Section II.B.1.b.i. 251 See In re BGC P’rs, 2021 WL 4271788, at *9 (noting that Moran earns a pension of roughly a million dollars a year from his past employer and has a net worth of nearly $20 million). 252 See In re BGC P’rs, 2021 WL 4271788, at *9 (quoting Moran Dep. 86, 99).
46 the 9/11 tragedy.253 Nothing in the record suggests that Moran’s respect for Lutnick
was so personal or of such a “bias producing” nature that it would have clouded
Moran’s judgment were he asked to sue Lutnick.254
After trial, the plaintiffs also argue that Moran should not be viewed as
independent for demand futility purposes due to evidence that he failed to act
independently during the deal process.255 As I address later in this decision in greater
detail, some of Moran’s actions during negotiations raise questions. Moran, at times,
lost his place and had interactions with Lutnick that are far from ideal. But when it
came to substantive negotiations, Moran consistently advocated to achieve the best
deal for the minority stockholders—even when it was not the deal Lutnick desired.256
Under these circumstances, I cannot find that Moran would have been
disabled from assessing a demand to sue Lutnick because of a lack of independence.
253 Moran Tr. 875-76. 254 See Beam v. Stewart, 845 A.2d 1040, 1050 (Del. 2004). For example, the plaintiffs relied on the fact that Moran’s partner kept a picture of herself, Lutnick, and Moran on her shelf. They also point out that Lutnick arranged for Moran and his partner to enjoy a private tour of the Tate Modern in London. This may evidence a friendship of sorts—but hardly one that is bias producing. See In re Kraft Heinz Co. Deriv. Litig., 2012 WL 6012632, at *10 (Del. Ch. Dec. 15, 2021) (“Allegations that individuals ‘moved in the same social circles,’ ‘developed business relationships before joining the board,’ or described each other as ‘friends’ are insufficient, without more, to rebut the presumption of independence.” (quoting Beam, 845 A.2d at 1051)), aff’d, 2022 WL 3022353 (Del. Aug. 1, 2022) (TABLE). 255 Pls.’ Post-trial Br. 107. 256 See infra Section II.B.1.b.i.
47 He does not have a close personal relationship to Lutnick; they are business
acquaintances.257 He is not financially dependent on Lutnick. And he was unafraid
to “tangle[]” with Lutnick when it became necessary.258
I nonetheless conclude that Moran could not have impartially considered a
demand because he faced a substantial likelihood of liability on certain claims that
would have been the subject of the demand. Moran was—despite moving for
dismissal and for summary judgment—a defendant at a trial on whether he breached
his duty of loyalty. Though Moran is ultimately adjudged not liable for a non-
exculpated claim, this case’s record proves that the claim easily “ha[d] some
merit.”259 It is reasonable to think that Moran would have paused on whether he
could authorize a suit against Lutnick concerning the Berkeley Point deal given some
of Moran’s peculiar behavior during the deal process.
B. Entire Fairness
“When a transaction involving self-dealing by a controlling shareholder is
challenged, the applicable standard of judicial review is entire fairness.”260 It is
257 Moran Tr. 805. 258 Moran Dep. 55-57. 259 In re CBS Corp. S’holder Deriv. Litig., 2021 WL 268779, at *31 (Del. Ch. Jan. 27, 2021), as corrected (Feb. 4, 2021) (quoting United Food & Com. Workers Union v. Zuckerberg, 2020 WL 6266162, at *16 (Del. Ch. Oct. 26, 2020), aff’d, 262 A.3d 1034 (Del. 2021)). 260 Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1239 (Del. 2012); see Kahn v. Tremont Corp., 694 A.2d 422, 428 n.3 (Del. 1997).
48 undisputed that Lutnick (and the other Cantor Defendants) stood on both sides of the
transaction. Given his relative ownership of Berkeley Point and BGC (54% and 23%
respectively), Lutnick had an incentive to cause BGC to overpay for Berkeley
Point.261
The seminal case of Weinberger v. UOP, Inc. pronounced that “[t]he concept
of fairness has two basic aspects: fair dealing and fair price.” 262 “In making a
determination as to the entire fairness of a transaction, the Court does not focus on
one component over the other, but examines all aspects of the issue as a whole.”263
The party bearing the burden of persuasion must establish “to the court’s satisfaction
that the transaction was the product of both fair dealing and fair price.”264
The Cantor Defendants had the initial burden of proving that the transaction
was entirely fair at trial.265 In their summary judgment motion, the Cantor
261 The Cantor Defendants argue that, because BGC represented Lutnick’s “single most valuable asset in terms of his personal wealth,” Lutnick had no economic incentive to cause it to overpay for Berkeley Point. See Cantor Defs.’ Post-trial Br. 1-2. Not so. The incentives are driven by share of ownership, not absolute terms. If Lutnick owned 23% of BGC and 54% of Berkeley Point, Lutnick “earns” $0.31 for every dollar transferred from BGC to Berkeley Point. And if a market that initially views a deal as fair corrects for an overpayment in this type of scenario, the amount of the gain decreases—it is not negated. 262 457 A.2d 701, 711 (Del. 1983). Bomarko, Inc. v. Int’l Telecharge, Inc., 794 A.2d 1161, 1180 (Del. Ch. 1999) (citing 263
Weinberger, 457 A.2d at 711). 264 Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993). 265 That is, the breach of fiduciary duty claims against them are subject to the entire fairness standard of review and they will be found liable if they do not carry their burden under the standard.
49 Defendants advocated for a pre-trial burden shift under the Lynch doctrine, which
provides that controlling stockholders may shift the burden of persuasion by “an
approval of the transaction by an independent committee of directors.” 266 Because
I found genuine issues of material fact regarding the independence of a majority of
the Special Committee, I held that the defendants were not entitled to a pre-trial
determination on burden shifting.267
After trial, the defendants did not again ask to shift the burden of proving
entire fairness to the plaintiffs.268 I ultimately conclude, however, that the Special
Committee was independent, fully empowered, and well-functioning, warranting a
burden shift under the Lynch doctrine.269 This determination does not affect my
conclusions on entire fairness; the issue of fairness is not in equipoise.270 Regardless
of who has the burden, I conclude that the transaction was entirely fair to BGC and
its minority stockholders.
266 Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1117 (Del. 1994). 267 In re BGC P’rs, 2021 WL 4271788, at *10. 268 See Post-trial Hr’g Tr. Mar. 2, 2022 at 62. 269 See Tremont, 694 A.2d at 428-29. 270 In re S. Peru Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 793 (Del. Ch. 2011), aff’d, 51 A.3d 1213 (Del. 2012) (“[T]he burden becomes relevant only when a judge is rooted on the fence post and thus in equipoise.”); see In re Cysive, Inc. S’holders Litig., 836 A.2d 531, 548 (Del. Ch. 2003) (explaining that the “practical effect of the Lynch doctrine’s burden shift is slight”).
50 1. Fair Dealing
The Weinberger opinion explained that a consideration of fair dealing
“embraces questions of when the transaction was timed, how it was initiated,
structured, negotiated, disclosed to the directors, and how the approvals of the
directors . . . were obtained.”271 The plaintiffs assert that the answers to these
questions are indicative of an unfair process. Their argument goes as follows:
Lutnick presented the transaction to the Board as a fait accompli; he dictated the deal
timing and terms; he co-opted the Special Committee, which was ineffective; and he
withheld valuation information. The defendants refute each point.
My fair dealing analysis identifies some defects in the process. Lutnick’s
presence loomed large at times. He had a hand in selecting the Special Committee’s
co-chairs and its advisors. Information was slow rolled to the Special Committee.
Final negotiations unfolded over a compressed time period. But “[p]erfection is an
unattainable standard that Delaware law does not require, even in a transaction with
a controller.”272 Considering the evidence in its totality, I conclude that the
process—albeit imperfect—was ultimately fair.
271 Weinberger, 457 A.2d at 711; Kahn v. Lynch Comm’cn Sys., 669 A.2d 79, 83 (Del. 1995). 272 Brinckerhoff v. Tex. E. Prod. Pipeline Co., 986 A.2d 370, 395 (Del. Ch. 2010); see Cinerama, 663 A.2d at 1179 (explaining that “perfection is not possible, or expected” in applying the entire fairness standard (quoting Weinberger, 457 A.2d at 709 n.7)).
51 I base that assessment on a review of the relevant Weinberger factors—timing
and initiation, structure, negotiations and approval. The deal was not timed to
benefit Cantor. At least a majority of the Special Committee members was
independent throughout the negotiations. The Special Committee devoted
substantial time to its work and retained independent advisors. And, after months of
due diligence, a deal was reached following arm’s length bargaining where the
Special Committee obtained its desired structure and a favorable price.273 Each of
these factors supports a legal conclusion of fair dealing.
a. Transaction Initiation and Timing
The timing and initiation of a transaction can evidence a lack of fair dealing
where it favors the controller to the minority’s detriment.274 In this case, it is obvious
that the deal was initiated by Lutnick. He first raised it with the Board in February
2017 after reaching agreements in principle to buy out CCRE’s other investors.275
273 See Weinberger, 457 A.2d at 709 n.7; Kahn v. Lynch, 638 A.2d at 1121; Ams. Mining Corp., 51 A.3d at 1241. 274 Weinberger, 457 A.2d at 711; see Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584, 599 (Del. Ch. 1986) (“The timing of such a transaction, we have been authoritatively reminded, may be such as to constitute a breach of a fiduciary’s duty to deal fairly with minority shareholders.”). 275 The plaintiffs suggest that this timing reveals the deal was a fait accompli. Pls.’ Post- trial Br. 55. I disagree. Lutnick flatly rejected the notion that the Berkeley Point acquisition was needed to fund the buyout. Lutnick Dep. 29-30. Furthermore, the Special Committee approved the transaction only after months diligence, negotiations, and Cantor making concessions.
52 It is also apparent that Lutnick sought to drive the timeline. Lutnick initially
hoped to reach a deal by the end of the first quarter.276 The process was slowed in
order to allow Cantor to assess its potential tax liability.277 Lutnick then “lit a fire”
under the Special Committee once the tax analysis was complete.278
He was not successful. Despite Lutnick’s prodding, the deal was not
completed on any of the time frames he proposed. The final negotiations came
together quickly but they followed several months of diligence and discussions
between the Special Committee and its advisors, on one hand, and Cantor, on the
other. And after the June 6 meeting where a deal was reached, the Special
Committee took over a month to diligence the transaction and achieve a fairness
opinion.279
Even if Lutnick had achieved his preferred timeline, “[m]ore must be shown .
. . than that a majority shareholder controlled the timing of the transaction” to
evidence a lack of fair dealing.280 Parties to a transaction will typically have a
preferred timeline. Expressing those preferences to a counterparty or slowing
276 JX 1202. 277 See JX 377. 278 JX 423. 279 JX 679; JX 681; JX 627; JX 683; JX 684. 280 Jedwab, 509 A.2d at 599; see Dieckman v. Regency GP LP, 2021 WL 537325, at *27 (Del. Ch. Feb. 15, 2021) (“Controlling the timing of a merger is not sufficient by itself, however, to demonstrate unfair dealing by a controller.”).
53 negotiations to carefully analyze a deal it is not evidence of unfair dealing. More
often, it means that the timing of the transaction was itself the product of arm’s
length bargaining.
The record must, instead, demonstrate that the deal “as timed, financially
injured the minority shareholders or enabled [the controller] to receive value at the
minority’s expense” to indicate unfairness.281 Here, it does not. The Special
Committee and Cantor agreed that if BGC was going to acquire Berkeley Point, it
should do so in advance of the Newmark IPO scheduled for late 2017.282 There is
no suggestion that this timing disadvantaged BGC’s minority stockholders.
b. Transaction Structure
Whether a transaction was structured to include procedural protections—such
as requiring the approval of an independent board negotiating committee or a
majority of the minority vote—is another important indicium of fairness.283 Here, a
281 Van de Walle v. Unimation, Inc., 1991 WL 29303, at *12 (Del. Ch. Mar. 7, 1991) (finding a process fair where the controller dictated timing because “the defendants had a valid reason to believe that postponing a sale of Unimation would create a significant risk that any future sale would be at a much lower price”); see In re Emerging Commc’ns, Inc. S’holders Litig., 2004 WL 1305745, at *32 (Del. Ch. May 3, 2004) (“Another circumstance that evidences the absence of fair dealing is where the transaction is timed in a manner that is financially disadvantageous to the stockholders and that enables the majority stockholder to gain correspondingly.”); Jedwab, 509 A.2d at 599. 282 Moran Tr. 889-90; Lutnick Tr. 1291-92; Bell Tr. 552-53. 283 See, e.g., Gesoff, 902 A.2d at 1145 (“The Supreme Court observed as early as Weinberger that the establishment of an independent special committee can serve as powerful evidence of fair dealing.”); Jedwab, 509 A.2d at 599 (“As to the fact that the transaction was not structured to accord minority shareholders a veto, nor was an 54 fully empowered Special Committee of independent directors, advised by
independent advisors, negotiated the transaction on BGC’s behalf and voted to
approve it.
i. The Special Committee’s Composition
“[A]n independent negotiating committee of [] outside directors” that deals
with a controller at arm’sthe length can evidence fair dealing.284 The special
committee’s composition is “of central importance” when evaluating the fairness of
its process.285
Lutnick had a role in selecting the Special Committee’s chairs. He reached
out to Moran almost immediately after proposing the deal to the Board and contacted
Bell several weeks later to ask about their willingness to serve in the positions. This
is obviously not a process strength. The misstep was, however, largely remedied
after the Special Committee was fully empowered and voted to designate Bell and
independent board committee established to negotiate the apportionment of merger consideration on behalf of the minority, these are pertinent factors in assessing whether fairness was accorded to the minority.”); Sealy Mattress Co. of N.J. v. Sealy, Inc., 532 A.2d 1324, 1336 (Del. Ch. 1987) (“A second indicium of fair dealing, or its absence, is whether the process by which the merger terms were arrived at involved procedural protections that would have tended to assure a fair result.”). 284 Weinberger, 457 A.2d at 709 n.7. 285 Gesoff, 902 A.2d at 1145-46.
55 Moran as co-chairs.286 Lutnick did not attend the meeting where that vote occurred
and there is no evidence that he influenced it.
Lutnick did not dictate the Special Committee’s membership more broadly.
All outside Board members—that is, BGC’s directors other than Lutnick—were put
on the Committee as a matter of course.287 Moreover, at least a majority of its
members were independent for purposes of a fair dealing analysis.
By the time trial began, two Committee members had been dismissed from
this action. The plaintiffs conceded Dalton’s independence.288 And I found on
summary judgment that Bell was both independent and had not acted to advance
Lutnick’s interests.289
Regarding Curwood, I explained earlier in this decision that I could not find
him independent for purposes of demand futility. That conclusion concerned how
Curwood might view a theoretical demand, which is not determinative of whether
he was independent during real-world negotiations with Cantor. The two contexts
286 JX 319; Bell Tr. 546; Moran Tr. 818. Witnesses at trial testified that Moran’s leadership role was driven by his experience as the lead general auditor for JPMorgan Chase and “deep knowledge of the financial structures involved,” his status as the chair of the Board’s Audit Committee, his work ethic, and his availability given that he was retired. Bell Tr. 546; see Sterling Tr. 230-32. Bell was selected in great part due to her quantitative background. Moran Tr. 818; see Curwood Tr. 791. 287 See Moran Dep. 174-75. 288 See In re BGC P’rs, 2021 WL 4271788, at *4. 289 In re BGC P’rs, 2021 WL 4271788, at *10.
56 necessarily require separate analyses.290 “[P]recedent recognizes that the nature of
the decision at issue must be considered in determining whether a director is
independent.”291
“A director’s objectivity concerning a hypothetical demand could be
compromised even if her actions in evaluating a transaction were beyond
reproach.”292 That is so because it is more difficult for a director to decide a “fellow
director has committed serious wrongdoing” and to sue him than to push back in
negotiations over a conflicted transaction.293 Thus, “[s]uccessfully impugning a
director’s independence with respect to voting on transactions . . . should be more
difficult than challenging the same independence with respect to assessing a
demand.”294
Curwood exemplifies this scenario. The personal importance of his
directorship could have colored his thinking had he been faced with a demand to
accuse Lutnick of wrongdoing and pursue litigation against Lutnick. But there is no
evidence that Curwood lacked independence while negotiating against Lutnick
about Berkeley Point and the CMBS investment.
290 See supra notes 248-550 and accompanying text. 291 Marchand, 212 A.3d at 819. 292 In re BGC P’rs, 2021 WL 4271788, at *10. 293 Id. (quoting Oracle, 824 A.2d at 940). 294 Sciabacucchi, 2022 WL 1301859, at *14.
57 Curwood credibly testified that he was committed to walking away from the
deal if he felt the “finances” were “not appropriate” for BGC and its minority
stockholders.295 He emphasized that the loss of his Board seat was never a
consideration during negotiations.296 I have no basis to doubt that Curwood was
independent—and acted independently—throughout the negotiations.297
That leaves Moran, who is the more complicated piece of the puzzle. My
demand futility analysis led to the conclusion that Moran was independent of
Lutnick (though unable to impartially considered a demand because he faced a
substantial likelihood of liability through trial). Given that finding, there is little
basis to question Moran’s independence here insofar as he lacked meaningful ties to
Lutnick. But during the deal process, Moran acted at times in a way that Bell
acknowledged at trial was “not best practice.”298
Moran agreed to act as the Special Committee’s chair at Lutnick’s request.
He worked with Lutnick to identify advisors for the Special Committee (albeit before
it was formally reestablished and fully empowered) and asked Lutnick whether
295 Curwood Tr. 744, 746. 296 Curwood Tr. 732-33. 297 See In re BGC P’rs, 2021 WL 4271788, at *11 (explaining that the court must “assess the director’s real-world actions (or inactions) in the context of her lack of independence”); In re Oracle, 824 A.2d at 940; Marchand, 212 A.3d at 820 & n.95; see also Sciabacucchi, 2022 WL 1301859, at *13-15. 298 Bell Tr. 675.
58 Sandler would negotiate the deal price. He communicated with Lutnick about
diligence and timing. He did not tell his fellow Special Committee members about
those early interactions with Lutnick.299 He indicated to Lutnick that the Committee
supported the deal before Sandler had formed a view on value—albeit with the
important caveat that the “price [be] right.”300 These instances of questionable
behavior marred the deal process.
Yet, I cannot conclude that Moran was beholden to Lutnick or blinded by a
“controlled mindset.”301 When it came to substantive negotiations, Moran pushed
back firmly on Lutnick on multiple occasions. Sterling, for example, testified that
it was Moran who told him to “go at [the negotiation with Cantor] hard” and
“negotiate from . . . a zealous or aggressive standpoint on behalf of the independent
directors and independent shareholders.”302 Moran told Lutnick that Cantor’s
proposals at the final negotiation were problematic and inconsistent with BGC’s
structural objectives, expressing his willingness to end the negotiations.303 Though
he provided confusing testimony about whether Lutnick could negotiate for himself,
299 See Bell 663-64, 666. 300 JX 509; Moran Tr. 955-56. 301 See In re S. Peru Copper, 52 A.3d at 800 (finding that a special committee was ineffective for purposes of an entire fairness analysis where it “was trapped in the controlled mindset, where the only options to be considered are those proposed by the controlling stockholder”). 302 Sterling Tr. 263. 303 See Moran Tr. 836-37, 843-44; Lutnick Tr. 1408-10.
59 the evidence shows that Moran knew his job was to advocate for the stockholders
and that he was a positive force when it came to the ultimate price and terms
reached.304
Moreover, there is no evidence that Moran jeopardized the substance of the
Special Committee’s independent process.305 In Van de Walle v. Unimation, Inc.,
then-Vice Chancellor Jacobs considered a scenario where one director allegedly
labored under a disabling conflict that rendered the process unfair.306 The court
explained that even “assuming without deciding that [the director] had a disabling
conflict of interest, there was no showing that his participation in the merger
304 The plaintiffs highlight Moran’s muddled deposition testimony that appeared to suggest Lutnick could negotiate for himself as both BGC and Cantor. Moran Dep. 160-61; see Moran Tr. 890. After hearing Moran’s testimony at trial, I believe that Moran did not mean to say that Lutnick was permitted to negotiate on BGC’s behalf against Cantor. Instead, it was a clumsy way of saying that Lutnick was on both sides of the deal. Moran Tr. 953-54; see Moran Dep. 161. 305 The facts here are nothing like those in the cases plaintiffs rely on for their argument that Moran “infected” the process. Pls.’ Post-trial Br. 67. In In re Loral Space & Communications Inc., for example, a chair of a two-person committee maintained “important ties” with the controller and forwarded the controller an email from the committee’s legal advisor “summarizing the Committee’s discussion” of open issues “including its ‘fall-back’ position.” 2008 WL 4293781, at *17 (Del. Ch. Sept. 19, 2008). Moran had no ties to Lutnick and there is no evidence he sent anything substantive about the Special Committee’s negotiating strategy to Lutnick. In Kahn v. Tremont, a special committee chairman “conducted all negotiations over price and ancillary terms of the proposed purchase with [the controlling shareholder], and did so without the participation of the remaining two directors.” 694 A.2d at 430. Here, Dalton, Bell, and Curwood consistently attended meetings, remained engaged, and were active participants in negotiations over the transaction price and terms. 306 1991 WL 29303, at *10-11.
60 negotiations and decision-making caused any actionable wrong or harm.”307 The
conflicted director did not “dominate[] or control[] any of the remaining four
[directors]” or “otherwise influence[] the . . . board to act other than in the minority
stockholders’ best interest.”308 As in Unimation, Moran did not dominate the other
three Special Committee members or influence them to act against the interests of
BGC and its minority stockholders.309
ii. The Special Committee’s Advisors
“Another critical factor in assessing the reliability and independence of the
process employed by a special committee, is the committee’s financial and legal
307 Id. at *14. 308 Id. 309 The record also does not support the conclusion that Dalton, Bell, and Curwood fell victim to a controlled mindset. Moran’s counsel argues that the plaintiffs’ allegations otherwise “cannot be squared with their voluntary dismissal of Dalton, or with the Court’s finding that Bell is independent and Curwood did not act to advance the interests of Lutnick.” Moran Post-trial Reply Br. n.1. I cannot credit that argument given that, in Southern Peru, the court found that the special committee’s controlled mindset evidenced a lack of fair dealing despite the fact that the special committee members had been dismissed from the case at the summary judgment stage. See In re S. Peru Copper, 52 A.3d at 785; id., C.A. No. 961-VCS, at 123-29 (Del. Ch. Dec. 21, 2010) (TRANSCRIPT). Here, however, the evidence shows that Dalton, Bell, and Curwood engaged in arm’s length negotiations to reach an optimal outcome for the minority stockholders. Unlike in Southern Peru, the Special Committee (including Moran) got “reasoned updates” from their financial advisor, obtained meaningful concessions from their counterparty, and pushed back on the controller’s preferred approach. See In re S. Peru Copper, 52 A.3d at 773-74, 809-810. The Special Committee members’ careful process and good faith pursuit of the minority stockholders’ interests underpins my determination that the process was fair. See Cinerama, 663 A.2d at 1141 (“The overall judgment of fairness to shareholders that the court must make can, and in my opinion should, take into account the good faith of the directors when it considers the ‘process’ element of the evaluation.”).
61 advisors and how they were selected.”310 The plaintiffs do not dispute that Sandler
and Debevoise were qualified or that Debevoise is independent. They question
Sandler’s independence and point to Lutnick’s role in selecting the Special
Committee’s advisors as evidence of unfairness.311 By the time that the Special
Committee was reconstituted and empowered, Moran and Lutnick had already
discussed retaining Debevoise and had met with Sandler, negotiated the scope of its
role, and received a draft engagement letter. This is a flaw in the process—Lutnick
should have had no involvement in selecting the Committee’s advisors.
The court’s decision in Gesoff v. IIC Industries, Inc. is instructive in assessing
the effect of Lutnick’s involvement on the fairness of the process. 312 There, a one-
person special committee had “no real authority” to choose his own advisors.313 A
legal advisor with a history of working with the conflicted board and controller was
“presented to [the director]” as the conflicted parties’ choice, which the director
310 Kahn v. Dairy Mart Convenience Stores, Inc., 1996 WL 159628, n.6 (Del. Ch. Mar. 29, 1996). 311 See id. (declining to shift the pre-trial burden of entire fairness because, among other things, the controlling stockholder’s attorney had recommended the special committee’s advisors); Tremont, 694 A.2d at 429 (questioning the propriety of the controlled entities’ general counsel suggesting a legal advisor that had strong connections to the controlling stockholder, which the special committee promptly retained). 312 902 A.2d 1130 (Del. Ch. 2006). 313 Id. at 1138.
62 accepted. The financial advisor, who had all but been promised the role by a
conflicted executive, was also pressed upon the director.314
Here, unlike in Gesoff, the Special Committee members had the authority to
choose their own advisors. After discussion and a unanimous vote (without Lutnick
present), the Special Committee chose Sandler based (at least in part) on Moran,
Curwood, and Dalton’s prior work with and high regard for the firm.315 Debevoise
was likewise retained because Regner had worked with certain Committee members
as a legal advisor in the past and they were confident in his abilities.316
There is an even greater distinction from Gesoff: the record demonstrates that
Sandler (like Debevoise) was not conflicted.317 Sandler’s prior work for Lutnick-
affiliated companies was overwhelmingly in representing special committees that
were negotiating against Lutnick318—meaning that Sandler was not accountable to
or hired by the Cantor Defendants.319 There is also no evidence that Sandler’s desire
314 Id. at 1139. 315 See Bell Tr. 547; Sterling Tr. 308-09. 316 Bell Tr. 547-48. 317 Gesoff, 902 A.2d at 1150-51 (detailing ways in which the special committee’s financial advisor was “actively and persistently disloyal to the special committee and to its aims of assuring a fair transaction for [the company’s] minority stockholders”). 318 Sterling Tr. 389-90. 319 See In re Cysive, 836 A.2d at 554 (“Though the plaintiffs challenge the special committee’s decision to engage Broadview, I do not perceive Broadview as having been conflicted due to their prior engagement working for Cysive to sell the company. In that role, Broadview was accountable to and was hired by Cysive’s board.”).
63 for a role in Newmark’s IPO, which went only as far as a pair of emails in early
February before it was hired by the Special Committee, impaired its independence.
Ultimately, Sandler and Debevoise understood their roles and advocated on the
Special Committee’s behalf.
The record is devoid of evidence indicating that Lutnick benefitted from
Sandler’s retention or that BGC’s minority stockholders were harmed. Sandler
plainly advocated for the Special Committee against Cantor. For example, it,
pressed Cantor for information that Cantor was initially hesitant to provide and
questioned Cantor’s changes to the deal structure. Most importantly, it bargained
hard on the Special Committee’s behalf—especially during the June 6 meeting.320
Thus, the retention of Sandler and Debevoise supports fair dealing—despite
Lutnick’s role in their retention. The advisors were qualified, independent, and not
beholden to Cantor.321
320 The plaintiffs also question Sandler’s independence because it requested a $1 million fee that included a $350,000 contingent fee. Pls.’ Post-trial Br. 58. “Contingency clauses are standard in financial advisor agreements and seldom create a conflict of interest.” In re Panera Bread Co., 2020 WL 506684, at *32 (Del. Ch. Jan. 31, 2020); see In re Oracle Corp. Deriv. Litig., 2018 WL 1381331, at *14 (Del. Ch. Mar. 19, 2018). 321 See In re Tesla Motors, Inc. S’holder Litig., 2022 WL 1237185, at *34 n.413 (Del. Ch. Apr. 27, 2022) (finding that although the alleged controller “should not have been involved in the selection of counsel to advise the Tesla Board,” the advisor chosen was “qualified, independent . . . [and] not beholden”).
64 c. Transaction Negotiation and Approval
Under Weinberger, a fair dealing analysis includes how the transaction was
negotiated and “how, and for what reasons, the approvals of the various directors
themselves were obtained.”322 It is here that the strength of the Special Committee’s
process is most visible.
The Special Committee was well informed of the material facts when it voted
to approve the transaction. During the three-month negotiation period, the Special
Committee met at least nine times, with Sandler sharing three presentations
containing information about Berkeley Point and the CMBS business.323 The
Committee members were “deeply engaged” and “very hardworking.”324 They
exerted their bargaining power against Lutnick and prevailed in obtaining
consequential concessions.
The plaintiffs argue otherwise on two principal grounds. First, they say that
Lutnick and Cantor withheld material valuation information from the Special
Committee that prevented it from negotiating effectively. Second, they argue that
322 In re Digex Inc. S’holders Litig., 789 A.2d 1176, 1207 (Del. Ch. 2000). 323 JX 514; JX 528; JX 571; see In re Cysive, 836 A.2d at 554 (finding that a process was fair where the evidence showed each committee member “devoted substantial time to the committee’s work” and “took its responsibilities seriously”); In re MFW S’holders Litig., 67 A.3d 496, 499 (Del. Ch. 2013) (explaining that a special committee was effective where it “met eight times during the course of three months” and negotiated a price increase), aff’d sub nom., Kahn v. M & F Worldwide Corp., 88 A.3d 635 (Del. 2014). 324 Sterling Tr. 262-63.
65 the Special Committee “acceded to Cantor’s demands” rather than prevailed in
negotiations.325 The evidence presented by the defendants critically undermines
both positions.
i. Disclosure of Information
“[T]o make a special committee structure work it is necessary that a
‘controlling stockholder . . . disclose fully all the material facts and circumstances
surrounding the transaction.’”326 That includes the disclosure of (1) “all of the
material terms of the proposed transaction,” (2) “all material facts relating to the use
or value of the assets in question,” and (3) “all material facts which [the fiduciary]
knows relating to the market value of the subject matter of the proposed
transaction.”327 The information must be disclosed fully and accurately.328
Some of the information that the Special Committee viewed as most important
to its process—regarding the 2014 Berkeley Point transaction and the terms of the
2017 CCRE investor buyouts—was initially held back. Had that information not
made its way to the Special Committee, it might have evidenced a lack of fair
325 Pls.’ Post-trial Br. 48. 326 Kahn v. Tremont Corp., 1996 WL 145452, at *15 (Del. Ch. Mar. 21, 1996) (quoting Lynch, 669 A.2d at 88 (Del. 1995)), rev’d on other grounds, 694 A.2d 422 (Del. 1997). 327 Id. at *16. 328 See In re Dole Food Co., Inc. S’holder Litig., 2015 WL 5052215, at *30 (“Implicit in the expectation that the controller disclose this information is . . . that the controller disclose it accurately and completely.”).
66 dealing. But, as the plaintiffs acknowledged after trial, Cantor eventually answered
the Special Committee’s repeated requests for it.329 Sterling testified that Sandler
“[h]ad received all the information, had analyzed it, and had discussed it with the
committee several times” before the parties engaged in face-to-face negotiations.330
The plaintiffs nonetheless assert that Lutnick and Cantor failed to satisfy their
obligations to disclose complete and correct information to the Special Committee.
That argument focuses on (1) Gosin, (2) Strassberg’s projections, and (3) Cantor’s
tax information.
Gosin. First, the plaintiffs claim that the Gosin’s involvement skewed the
Special Committee’s perception of Berkeley Point’s value because Lutnick told
them that Gosin would provide BGC’s thoughts on Berkeley Point’s valuation and
then coordinated with Gosin on what he would say.331 The record shows, however,
that neither the Special Committee members nor Gosin felt that Gosin had been
tasked with providing a quantitative assessment of Berkeley Point to the
Committee.332 He instead provided a qualitative view. More generally, it is not clear
329 Edelman Tr. 425-27; see JX 521. 330 Sterling Tr. 219, 350; see Bell Tr. 559 (testifying that the Special Committee took the time they needed to “digest the diligence and understand the strategic rationale” of the transaction). 331 Pls.’ Post-trial Br. 60. 332 Gosin Tr. 167-69 (noting that he would not have been the Newmark executive to handle the numbers); Bell Tr. 605-06.
67 how Gosin could have manipulated the Special Committee’s views on Berkeley
Point’s value if he did not offer a view on valuation in the first place.
The plaintiffs call attention to the email Gosin received from Narasimhan
opining on Berkeley Point’s valuation in arguing that Gosin withheld crucial
information from the Special Committee.333 But I have no basis to attribute illicit
motives to Gosin’s decision to withhold the email from the Special Committee.
Setting aside that his decision is not attributable to Cantor in any event, I believe that
Gosin made the reasoned choice not to share it because he felt that it was
unrealistic.334
Gosin testified (in response to my asking him why he failed to share the
document) that Narasimhan’s conclusions were unsound.335 In particular, he
questioned how the low end of Narasimhan’s range ($426 million) could
appropriately be below Berkeley Point’s book value (which exceeded $500
333 Pls.’ Post-trial Br. 60. They also argue that Lutnick and Cantor prevented Narasimhan from participating in a “critical diligence meeting” because his correspondence indicated that he was joining a May Special Committee meeting and he did not show. JX 490. There is no evidence that Narasimhan was prevented from attending the meeting or uninvited. Gosin had no memory of inviting him. Gosin Tr. 1082-83. 334 See In re Cysive, 836 A.3d at 554-55 (finding that a CFO’s failure to turn over a revised budget to a special committee where he did not “place[] confidence” in the budget did not “materially impair the effectiveness of the negotiation and approval process because the document . . . did not contain any reliable information that would have changed the outcome of the committee’s deliberations”). 335 Gosin Tr. 1096-97.
68 million).336 That testimony is unrebutted. In fact, I have no evidence that would
allow me to understand how Narasimhan reached his conclusions. Narasimhan was
not deposed and did not testify.337
Projections. Second, the plaintiffs maintain that the projections prepared by
Strassberg and considered by Sandler were manipulated. That position does not hold
up to scrutiny. To start, Cantor never represented that the projections were prepared
in the ordinary course; no existing projections for Berkeley Point were withheld from
the Special Committee.338
The evidence indicates that Strassberg attempted to create two-year
projections that he felt were “conservative” after gathering and analyzing the
relevant information.339 The plaintiffs argue that aspects of Strassberg’s efforts, such
as hard-coding increases to certain metrics in his projections, prove otherwise. But
I do not attribute any ill intent to Strassberg’s doing so—much less attribute these
changes to Lutnick.
336 Id. 337 See ACP Master, Ltd. v. Sprint Corp., 2017 WL 3421142, at *39 (Del. Ch. July 21, 2017) (rejecting “unsupported valuation” contained in “a single email” where there was “no evidence in the record as to how the [author] reached” his figures), aff’d, 184 A.3d 1291 (Del. 2018). 338 See In re Emerging Commc’ns, 2004 WL 1305745, at *35. 339 Strassberg Tr. 1124-25, 1133-34; see supra Section I.J.
69 Rather than demonstrate that Strassberg set out to mislead the Special
Committee or inflate values he knew were unsupported, the evidence shows that the
projections were his best estimate. Strassberg increased certain figures from his
original projections after reviewing updated forecasts that projected net income for
April and May significantly higher than that recorded in 2016. He forcefully rejected
any notion that his projections were “misleading,” “false,” or “artificially
inflated.”340 Nothing indicates that he increased projections based on Lutnick’s say
so. By all accounts, Berkeley Point’s business is challenging to reliably project.341
Lutnick asked Strassberg to run a sensitivity analysis by varying the capture
rate—the quantum of loan originations Berkeley Point could “capture” on ARA’s
investment sales. But Strassberg, who raised the idea of adjusting the capture rate
up himself, planned to “vet the[] #s with the business.”342
In short, this is not the stuff of doctored projections or fraud.343
340 Strassberg Tr. 1150-51. Tied to plaintiffs’ contention that Berkeley Point’s projections were artificially inflated is the argument that the Cantor Defendants used their “superior” (i.e., undisclosed) knowledge about Berkeley Point’s performance in 2017 to raise the cost of the acquisition by setting Berkeley Point’s book value as of March 31, 2017. See Pls.’ Post-trial Br. 60-61. There is no reason that BGC should not have paid for Berkeley Point’s growth between the set date and closing. 341 See infra notes 417-19 and accompanying text. Sterling testified that Sandler understood that projections were of little use in the real estate finance sector. Sterling Tr. 289. 342 JX 416. 343 Compare In re Dole, 2015 WL 5052214, at *1, *31 (concluding that projections supplied by an officer described as the controller’s “right-hand man” were “knowingly 70 Tax Information. The plaintiffs further argue that Lutnick failed to fulfill his
disclosure obligations because he never turned over tax information supporting his
$1 billion ask.344 This has little bearing on my analysis because Cantor’s tax
information is not materially related to the value of Berkeley Point. It is only
relevant to Cantor’s consideration of the price at which it was willing to sell Berkeley
Point. A controller is not required to disclose “information that relates only to its
consideration of the price at which it will buy or sell and how it would finance a
purchase or invest the proceeds of a sale.”345
ii. Arm’s Length Negotiations
The most compelling evidence that the transaction resulted from a fair process
is the Special Committee’s achievement of a deal to acquire 100% of Berkeley
Point—the structure it preferred and the Cantor Defendants disfavored. The
plaintiffs refute that point, asserting that Lutnick abused his control to influence
negotiations to Cantor’s advantage. Despite some of Lutnick’s early meddling,
however, he appropriately separated himself from the Special Committee’s process
false” and intentionally prepared to mislead a special committee for the controller’s benefit). 344 Pls.’ Post-trial Br. 62. 345 In re Dole, 2015 WL 5052214, at *29 (quoting Tremont, 1996 WL 145452, at *16), rev’d on other grounds, 694 A.2d 422 (Del. 1997)).
71 after it was reestablished and fully empowered. There is no evidence that he failed
to properly recuse himself from its substantive deliberations.346
That culmination of the Special Committee’s process was the June 6 meeting.
Before the meeting, the Committee had met numerous times, discussed the valuation
“two or three times” with Sandler, and approved an advocacy presentation to
persuade Cantor to lower its price.347 Bell, in particular, reviewed the numbers
closely given her background as an economics professor.348
There are certainly questions surrounding how the parties’ final negotiations
on June 6 progressed from a structure whereby the BGC would invest in Berkeley
Point to one where BGC purchased it outright. The Special Committee’s sole written
counterproposal going into the meeting adopted the tax-efficient structure Cantor
desired. The minutes are no help; they speak of a Cantor counterproposal but do not
specify what it was.349 No witness could remember the details. This deficiency in
346 The plaintiffs assert that Lutnick influenced the deal process by conversing with Sterling (once or twice) and attending certain Board and Audit Committee meetings during the negotiations. Pls.’ Post-trial Br. 26-27, 32-33; see JX 383; JX 400; JX 412; JX 476. It appears from the minutes that Lutnick was sharing information with the Board and Audit Committee or interacting with the Special Committee as a counterparty—not involving himself in the Special Committee’s process. See In re Tesla Motors, 2022 WL 1237185, at *34-36 (finding fair process and discussing the controller’s “apparent inability to acknowledge his clear conflict of interest and separate himself from Tesla’s consideration of the Acquisition”). 347 Sterling Tr. 262-63. 348 Sterling Tr. 298; Curwood Tr. 791; Moran Tr. 818. 349 JX 570.
72 the record caused me to question how the deliberations unfolded. What is not in
doubt, though, is the following.
First, the structure of the Berkeley Point acquisition clearly became the
sticking point. The Special Committee members testified consistently and credibly
that they became focused on an outright purchase of Berkeley Point during the
course of the parties’ negotiations.350 The Committee’s desire for that structure is
consistent with Cantor entering the June 6 negotiations with two proposals: one for
a purchase of 95% of Berkeley Point for $880 million and another for an outright
purchase for $1 billion.351 Cantor, of course, preferred the investment structure that
benefitted its tax position.352
The Special Committee and Sandler bargained hard on the structure of the
deal.353 The negotiations became heated and required multiple sidebars to
350 Sterling Tr. 220-222; Bell Tr. 569-70; Curwood Tr. 744-45; Moran Tr. 836-37. 351 The $1 billion offer was never put in writing but was made after the Special Committee expressed its desire to buy 100% of Berkeley Point. See Edelman Tr. 433-35. Edelman testified that the Special Committee refused to accept Cantor’s views on the $1 billion price, which Cantor felt would allow it to receive sufficient proceeds to “make it whole for the loss of the tax structuring.” See Edelman Tr. 434-35; see also id. 524 (describing how the Special Committee team made clear to Cantor multiples times that taxes were “[their] problem”). 352 See Edelman Tr. 416-17. 353 In re Cysive, 836 A.2d at 554 (explaining the “[m]ost important” aspect of fair dealing as the committee “[b]argain[ing] hard” with its counterpart).
73 progress.354 The Special Committee was prepared to walk away if Cantor did not
agree to a deal that was attractive to the Committee.355 The Committee prevailed.356
Further, the Special Committee ended up with its preferred structure at a price
in line with what Cantor had offered for 95% of Berkeley Point in its April and May
term sheets.357 The plaintiffs maintain that the $875 million price for Berkeley Point
was $150 million more than what Lutnick had discussed in February.358 But I cannot
conclude that Lutnick’s early mentions of a deal in the “mid 700s” or $725 million
were true offers.359 The trial testimony consistently provides that those involved in
the negotiations—including the Special Committee—felt otherwise.360 The
documentary evidence is consistent with their understanding. For example, Cantor’s
early modeling bracketed the figures in this range.
The plaintiffs also suggest that the negotiations moved backwards because the
Special Committee’s $720 million counteroffer was for 100% of Berkeley Point
354 Sterling Tr. 269-71; Bell Tr. 570-72; Moran Tr. 943-45; see Gesoff, 902 A.2d at 1148 (explaining that “vigorous and spirited” negotiations are evidence of a fair process). 355 Sterling Tr. 271-72; Moran Tr. 944-45; Curwood Tr. 744, 746. 356 Sterling Tr. 405 (stating in response to the court’s questions that, “at the very end” of negotiations, Cantor “conceded”). 357 JX 386; JX 503. 358 Pls.’ Post-trial Br. 64. 359 See Lutnick Tr. 1274-75; see Edelman Tr. 411-12. 360 Sterling Tr. 216-20; Edelman Tr. 411, 521-24; Bell Tr. 539-40; Moran Tr. 811-12 (describing the $700 million figure as “not a real number,” less a “formal offer” than an “order of magnitude”).
74 rather than 95%.361 This contention is belied by the record. It is apparent from
Sandler’s June 5 presentation that it was considering $720 million for 95% of
Berkeley Point.362 The final deal price of $875 million is directly in line with what
Sandler was advising the Committee: a 20% increase in value for the last 5% of
Berkeley Point, full control, and liquidity. That outcome is persuasive evidence that
the Berkeley Point acquisition resulted from a fair process.
In addition, the Special Committee successfully reduced the size of the CMBS
investment from the $150 million Cantor proposed to $100 million. The Special
Committee, advised by Sandler, concluded that an investment of this size would give
BGC all the upsides it desired (such as data access) at a 33% savings.363 The Special
Committee also obtained more favorable terms for the investment than what Cantor
had proposed. For example, Cantor agreed to the Special Committee’s request for a
“catch-up” provision under which BGC’s following-years’ returns would
supplement any shortfall if its yearly return on the CMBS investment fell under
5%.364
* * *
361 See Pls.’ Post-trial Br. 44. 362 JX 566 at 10-11. 363 See JX 566 at 13-14; Sterling Tr. 266-67; Edelman Tr. 443-44. 364 JX 570.
75 Taken together, a consideration of the relevant Weinberger factors leads to
the conclusion that the Berkeley Point acquisition and CMBS investment were the
product of fair dealing. That is so regardless of which party bears the burden of
persuasion. Nonetheless, I note that the Special Committee process was sufficient
to merit a shift of the burden of proving unfairness to the plaintiffs under the Lynch
doctrine.
2. Fair Price
Fair price “relate[s] to the economic and financial considerations of the
[transaction], including all relevant factors: assets, market value, earnings, future
prospects, and any other elements that affect the intrinsic or inherent value of [the
asset].”365 A fair price analysis can draw upon valuation techniques or methods that
are generally recognized as acceptable in the financial community.366 Although the
economic inquiry in a fair price analysis is often equated to that applied under the
appraisal statute, it is not a remedial calculation.367 “[T]he court’s task is not to pick
365 Weinberger, 457 A.2d at 711. 366 See Weinberger, 457 A.2d at 711, 713 (noting that a fair price analysis requires use of “techniques or methods which are generally considered acceptable in the financial community”); Lynch, 669 A.2d at 87-88 (discussing that a fair price analysis applies “recognized valuation standards”); eBay Domestic Hldgs., Inc. v. Newmark, 16 A.3d 1, 42 (Del. Ch. 2010) (“The analysis of price can draw on any valuation methods or techniques generally accepted in the financial community.”). 367 See ACP Master, 2017 WL 3421142, at *18; Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *2 (Del. Ch. Dec. 31, 2003) (“The value of a corporation is not a point on a line, but a range of reasonable values . . . .”), aff’d in part, rev’d in part on other grounds, 884 A.2d 26 (Del.2005); see also Bershad v. Curtiss-Wright Corp., 535 A.2d 840, 76 a single number, but to determine whether the transaction price falls within a range
of fairness.”368
Because the entire fairness test is unitary, the court does not consider price in
a vacuum. The fair price analysis gives “some degree of deference to fiduciaries
who have acted properly” but does not operate as a “a rigid rule that permits
controllers to impose barely fair transactions.”369 A fair process paired with an unfair
price may therefore cause the court to conclude that defendants have breached their
fiduciary duties.370 “Price,” however, is often “the paramount consideration because
procedural aspects of the deal are circumstantial evidence of whether the price is
fair.”371
The evidence presented to address fair price centered on the parties’ experts’
opinions and Sandler’s fairness opinion, which address both the Berkeley Point
acquisition and the CMBS investment. I first assess whether the price paid for
Berkeley Point is “a price that is within a range that reasonable men and women with
845 (Del. 1987) (explaining that fair price aspect of entire fairness standard “flow[s] from the statutory provisions . . . designed to ensure fair value by an appraisal, 8 Del. C. § 262”); Rosenblatt v. Getty Oil Co., 493 A.2d 929, 940 (Del. 1985). 368 In re Dole, 2015 WL 5052214, at *33. 369 Reis vs. Hazelett Strip-Casting Corp., 28 A.3d 442, 466 (Del. Ch. 2011). 370 See, e.g., In re Trados Inc. S’holder Litig., 73 A.3d 17, 78 (Del. Ch. 2013) (noting, while making a finding of fair price, “the fact the directors did not follow a fair process does not constitute a separate breach of duty”). 371 eBay, 16 A.3d at 42; see Ams. Mining Corp., 51 A.3d at 1244.
77 access to relevant information might [have paid].”372 I go on to assess the fairness
of the CMBS investment and find that it, too, was financially fair.
a. The Berkeley Point Acquisition
The plaintiffs purchased Berkeley Point for $964.2 million in total: the $875
million initial deal price, a pre-closing $66.8 million adjustment to Berkeley Point’s
book value, and a $22.4 million true-up payment post-closing. The $875 million
figure is the focus of my fairness analysis.373 Naturally, the parties debate whether
that price is fair.
The Cantor Defendants argue that the Special Committee’s efforts and
Sandler’s analysis demonstrate the fairness of the $875 million BGC paid for
Berkeley Point. They offer the expert opinion of Glenn Hubbard in support of that
contention. Hubbard assessed the economic fairness of the Berkeley Point
372 Tremont, 1996 WL 145452, at *1; see Cinerama, 663 A.2d at 1143 (“A fair price does not mean the highest price financeable or the highest price that fiduciary could afford to pay. At least in the non-self-dealing context, it means a price that is one that a reasonable seller, under all of the circumstances, would regard as within a range of fair value; one that such a seller could reasonably accept.”). 373 The plaintiffs stress that what they have termed an $89.2 million “dividend” (the final two payments BGC made for Berkeley Point) was an “unwitting concession” from the Special Committee. See, e.g., Pls.’ Post-trial Br. 48 & n.257. They do not contend, however, that damages should be assessed from the $964.2 million figure and both parties’ experts evaluated the Berkeley Point acquisition against the $875 million price. D’Almeida Opening Report at 2; Hubbard Opening Report at 6. Moreover, I see no reason why BGC should not have had to pay for the value that Berkeley Point generated before closing. The Special Committee was aware that it had agreed to delivering Berkeley Point at closing with a book value as of March 31, 2017 and that significant increases in Berkeley Point’s book value were projected for 2017. See JX 663 at 16-18; Curwood Tr. 783-84.
78 acquisition using an event study, a comparable company analysis, and a dividend
discount model. From these analyses, Hubbard generated a Berkeley Point valuation
range of $772 million to $1,489 million.374
The plaintiffs assert that, at the very least, the Special Committee should have
paid no more than $725 million—a figure discussed early in negotiations. To
buttress their position that the price was unfair, they offer the expert opinion of Jamie
d’Almeida. D’Almeida conducted a guideline transaction analysis cross-checked
with a study of the 2017 CCRE buyouts.375 D’Almeida testified that the price BGC
paid for Berkeley Point was nearly $300 million over its market value.376
The Cantor Defendants have the more persuasive argument when it comes to
the fairness of the $875 million price. With respect to the low “$700 millions” price
Lutnick raised when the transaction was first being contemplated, I have already
found that it was not a true offer. Cantor’s first proposal to the Special Committee
was for $850 million for just 95% of Berkeley Point. The $875 million price agreed
on for 100% of Berkeley Point came after months of arm’s length negotiations. “The
fact that a transaction price was forged in the crucible of objective market reality (as
374 Hubbard Opening Report at 104. 375 D’Almeida Opening Report at 49, 66. 376 D’Almeida Tr. 1585.
79 distinguished from the unavoidably subjective thought process of a valuation expert)
is viewed as strong evidence that the price is fair.”377
The fairness of that $875 million price was also endorsed by Sandler in a
detailed fairness opinion after more than a month of additional diligence.378 Sandler
analyzed the transaction using a variety of methods, including a comparison to
Berkely Point’s 2014 multiples and an analysis against Walker & Dunlop.379
Looking at eight different Walker & Dunlop multiples, for example, Sandler found
that seven of the eight were substantially higher than the equivalent Berkeley Point
multiples implied by the deal price.380
The fairness of the acquisition price is further confirmed by a review of the
expert opinions and testimony offered by each side. I begin by assessing each of
Hubbard’s three analyses. First, I view the event study as an indication that the
market viewed the overall deal as well priced but attribute little weight to it as a
measure of Berkeley Point’s value. Second, I find that one of Hubbard’s
comparable companies analyses provides persuasive evidence that Berkeley Point’s
377 Unimation, 1991 WL 29303, at *17. 378 See, e.g. In re Tesla Motors, 2022 WL 1237185, at *46 (“The fairness opinion is further evidence of fair price.”); Lynch, 669 A.2d at 87-89 (affirming a finding of fair price based in part because of fairness opinions); 379 JX 663; see In re Sunbelt Beverage Corp. S’holder Litig., 2010 WL 26539, at *5 (Del. Ch. Jan. 5, 2010) (calling a fairness opinion a “mere afterthought” in part because it was “produced in approximately one week”). 380 JX 663 at 21.
80 value could have been as high as $942 million or $1,164 million. Third, I review
and decline to attribute weight to Hubbard’s dividend discount model.
After considering Hubbard’s methods, I turn to d’Almeida’s guideline
transaction analysis, which is based on CCRE’s 2014 acquisition of Berkeley Point.
D’Almeida values Berkeley Point at $586 million by averaging four valuations
generated by applying different multiples from the 2014 transaction to Berkeley
Point in 2017.381 He does not adjust any of the 2014 multiples.382 I conclude that
only one of the multiples—with adjustments—can provide an appropriate measure
of Berkeley Point’s value. That multiple indicates a value of $805 million for
Berkeley Point.
The outcome of my assessment is that the evidence I find reliable supports a
range of fair values for Berkeley Point of $805 million to $1,164 million. The $875
million acquisition price falls towards the lower end of that range. Thus, the price
paid by BGC for Berkeley Point was economically fair.
381 D’Almeida Opening Report at 116. This valuation assumes that BGC pays for future referrals. See [part discussing referrals]. The plaintiffs seek damages based on this valuation. Pls.’ Post-trial Br. 70. 382 D’Almeida Opening Report at 51-53.
81 i. Hubbard’s Event Study
The Cantor Defendants cite Hubbard’s event study as a “particularly
compelling evidence of a fair price.”383 Event studies are an “accepted method[] of
analysis” in this court.384 Of course, market evidence is only as good as the
information that is known to the market.385 The utility of an event study therefore
depends whether all material information was disclosed to the market.386
Hubbard considered how BGC’s stock price reacted to the announcement of
the transaction, its closing, and related financial reporting—controlling for broader
market and industry factors that would have simultaneously affected the stock
price.387 He concluded that there was an absence of “statistically significant stock
price declines on both the announcement date and the closing date” that provide
383 Cantor Defs.’ Post-trial Br. 49. 384 In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 745 (Del. Ch. 2005). 385 Applebaum v. Avaya, Inc., 812 A.2d 880, 890 (Del. 2002) (remarking that “a well- informed, liquid trading market will provide a measure of fair value”). 386 See Bandera Master Fund LP v. Boardwalk Pipeline P’rs, 2021 WL 5267734, at *83 (Del. Ch. Nov. 12, 2021) (rejecting reliance on market price where the market lacked material information); Verition P’rs Master Fund Ltd. v. Aruba Networks, Inc., 210 A.3d 128, 139 (Del. 2019) (explaining it is inappropriate to rely on market price when there is “material, nonpublic information “ that “could not have been baked into the public trading price). 387 Hubbard Opening Report at 15. Hubbard also considered the possibility of the news being leaked between February 11, 2017 (when Lutnick first informed BGC’s Audit Committee of a possible acquisition of Berkeley Point) and the transaction announcement date of July 18, 2017. Id. at 17-18.
82 evidence that BGC did not overpay for Berkeley Point.388 He explains that “[i]f
BGC had overpaid for [Berkeley Point] . . . and public stockholders of BGC had the
information necessary to independently assess the value of [Berkeley Point], then
the stock price of BGC should [have] decline[d]” when the transaction was
announced.389
The plaintiffs argue that the market did not have sufficient information to
assess the transaction, making the market’s reaction to the various events studied by
Hubbard a poor indicator of value. For example, they point to what they contend
were unreliable projections included in the announcement of the transaction and the
fact that the disclosures lacked historical data for Berkeley Point or the CMBS
business.390 Still, much of this information was provided in the Form 8-K BGC filed
when the acquisition was completed.
As the plaintiffs also note, however, the market was unaware that Berkeley
Point did not create forecasts in the ordinary course or that the projections were
prepared for purposes of the transaction’s negotiations.391 More importantly,
because the Berkeley Point acquisition and CMBS investment were announced
388 Id. at 24. In reaching that conclusion, Hubbard also established that BGC’s stock trades in an efficient market. Id.at 147-150. 389 Id. at 20. 390 JX 927 (“d’Almeida Rebuttal Report”) at 33-66; see JX 685 at 4; JX 690. 391 See generally JX 685; JX 690; JX 713.
83 together, it is difficult to separate out the market’s reaction to each individually.
Investors could hypothetically have viewed one as overpriced and the other as
underpriced in a manner that cumulatively did not register as a statistically
significant stock price reaction for the purposes of an event study.
Overall, the event study may be of some use in confirming that the market felt
the overall transaction was favorable to BGC. But it is an imperfect method for
assessing the value of Berkeley Point. I afford it little weight given the more reliable
methods available.
ii. Hubbard’s Comparable Company Analysis
Hubbard also values Berkeley Point using a comparable company analysis.
This is a standard valuation technique whereby financial ratios of public companies
similar to the one being valued are applied to a subject company.392
Hubbard takes a trio of approaches. First, he conducts a comparable company
analysis based on the eight companies Sandler considered. Second, he runs a
regression on a broader range of companies in Berkeley Point’s sector to estimate
Berkeley Point’s value. Third, he examines a single comparable: Walker &
392 See Aswath Damodaran, Investment Valuation: Tools and Techniques for Determining the Value of Any Asset 38-39 (3d ed. 2012); Hubbard Opening Report at 49; see Kleinwort Benson Ltd. v. Silgan Corp., 1995 WL 376911, at *4 (Del. Ch. June 15, 1995) (recognizing the reliability of comparable company analyses).
84 Dunlop.393 After considering each, I conclude that only the third provides a reliable
assessment of Berkeley Point’s value.
Sandler Peer Companies Analysis. Hubbard starts by comparing Berkeley
Point to a group of eight companies that he says were “identified by Sandler” as
peers.394 He did not, however, further justify their use in his comparable company
analysis. Hubbard acknowledged at trial that he did not go “beyond whether [the
companies] were in the other set[s] of comparables” to assess whether the companies
in the comparable company analysis were good comparables.395 He did not, for
instance, conduct an independent review of the comparable companies’
fundamentals.396
Under these circumstances, the analysis cannot be relied upon.397 “For
obvious reasons, market-based method[s] depend[] on actually having companies
393 Hubbard Opening Report at 18-20. 394 Id. at 52; see JX 554 at 8. These same companies were considered in Cantor’s internal documents analyzing the transaction. See JX 469 at 18. It is unclear whether Sandler independently determined that the companies were good comparables for Berkeley Point or copied the list of companies from Cantor’s materials. See In re Jarden Corp., 2019 WL 3244085, at *33 (Del. Ch. July 19, 2019) (noting that “the financial literature advises against relying on peers provided by the target company’s management”), aff’d sub nom. Fir Tree Value Master Fund, LP v. Jarden Corp., 236 A.3d 313 (Del. 2020). 395 Hubbard Tr. 1522. 396 See id. 1521-23. 397 ONTI, Inc. v. Integra Bank, 751 A.2d 904, 916 (Del. Ch. 1999) (“The burden of proof on the question whether the comparables are truly comparable lies with the party making that assertion . . . .”).
85 that are sufficiently comparable that their trading multiples provide a relevant insight
into the subject company’s own growth prospects.”398 This court has observed that
“[w]here an expert defers to a peer set without conduct a ‘meaningful, independent
assessment of comparability’ between the seller’s business and the business of its
peer companies it ‘is not useful and frankly, not credible.’”399
Regression-Based Analysis. The regression-based comparables analysis is
also uninformative. Hubbard created a basic model by regressing price-to-book
multiples on return on equity for companies within the “Thrifts and Mortgage
Finance” industry.400 As with the eight-company-set comparable analysis, Hubbard
did not adequately justify the choice of companies that make it into the regression
398 In re Orchard Enters., 2012 WL 2923305, at *9 (Del. Ch. July 18, 2012). 399 In re Panera Bread, 2020 WL 506684, at *42 (quoting Jarden, 2019 WL 3244085, at *34). The Cantor Defendants argue that the comparables provide valuable insight because “Hubbard’s comparable companies are the same ones that market analysts identified as ‘competitors’” to Newmark and Walker & Dunlop. Cantor Defs.’ Post-trial Reply Br. 30. But a company can compete with another while being a poor comparable in terms of valuation. Notably, certain of the analyzed companies are multiple times larger than Berkeley Point. Others’ values are derived largely from services different than those offered by Berkeley Point. See JX 554 at 8 (listing actual market capitalizations of comparables with several over two times—and one more than ten times—larger than Berkeley Point); Day Tr. (describing how three of the comparable companies relied much less on their GSE platform for revenue than Berkeley Point or Walker & Dunlop). 400 Hubbard Tr. 1473-74.
86 analysis.401 Furthermore, Hubbard’s inaccurate calculation of Berkeley Point’s
return on equity calculation (discussed below) renders this analysis unreliable.402
Walker & Dunlop. That leaves Hubbard’s comparable company analysis of
Walker & Dunlop, which is free from the problems identified with the other two
approaches.403
The plaintiffs emphasize that Berkeley Point differed from Walker & Dunlop
in various ways. For example, Walker & Dunlop had a broader product mix,
including a successful debt brokerage business.404 Berkley Point was also more
401 The Cantor Defendants mention the sector regression analysis only in passing in both their pre- and post-trial briefs. See generally Cantor Defs.’ Pre-trial Br (Dkt. 244); Cantor Defs.’ Post-trial Br. 402 See infra Section II.B.2.iii (explaining Hubbard’s double counting). 403 This court has noted that a comparable company analysis may have limited value if only one comparable is used. See, e.g., Gray v. Cytokine Pharmasciences, Inc., 2002 WL 853549, at *9 (Del. Ch. Apr. 25, 2002); In re AT&T Mobility Wireless Operations Hldgs. Appraisal Litig., 2013 WL 3865099, at *2 (Del. Ch. June 24, 2013) (“Where there is a lack of comparable companies, the analysis is not particularly meaningful and should not be used.”); Gholl v. Emachines, Inc., 2004 WL 2847865, at *6 (Del. Ch. Nov. 24, 2004) (“When a market analysis is based on only one ‘comparable’ company and yields such a wide range of results, the Court seriously questions its usefulness.”). This is a circumstance where a single comparable generates meaningful evidence of value. See In re AT&T, 2013 WL 3865099, at *2 (“[C]ircumstances might be envisioned when a Court could rely on a single comparable . . . .”). The links between Berkeley Point and Walker & Dunlop were such that one would benchmark itself against the other and market analysts analyzed the acquisition by looking at Walker & Dunlop’s multiples. See infra notes 407-11 and accompanying text. 404 Strassberg Tr. 1225-27; see JX 1224 at 3.
87 reliant on GSE loans and generated less of its revenue from origination fees than
Walker & Dunlop.405
But a comparable company analysis need not rely on perfectly comparable
companies to be insightful. Rather, a party must establish some meaningful
similarities between the entity at issue and the alleged comparable. 406 The evidence
supports such a finding here.
There is general agreement between the parties that Walker & Dunlop was the
closest public company comparable to Berkeley Point. Sandler compared Berkeley
Point to Walker & Dunlop in depth,407 d’Almeida stated that “Walker & Dunlop is
the closest publicly traded company to Berkeley Point,”408 and Berkeley Point’s
CEO agreed.409 Strassberg—who had been the CFO of both Berkeley Point and
Walker & Dunlop—described Walker & Dunlop’s business model as “very
comparable to Berkeley Point” and testified that Berkeley Point would benchmark
405 D’Almeida Opening Report at 124. 406 See IQ Hldgs., Inv. v. Am. Comm. Lines Inc., 2013 WL 4056207, at *1-2 (Del. Ch. Mar. 18, 2013) (discussing “sufficient” and “insufficient” similarity when considering comparable company analyses). 407 See, e.g., JX 661 at 19-20. 408 D’Almeida Opening Report at 54. 409 Day Tr. 21-22.
88 itself against Walker & Dunlop.410 Market analysts also evaluated the Berkeley
Point acquisition by comparing it to Walker & Dunlop.411
As of July 17, 2017, Walker & Dunlop was trading at a price-to-earnings
multiple of 10.2x and a price-to-book multiple of 2.3x.412 Applying Walker &
Dunlop’s price-to-earnings and price-to-book multiples, respectively, leads to
Berkeley Point valuations of $924 million and $1,164 million.413 I view those
figures as reliable indicators of Berkeley Point’s value at the time of the acquisition.
iii. Hubbard’s Dividend Discount Model
Hubbard’s final method of valuing Berkeley Point relies on a dividend
discount model, which is a “simpler variant” of a discounted cash flow model
(“DCF”).414 Specifically, Hubbard uses a type of dividend discount model known
410 Strassberg Tr. 1159-61; Strassberg Dep. 314. 411 JX 686 at 2. 412 Hubbard Opening Report at 53-54. Although the financial data for both multiples is as of March 31, 2017 (the day to which the book value BGC had purchased for $875 million was pegged), the market data is as of July 17, 2017. Id. at 53 n.176. Hubbard’s multiples are in line with those used in Sandler’s fairness opinion, which considered market data as of July 12, 2017. JX 661 at 20 (calculating a price-to-book multiple of 2.54 and price-to- earnings multiple of 11.5). 413 Id. at 53-54, 96. The multiple is as of March 31, 2017 (the day to which the book value BGC had purchased for $875 million was pegged). The multiple in Sandler’s fairness opinion, based on 2017 expected earnings per share, was 11.9x. JX 661 at 20. 414 Hubbard Opening Report 33; see Damodaran, supra note 392, at 324 (“[T]he Gordon growth model provides a simple approach to valuing equity, its use is limited to firms that are growing at a stable growth rate.”); DFC Glob. Corp. v. Muirfield Value P’rs, L.P., 172 A.3d 346, 379 (Del. 2017) (recognizing a Gordon Growth Model as an “appropriate tool” for valuation).
89 as a Gordon Growth Model (“GGM”). A GGM estimates the equity value of a
company by assuming a dividend stream that grows in perpetuity at a stable rate and
discounting back those cash flows at a given cost of equity.415 Using the GGM,
Hubbard valued Berkeley Point at a range of $1.159 billion to $1.489 billion.416
The GGM is unreliable evidence of Berkeley Point’s fair value for several
reasons. First, it is not a particularly dependable valuation methodology with respect
to real estate finance companies.417 An informative DCF valuation requires reliable
projections. Preparing projections for companies in the real estate finance industry,
though, is challenging because they rely on absolute and relative (to the past) interest
rates. Sterling explained at trial that mortgage banking businesses like Berkeley
Point are “almost entirely dependent on interest rate[s] and interest rate projections,”
415 Hubbard Opening Report at 33. 416 Id. at 104. 417 D’Almeida Opening Report at 73-74 (describing a Bank of America analysis that mentions that DCF analysis is used only 6% of the time when valuation methodologies are used to value real estate services companies and 0% of the time when used to value real estate finance companies).
90 making a DCF analysis “of limited value.”418 Moreover, as has been discussed,
Berkeley Point lacked ordinary course projections.419
Various parties involved in the deal recognized a DCF analysis was not a
useful tool to value Berkeley Point. None of Berkley Point, Cantor, CCRE, BGC,
or Sandler valued Berkeley Point using a DCF method.420 Even Hubbard
acknowledged that companies in Berkeley Point’s industry are not ideal subjects for
a DCF analysis and indicated that other analyses might be more compelling.421
Second, dividend discount models are best suited for valuing businesses with
“well-established dividend payout policies that they intend to continue into the
future.”422 Berkeley Point did not have a dividend payout policy or issue
418 Sterling Tr. 289; see Sterling Tr. 395 (“When you try to project mortgage banking companies, they are inherently and ultimately almost entirely based on the shape and levels of the interest rate curve and where interest rates are in the future. Those are very difficult to predict and end up being estimates.”); Sterling Dep. 119-20 (“In the mortgage business[], projections have limited use, because the businesses are inherently tied to interest rates . . . these businesses are difficult to predict or project over the long term or even the near term because they’re so dependent on not only absolute interest rates but movements in interest rates. So in [a] mortgage banking business[] like th[is], [projections] are less applicable.”). 419 Hubbard Opening Report at 30 n.102; Strassberg Dep. at 124-25. 420 See d’Almeida Opening Report at 74. 421 Hubbard Tr. 1578-79. 422 Damodaran, supra note 392, at 250; see Jerald E. Pinto et al., Equity Asset Valuation 134 (2d ed. 2010) (“A discounted dividend approach is most suitable for dividend-paying stocks in which the company has a discernible dividend policy that has an understandable relationship to the company’s profitability . . . .”).
91 dividends.423 Hubbard thus had to estimate Berkeley Point’s capacity to pay a
dividend.
Looking beyond the rather dubious applicability of the GGM to Berkeley
Point, a consideration of the model’s inputs reveals that it does not account for
certain nuances of the mortgage loan origination and servicing business. Three
inputs make up Hubbard’s GGM: a stable growth rate,424 an expected dividend,425
and cost of equity.426 Hubbard’s calculation of Berkeley Point’s return on equity is
crucial to his GGM valuation—it is an input in the calculation of both the growth
rate and the expected dividend. He divided net income by book value to find
Berkeley Point’s return on equity in perpetuity.427
But the plaintiffs note that using net income rather than cash flows to calculate
return on equity is problematic. It has been recognized as “one of the most common
mistakes” that valuation practitioners make because using net income can
423 Hubbard Tr. 1551-52; d’Almeida Rebuttal Report at 30-31. 424 The growth rate is equivalent to the product of a retention ratio (the share of earnings a company retains instead of paying out to stockholders) and return on equity. Hubbard Opening Report at 34-35. 425 The expected dividend is set equal to Berkeley Point’s book value of equity multiplied by both its return on equity and Berkeley Point’s payout ratio (one minus the retention ratio). Id. at 34-35. 426 Hubbard calculated the cost of equity using a standard capital asset pricing model. Id. at 36-42. 427 Id. at 82.
92 overestimate cash and, in turn, value.428 When it comes to Berkeley Point,
d’Almeida argues that net income is an especially poor estimate of cash flow because
its income statement includes a line item for “[g]ains from mortgage banking
activities, net” (or mortgage service rights, “MSRs”), a non-cash item required to be
included by general accepted accounting principles.429 After considering the issue
and reviewing the parties’ supplemental submissions addressing it, I agree.
MSRs are contractual agreements to service a mortgage.430 Cash from an
MSR is received over its lifetime,431 but GAAP requires the estimated present value
of that future MSR income to be recognized as net income in the year the MSR is
originated.432 The MSR is also recorded on the balance sheet as an asset that is
amortized over its lifetime “in proportion to, and over the period of, the project net
servicing income.”433
Over the life of the MSR, the amortization equals to the estimated fair value
of the MSR as debited on the balance sheet. But it sums up to less than the servicing
428 Shannon Pratt & Roger Grabowski, Cost of Capital: Applications and Examples 1189 (5th ed. 2014) (noting that net cash flow “usually is less than net income”). 429 D’Almeida Rebuttal Report at 19-20; see, e.g., JX 713 at 304. 430 Sterling Tr. 280; Hubbard Opening Report at 11-12. 431 This is shown as “servicing fees” on the income statement. See, e.g., JX 713. 432 D’Almeida Rebuttal Report at 19-20; d’Almeida Tr. 1612-15. 433 JX 195 at 11.
93 income generated by the MSR.434 As a result, d’Almeida identified that Berkeley
Point’s unadjusted net income—that is, net income that includes MSRs and
amortization—overstates its distributable income.435 In other words, Hubbard’s
inclusion of MSRs in Berkeley Point’s net income resulted in “a measure of net
income that is not truly reflective of income.”436 The decision leads to a double
counting of certain MSR income in Hubbard’s GGM model.437 Hubbard’s use of
434 Pls.’ Post-trial Suppl. Br. 6 (Dkt. 283); Cantor Defs.’ Suppl. Br. 4 (Dkt. 284). 435 D’Almeida Rebuttal at 10-14. This is because of the discounted value of the MSR when it is put on the balance sheet—the amortization nets against servicing fees in future years at a discounted rate. To take an overly simplified example, consider a MSR worth $10 in estimated servicing fees due in one year’s time and a discount rate of 25%. When the MSR is first registered as net income in year zero, it would be at the present value of $8. In year one, those $8 would be amortized and $10 of servicing fee income would be recorded. The present value of the MSR is $8 (the payment in one year discounted back), not $9.60 (the $8 registered at year zero plus the $2 net income in year one discounted back). Not removing MSRs and amortization from net income leads to overvaluation (just consider a second, identical MSR recorded at year one). The Cantor Defendants effectively concede this point. See Cantor Defs.’ Suppl. Br. 4 (“Total amortization, however, does not necessarily converge to total collected servicing fees.”). 436 D’Almeida Rebuttal Report 20. 437 The Cantor Defendants attempt to refute this view by arguing that, because Berkeley Point could sell its MSRs, they are effectively distributable cash. Cantor Defs.’ Post-trial Reply Br. 31-32; Cantor Defs.’ Suppl. Br. 8-9. As a result, they claim that no adjustments are necessary to Berkeley Point’s net income to calculate a reliable return on equity. See Hubbard Tr. 1498-99, 1556-57. But selling MSRs in a given year would necessarily decrease servicing income in future years. See Pls.’ Suppl. Post-trial Br. 7. It would also eventually lead to no amortization on the income statement. In such a hypothetical scenario, Berkeley Point would eventually not receive any servicing income as MSRs from before the valuation year expired and MSRs were sold at their estimated present value every year. It is not tenable to suggest that Berkeley Point could have repeated its net income (as calculated in the base year for Hubbard’s GGM model) in perpetuity while selling its MSRs.
94 unadjusted net income to calculated return on equity correspondingly overstates
Berkeley Point’s return on equity.
Net income adjusting for MSRs and amortization is, instead, an appropriate
way to understand Berkeley Point’s operating earnings (and distributable cash).
BGC itself adjusted GAAP net income to calculate Berkeley Point’s distributable
earnings and adjusted EBITDA following the acquisition.438 Walker & Dunlop does
the same.439
For all of these reasons, I decline to credit the GGM as evidence of fair value.
The clarity it provides on how to assess Berkeley Point’s adjusted net income,
however, helps inform the following consideration of d’Almeida’s analysis.
438 JX 690 at 110, 113 (“BGC believes that distributable earnings best reflect the operating earnings generated by [Berkeley Point] on a consolidated basis and are the earnings which management considers available for, among other things, distribution to BGC Partners, Inc. and its common stockholders . . . .”); JX 988 at 22 (explaining that following the transaction, “BGC’s calculation of [Berkeley Point’s] pre-tax distributable earnings and adjusted EBITDA will exclude the net impact of [non-cash GAAP gains attributable to originated MSRs and non-cash GAAP amortization of MSRs]”). 439 See Cantor Defs.’ Suppl. Br. 13-14; JX 814 at 47. Although the defendants are correct that both Berkeley Point and Walker & Dunlop note that these adjusted metrics are meant to supplement (rather than replace) GAAP net income as operating metrics, that point is unresponsive to the fact that Hubbard’s GGM double counts distributable income. See JX 792 at 6; JX 814 at 47. It also does not address the fact that BGC believed distributable earnings (adjusted for MSRs and amortizations) “best reflect[ed]” money available to distribute to stockholders. JX 690 at 113-14.
95 iv. D’Almeida’s Guideline Transaction Analysis
The plaintiffs presented a single valuation approach: d’Almeida’s analysis
using the guideline transactions method. The method estimates the value of a
business based on financial ratios from comparable transactions.440 D’Almeida
identified one transaction he concluded was an appropriately comparable: CCRE’s
2014 acquisition of Berkeley Point.441
D’Almeida considered whether any adjustments to the multiples from the
2014 transaction were needed to value Berkeley Point in 2017. He concluded that
they were not. For example, d’Almeida posits that Berkeley Point fared worse in
2017 than in 2014 in terms of fees earned per dollar of loans originated, origination
fees as a share of origination volume, EBITDA margin, and risk (due to a relative
shift away from safer GSE loans).442
440 D’Almeida Opening Report at 49-50; Highfields Cap., Ltd. v. AXA Fin., Inc., 939 A.2d 34, 54 (Del. Ch. 2007) (describing a comparable transactions analysis as “identifying similar transactions, quantifying those transactions through financial metrics, and then applying the metrics to the company at issue to ascertain a value”). 441 D’Almeida began his guideline transactions analysis by attempting to identify potential comparable transactions based on various criteria, resulting in a list of twenty transactions including CCRE’s 2014 acquisition of Berkeley Point. Of the nineteen potential guideline transactions not involving the subject company, fifteen involved private target companies and, correspondingly, do not have publicly available metrics for analysis. Of the four remaining potential guideline transactions, d’Almeida excluded those transactions involving target companies not sufficiently similar to Berkeley Point. Following this last step, the 2014 CCRE-Berkeley Point deal was the sole transaction remaining. D’Almeida Opening Report at 50-51. 442 Id. at 51-56. D’Almeida also claims that Berkeley Point would not receive as much of a boost to its loan origination volume from the acquisition when compared to its entry into 96 D’Almeida then selected four multiples from the 2014 transaction to estimate
the value of Berkeley Point. Each of the four transaction multiples d’Almeida used
was included in the materials Sandler prepared to aid the Special Committee’s
consideration of the 2017 transaction: two EBITDA multiples, a book value
multiple, and a sector-specific multiple.443 Applying these multiples results in an
average Berkeley Point value of $586 million.444
The Cantor Defendants question the soundness of that valuation on several
grounds. The threshold issue is that d’Almeida employed a single methodology.
This court generally prefers that valuation experts employ multiple methodologies
“to triangulate a value range.”445 But that is not necessarily a sufficient reason to set
d’Almeida’s valuation aside.446
a referral relationship with Newmark because the latter amounted to a greater shift. Id. at 53-54. And looking more generally at the real estate industry, d’Almeida claims that EV/EBITDA multiples fell over the relevant time period. d’Almeida Opening Report at 55-56. Specifically, d’Almeida looked at the industry classification of “Real Estate (Operations & Services) in a database maintained by New York University professor Aswath Damodaran. See Aswath Damodaran, Enterprise Value Multiples by Sector (US), NYU STERN, https://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/- vebitda.html (last updated Jan. 2022). 443 D’Almeida Opening Report at 56. 444 Id. at 116. 445 S. Muoio & Co. v. Hallmark Ent. Invs. Co., 2011 WL 863007, at *20 (Del. Ch. Mar. 9, 2011), aff’d, 35 A.3d 419 (Del. 2011) (ORDER). 446 Id. at *7 (acknowledging that there “may be circumstances where using only one valuation methodology is appropriate and reliable”); DFC Glob. Corp., 172 A.3d at 388 (recognizing that “[i]n some cases, it may be that a single valuation metric is the most 97 Compounding the problem of using a lone method, the Cantor Defendants
say, is the fact that d’Almeida used just one comparable transaction.447 And that
transaction was more than three years old at the time that BGC acquired Berkeley
Point.448 Even still, I might be willing to adopt the myopic approach the plaintiffs
advocate for if they had applied their methodology sensibly.
But the next deficiency the defendants highlight seriously calls into question
the reliability of d’Almeida’s approach. Specifically, the primary assumption
underlying d’Almeida’s methodology—that the market would have assigned the
same multiples to Berkeley Point in 2014 as it would in 2017—does not hold up to
scrutiny.
D’Almeida acknowledged that multiples are often adjusted to account for
differences between the comparator and the company being valued (such as size,
growth, profitability, risk, and return on investment) before being applied to the
reliable evidence of fair value and that giving weight to another factor will do nothing but distort that best estimate”). 447 See LongPath Cap., LLC v. Ramtron Int’l Corp., 2015 WL 4540443, at *1 (Del. Ch. June 30, 2015) (rejecting a comparable transactions approach because its “two-observation data set d[id] not provide a reasonable basis to determine fair value”). 448 See Kruse v. Synapse Wireless, Inc., 2020 WL 3969386, at *9 (Del. Ch. July 14, 2020) (finding that a 2012 merger “was not probative” of the subject company’s value at the time of a 2016 merger because the precedent transaction was “stale”).
98 subject.449 His decision not to adjust the 2014 transaction multiples to value
Berkeley Point in 2017 is unpersuasive for several reasons including that:
• Berkeley Point was coming off of multiple years of significant growth in 2017, as opposed to a year of steep decline in 2014. It is therefore unlikely that the market would view Berkeley Point’s future prospects equivalently in 2014 and 2017.450
• Two of the metrics d’Almeida used to justify his approach—fees earned per dollar of loans originated and origination fees as a share of origination volume—are considered only in terms of revenue (not profitability).451 If one takes into account expenses and looks at a traditional profitability metric like net income margin, she would conclude that Berkeley Point not only grew, but also became more profitable in the time between the two transactions. Its net income margin increased from 12.4% in 2013 to 42.7% in 2016 (and to 38.4% for LTM June 2017).452
• Though d’Almeida looked to “Real Estate (Operations & Services)” metrics to support his view of general market trends, the database from which d’Almeida took his figures classifies Berkeley Point as a “Financial Services (Non-bank & Insurance)” company. In that industry class, a range of financial metrics increased meaningfully between 2014 and 2017.453
• Berkeley Point experienced an extremely limited shift away from GSE loans from 2014 to 2017. GSE loans accounted for at least 95% of Berkeley Point’s loan production volume in every interim year. Although forecasted growth in multifamily loan origination was lower 449 D’Almeida Opening Report at 49. 450 See JX 949 at 3; Day Tr. 17-19. 451 Hubbard Rebuttal Report at 9-10. 452 Id. at 40; JX 792 at 6; JX 661 at 14-15. This net income calculation includes MSR originations and amortization. The metric is informative here (unlike in the GGM) because the future income generated at a particular expense level is indicative of a certain form of profitability. Further, the inflation in the margin caused by not adjusting net income is present in both years; it is a like-to-like comparison.
99 in 2017 than in 2014, an industry-wide trend towards GSE loans during the relevant period favored Berkeley Point.454 I therefore reject d’Almeida’s assumption that Berkeley Point’s multiples remained
stagnant between 2014 and 2017.
In terms of the four specific multiples d’Almeida assessed, I conclude that
only one—the “Price/Book Value” multiple, with adjustments—provides an
appropriate measure of Berkeley Point’s value. The other three—the two
“EV/EBITDA” multiples and “Price less MSR Equity/Originations”—do not.
EV/EBITDA and Price less MSR Equity/Originations. An EV/EBITDA
multiple is a commonly used valuation multiple that compares the enterprise value
of a company to its EBITDA.455 Recognizing that EBITDA is not a GAAP measure
and can be calculated differently, d’Almeida analyzed two approaches: (1) Berkeley
Point’s internal approach to calculating EBITDA, which he calls the “BP Method”;
and (2) Walker & Dunlop’s approach, termed the “WD Method.” Applying
Berkeley Point’s EV/EBITDA multiple from the 2014 CCRE acquisition to its 2017
adjusted EBITDA, d’Almeida generates Berkeley Point valuations of $589 million
and $598 million using the BP Method and WD Method, respectively.456
454 Id. at 10-13. 455 D’Almeida Opening Report at 56. 456 These figures are of July 16, 2017 (the day the Board approved the transaction and one day before signing). Id. at 116. D’Almeida’s report puts forward two values for each multiple; one assuming BGC pays for its referrals and the other assuming it does not. The plaintiffs ask for damages based on the former scenario, and all the valuations discussed in 100 As Hubbard explained, however, enterprise-based multiples like EV/EBITDA
are generally unsuitable for financial services firms like Berkeley Point.457 Indeed,
the data d’Almeida relied on to justify his decision not to adjust the 2014 multiples
lacks EV/EBITDA ratios for firms categorized as “Financial Services (Non-bank &
Insurance),” which includes Berkeley Point. And even if equity-based multiples
were applicable for a company like Berkeley Point, the 2014 Berkeley Point
transaction multiples could not reasonably be applied to Berkeley Point in 2017
without significant upward adjustment, as discussed above.
There are similar reasons to question the applicability of the Price less MSR
Equity/Originations multiple. That multiple “effectively treats the value of loans,
loan originations, and the servicing of new loans as a function of the volume of loan
originations, adding this value to the book value of existing mortgage servicing
rights.”458 D’Almeida generated a Berkeley Point valuation of $567.0 million using
the 2014 Price less MSR Equity/Originations multiple.459
this section are those that d’Almeida calculated assuming BGC pays for its referrals. Compare Pls.’ Post-trial Br. 76-77, with d’Almeida Opening Report at 116. I find it reasonable to include the value of affiliate loan referrals when considering the value of Berkeley Point. Servicing revenues from referrals already on Berkeley Point’s books are effectively guaranteed, Berkeley Point generated the value and would continue to do so as part of BGC, and there is reason to believe that a third-party buyer would not have offered a similarly productive referral relationship. See Hubbard Opening Report at 11. 457 Hubbard Opening Report at 50. 458 D’Almeida Opening Report at 57-58. 459 Id. at 116.
101 Hubbard noted that experts on investment valuation generally “caution[]
against the use of price-to-sales multiples because sales are not readily measurable
for financial services firms” such as Berkeley Point.460 Price less MSR
Equity/Originations is sector-specific and relatively removed from cash flow. And
it does not seem to be widely used in the industry.461
Price/Book Value. That leaves d’Almeida’s valuation based on the
Price/Book Value multiple. Price/Book Value multiples are used when a company’s
balance sheet is closely representative of market value, as is the case with financing
companies like Berkeley Point.462 Berkeley Point, for example, marks its loans and
mortgage servicing rights at market value, making this multiple particularly apt.
There is also agreement between the experts that the Price/Book Value
multiple can reasonably be applied to value Berkeley Point.463 The work of a leading
corporate valuation expert confirms that price-to-earnings and price-to-book
multiples are “by far the most popular ones for the valuation of financial
institutions.”464
460 Hubbard Rebuttal Report at 17. 461 Id. at 11-12. 462 D’Almeida Opening Report at 57. 463 Id. at 57; Hubbard Rebuttal Report at 26-27. 464 Damodaran, supra note 392, at 582, 600; see Mario Massari et al., The Valuation of Financial Companies 126 (2014) (“We stress[] that the valuation of financial companies should be equity-side.”).
102 D’Almeida values Berkeley Point at $590.5 million using the Price/Book
Value multiple from the 2014 Berkeley Point transaction. He observes that this
figure may be high because Berkeley Point has typically booked its MSRs
aggressively when compared to third-party appraisers.465
The problem with d’Almeida’s approach, once again, is that it does not
properly adjust for the differences between 2014 and 2017. Price/Book Value
multiples increased by 20.3% in the “Financial Services (Non-bank & Insurance”)
sector as a whole across that three-year period.466 As for Walker & Dunlop, that
increase was even larger at 51.5%.467
I find it reasonable to value Berkeley Point by taking the average of these
figures (a conservative approach given Berkeley Point’s similarity to Walker &
Dunlop and the tailwinds described above),468 applying it to Berkeley Point’s 2014
Price/Book multiple (generating a multiple of 1.64), and multiplying Berkeley
Point’s 2017 Book Value by that adjusted multiple. Doing so indicates a value for
Berkeley Point of $805 million. I view that figure as a reliable indicator of Berkeley
Point’s value at the time of the acquisition.
465 D’Almeida Opening Report at 62-63. 466 Hubbard Rebuttal Report at 42. 467 Id. at 41. 468 See supra notes 250-54.
103 2017 Buyout Cross-check. The last of d’Almeida’s analyses is a “cross-
check” of his guideline transaction analysis via a consideration of the 2017 CCRE
buyouts. By backing out the book value of the CMBS business from the average
value of CCRE implied by the prices Cantor paid to the other investors, d’Almeida
calculated a Berkeley Point valuation of $624 million.469
Cantor’s CCRE buyouts were governed by a limited partner agreement that
included a preferred rate of return for the limited partners that were bought out (and
considered as part of d’Almeida’s valuation).470 As a result, the buyout of the limited
partners’ interests in CCRE was less about the value of Berkeley Point (and the
CMBS business) than the limited partners’ expected returns and the relative
illiquidity of their stakes.471 A rough calculation of the limited partners’ returns
shows that their buyout prices aligned with the preferred returns in the agreement.472
The cross-check cannot serve as a reliable indicator of Berkeley Point’s value given
that fact.
469 D’Almeida Opening Report at 72. 470 See JX 95 §§ 8.3, 11.1; id. at 18, 92-93; see d’Almeida Opening Report at 112-13. 471 See Lutnick Tr. 1248-52. 472 For example, Ohio State Teachers Retirement System’s 2 million units, purchased for $200 million in August 2011, was bought out for about $354 million, as agreed in February 2017. JX 95 at 93; PTO ¶ 77. A 11.5% annual return on a $200 million investment over five-and-a-half years would be worth about $364 million (about 3% off the actual buyout price).
104 The reasonable and reliable analyses put forward by the experts creates a
fairness range for Berkeley Point of $805 million (using an adjusted Price/Book
Value multiple) to $924 million and $1,164 million (using Walker & Dunlop’s price-
to-earnings and price-to-book multiples, respectively). The $875 million acquisition
price falls within that range. The price was therefore fair.
b. The CMBS Investment
BGC’s $100 million investment into CCRE for 27.3% of the remaining
CMBS business received considerably less attention from the parties than the
Berkeley Point acquisition. Nonetheless, I must assess whether BGC’s investment
in the CMBS business was financially fair.
The investment’s terms included a preferred 5% yearly return that prohibited
Cantor from receiving distributions from the CMBS business until that 5% return
was achieved.473 BGC earned 60% of any difference between BGC’s preferred 5%
return and the CMBS business’s percentage return.474 The terms also allowed BGC
to redeem the entirety of its $100 million investment at the end of the five year
investment period and Cantor provided BGC downside protection by taking on
473 JX 570. 474 D’Almeida Opening Report at 87-88.
105 liability for the first $36.7 million in any losses.475 Cantor invested $266 million
into the CMBS business alongside BGC.476
The fact that the Special Committee negotiated the cost of the investment
down from $150 million to $100 million is evidence of fairness. BGC was able to
obtain the same strategically valuable data with a significantly lower investment.
The final terms also reflected the Special Committee’s efforts to obtain additional
downside protections while maintaining BGC’s preferred return. After analyzing
the investment from a variety of angles, including comparing it to similarly
structured debt offerings in the market, Sandler concluded that the terms were
reasonable to BGC.477
The Cantor Defendants offered Hubbard’s testimony in further support of the
financial fairness of the CMBS investment. Hubbard evaluated the fairness of the
CMBS investment by estimating BGC’s weighted average cost of financing the
investment and comparing it to BGC’s expected rate of return in the investment.478
Hubbard calculated the weighted average cost of financing as 5.2%.479 He
considered the actual credit agreements that financed the transaction to calculate the
475 Id. at 64. 476 Lutnick Tr. 1289-90. 477 JX 658; JX 663 at 23-26; Sterling Tr. 240-42. 478 See Hubbard Opening Report at 60, 67-68. 479 Id. at 67.
106 cost of debt, and he calculated the cost of equity using a standard capital asset pricing
model, estimating BGC’s beta by taking the median beta for Newmark’s peer
group.480 By looking at the actual proceeds raised in Newmark’s IPO—which were
used to pay off some of the debt raised to finance the investment—Hubbard
estimated that the transaction’s financing was split 31.2% to 68.8% between equity
and debt.481
Hubbard then concluded that the CMBS business had to generate 8.7% or
more in returns (given the intricacies of how returns in the joint venture were shared
between BGC and Cantor) in order for BGC to satisfy the implied 5.2% hurdle
rate.482 To calculate the expected return of the CMBS investment (and therefore
determine whether 8.7% or higher returns were reasonable), Hubbard looked at
“industry benchmarks.”483 Justifying his approach on the general mandate given to
the CMBS business, Hubbard looked at the median returns on equity for two broad
480 Hubbard Opening Report at 66-67. The risk-free rate and equity risk premium were equated to the return on a 20-year U.S. Treasury bond and the average of historical and supply-side equity risk premium published by Duff & Phelps, respectively. Id. at 39, 41- 42. 481 Id. at 65. 482 Id. at 67. 483 Id. at 68.
107 Standard & Poor’s industry classifications—“Thrifts & Mortgage Finance” and
“Real Estate”—finding returns of 8.1% and 7.6% respectively.484
Hubbard concluded that an 8.7% return could be reasonably expected because
8.7% was in the interquartile range for both classifications. Any estimate of
expected returns tilts conservative as it ignores the added value the CMBS
investment brought to BGC in terms of providing it access to proprietary real estate
information and data.485 It also does not account for the value of the downside risk
that Cantor bore on any potential first losses.
Hubbard discounted the fact that the CMBS business had not been profitable
in the several years before the transaction because the “infusion of new capital into
the JV” from BGC and Cantor created a transformed entity with a broad mandate to
engage in “any acts or activities (including investments) in any real estate related
business or asset-backed securities related business.”486 The plaintiffs and
d’Almeida dispute Hubbard’s valuation primarily on this basis—that is, they
contend that projected returns for the CMBS investment are unrealistic because it
had lost money in the years before the transaction.487 But one must only look to the
484 Id. The interquartile ranges for Thrifts & Mortgage Finance and Real Estate were 4.8- 12% and 3.5-11.3%. Id. 485 Id.; see JX 983 at 2 (noting the value of CMBS’s “substantial database” as a reason for investing into the business). 486 Hubbard Opening Report at 63-64 (quoting JX 713 at 23). 487 D’Almeida Rebuttal Report at 51-52; Pls.’ Post-trial Br. 88-90.
108 years from 2011 to 2014 to see that the CMBS business had the potential to be
profitable.488 It is also unclear why Cantor would itself invest hundreds of millions
of dollars into what it thought would be a losing enterprise.489
Accordingly, I conclude that the CMBS investment was economically fair.
3. Unitary Fairness Analysis
Although fairness has two component parts—price and process—the court
must make a “single judgment that considers each of these aspects.”490 “A strong
record of fair dealing can influence the fair price inquiry, reinforcing the unitary
nature of the entire fairness test. The converse is equally true: process can infect
price.”491
The transaction was fair in all respects to BGC and its minority stockholders.
There were certainly flaws—namely, Lutnick’s involvement in selecting the Special
Committee’s chairs and advisors and Moran’s interactions with Lutnick, which were
withheld from his fellow Special Committee members. But there is no evidence that
those problems rendered the process unfair. The record demonstrates that the
Special Committee undertook good faith, arm’s length negotiations with the
488 Cantor Defs.’ Pre-trial Br. 55-56. For the last three quarters of 2014, for example, the CMBS business’s annualized quarterly return on equity were 17.1%, 8.7%, and 2%. JX 950. 489 See Pls.’ Post-trial Br. 89. 490 Cinerama, 663 A.2d at 1139-40. 491 Reis, 28 A.3d at 467.
109 guidance of independent advisors that resulted in a deal with a favorable structure
and a fair price.492
C. Claim Against Moran
Finally, I consider the claim against Moran—the sole claim that remained
against an outside director at trial. The plaintiffs allege that Moran breached his
duty of loyalty under the second prong of Cornerstone. Given my findings earlier
in this decision, I hold that he did not.
Under Cornerstone, a non-independent director who acts “to advance the self-
interest of an interested party” can be held liable for a non-exculpated claim.493 That
is, as this court explained at the summary judgment stage, the plaintiffs can only
prevail if they show both that Moran is not independent of Lutnick and that he
actively furthered his interests.494
Moran is independent of Lutnick for purposes of evaluating demand futility.
He is likewise independent for purposes of assessing the plaintiff’s fiduciary duty
492 Cinerama, 663 A.2d at 1444 (concluding that despite the process being “flawed,” the transaction was fair where “the board was insufficiently informed to make a judgment worthy of presumptive deference, nevertheless considering the whole course of events, including the process that was followed, the price that was achieved, and the honest motivation of the board to achieve the most financially beneficial transaction available”). 493 In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1179-80 (Del. 2015). In re BGC P’rs, 2021 WL 4271788, at *10; see In re Oracle Corp. Deriv. Litig., 2021 494
WL 2530961, at *7, *9 (Del. Ch. June 21, 2021) (describing the second prong of Cornerstone as a “two-prong test”).
110 claim. Moran was not so “beholden” to Lutnick or “under [Lutnick’s] influence that
his discretion [in the transaction] was sterilized.”495
Moran also did not act to substantially further Lutnick’s interests in the
transaction. Moran’s behavior was not perfect, as detailed in this decision. He
certainly should not have discussed advisors for the Special Committee with Lutnick
and he should have kept his fellow Committee members apprised of those actions.
This was negligent behavior on his part—perhaps even grossly so. Moran
was a longtime director and must have known better. But I do not believe that Moran
acted disloyally.
Moran worked tirelessly on behalf of the Special Committee. He participated
in numerous meetings and dug in to understand the potential transaction. He worked
closely with independent advisors.496 He advocated for a deal structure that
furthered BGC’s minority stockholders over Cantor. He was prepared to say no to
Lutnick and walk away if the deal was not to the Special Committee’s liking.
On these facts, and given his independence from Lutnick, he is not liable for
breaching his fiduciary duties.
495 In re MFW, 67 A.3d at 509. 496 See McMillan v. Intercargo Corp., 768 A.2d 492, 505 n.55 (Del. Ch. 2000) (explaining that “[t]he board’s reliance upon an investment banker . . . is another factor weighing against the plaintiffs’ ability to state an actionable claim that the defendant directors”).
111 III. CONCLUSION
BGC’s acquisition of Berkeley Point and investment in CCRE’s CMBS
business was entirely fair. Therefore, the Cantor Defendants are not liable for
breaching their fiduciary duties. In addition, Moran is not liable for breaching his
duty of loyalty. Judgment after trial is for the defendants. The parties shall submit
within thirty days a stipulated form of final judgment.
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