COURT OF CHANCERY OF THE STATE OF DELAWARE
417 SOUTH STATE STREET JOHN W. NOBLE DOVER, DELAWARE 19901 VICE CHANCELLOR TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179
June 13, 2014
Brian D. Long, Esquire Peter J. Walsh, Jr., Esquire Rigrodsky & Long, P.A. Potter Anderson & Corroon LLP 2 Righter Parkway, Suite 120 1313 North Market Street Wilmington, DE 19803 Wilmington, DE 19801
Kenneth J. Nachbar, Esquire Morris, Nichols, Arsht & Tunnell LLP 1201 North Market Street Wilmington, DE 19801
Re: In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN Date Submitted: June 9, 2014
Dear Counsel:
Plaintiffs, shareholders of TriQuint Semiconductor, Inc. (“TriQuint”),
moved to expedite their claims that TriQuint’s board breached its fiduciary duties
by agreeing to a stock merger with RF Micro Devices, Inc. (“RFMD”).
Specifically, Plaintiffs contend that TriQuint’s eight-member board failed to obtain
adequate consideration for shareholders, engaged in defensive tactics to thwart an
activist investor’s threat to replace the board, agreed to preclusive deal provisions, In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 2
and failed to provide all material information in advance of the shareholder vote.1
TriQuint and RFMD have agreed to a so-called merger of equals, in which the
shares of each company will be exchanged for shares of newly-formed Rocky
Holding, Inc. (“Rocky Holding”), with the shareholders of each company set to
own 50% of the new entity.2 Neither TriQuint nor RFMD has yet scheduled a
special meeting to seek shareholder approval.
*****
Some brief background is necessary. Before agreeing to the merger,
TriQuint had been contemplating a possible combination with RFMD for almost
five years.3 More recently, in February 2013, RFMD proposed to acquire TriQuint
in an all-stock transaction. TriQuint’s board determined that RFMD’s offer was
inadequate in April 2013. Two months later, Company B submitted an unsolicited
1 Verified Consolidated Am. Class Action Compl. (“Compl.”) ¶¶ 100-09. Plaintiffs also assert claims of aiding and abetting the board’s breaches of duty against various parties. Id. ¶¶ 110-13. 2 TriQuint’s common stock will be converted into the right to receive 0.4187 shares of Rocky Holding common; RFMD’s common stock will be converted into the right to receive 0.25 shares of Rocky Holding common. The proposed structure represents an implied price of $9.73 for each TriQuint share, and a 5.4% premium based on the closing price of $9.23 per share on February 21, 2014, the last trading day before the merger agreement was signed. Id. ¶ 3. 3 Id. ¶ 53. The following account is drawn from the Complaint. Id. ¶¶ 55-78. In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 3
cash offer to acquire TriQuint for $8.25 per share; TriQuint’s board again decided
not to pursue a sale at that time.
In August 2013, TriQuint and RFMD began new discussions on a possible
merger of equals. Soon thereafter, TriQuint’s board authorized Goldman Sachs, its
financial advisor, to contact Company B and assess its interest in a business
combination. By November 2013, TriQuint received a term sheet from RFMD and
an indication of interest from Company B to acquire TriQuint for $10.00 per share
through a 50% cash and 50% stock transaction. In December, in the midst of
considering these proposals, the TriQuint board received a letter from one of its
shareholders, Starboard Value (“Starboard”), proposing a new slate of six director
nominees for the company’s 2014 annual meeting.
On December 13, 2013, the TriQuint board decided it would not accept
RFMD’s offer because of concerns regarding potential market reaction to both
companies’ near term financial results. TriQuint’s board sought to improve
Company B’s proposal and was informed by Goldman Sachs, on December 15,
that Company B had increased its 50% cash and 50% stock offer to $10.10 per In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 4
share. On December 17, 2013, TriQuint’s board decided not to pursue either
transaction.
Meanwhile, Starboard met with RFMD at the end of January 2014 to pitch
the merits of a merger with TriQuint. RFMD soon notified TriQuint, which
resulted in TriQuint’s CEO contacting Company B’s CEO and scheduling a
meeting with another possible acquirer, Company C. TriQuint also requested
Goldman Sachs to reengage with RFMD’s financial advisor regarding a possible
transaction. For unclear reasons, Company B withdrew from the process on
February 18, 2014. That same day, TriQuint’s board decided to pursue a
transaction with RFMD. The sale process culminated on February 22, 2014, when,
after receiving a fairness opinion from Goldman Sachs, TriQuint’s board approved
the merger with RFMD.
During the briefing of this motion, TriQuint filed an amended proxy
statement disclosing information underlying several of Plaintiffs’ disclosure
claims. Plaintiffs do not dispute that those issues have been resolved, although the
parties may disagree about whether there was any causal connection between the
initial claims and the supplemental disclosures. Accordingly, the Court considers In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 5
Plaintiffs’ remaining claims related to the merger process, certain deal protection
devices in the merger agreement, and the remaining disclosure issues.
Plaintiffs bear the burden of showing good cause for expedited proceedings.4
The standard for a motion to expedite is familiar: the Court must determine
“whether in the circumstances the plaintiff has articulated a sufficiently colorable
claim and shown a sufficient possibility of a threatened irreparable injury, as would
justify imposing on the defendants and the public the extra (and sometimes
substantial) costs of an expedited preliminary injunction proceeding.”5
A. The Process Claims
Plaintiffs primarily contend that TriQuint’s board members, in response to
Starboard’s letter, took defensive actions to retain their lucrative positions by fast-
tracking the negotiations with RFMD to preserve the seats of five of eight TriQuint
directors in the post-merger entity. They assert that TriQuint’s board staved off a
cash offer from another bidder, Company B, and favored RFMD—and the
4 See Greenfield v. Caporella, 1986 WL 13977, at *2 (Del. Ch. Dec. 3, 1986). 5 Police & Fire Ret. Sys. of City of Detroit v. Bernal, 2009 WL 1873144, at *1 (Del. Ch. June 26, 2009) (citation omitted). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 6
possibility of post-merger directorships—in the process. Plaintiffs denigrate this
conduct as improper entrenchment under Unocal Corp. v. Mesa Petroleum Co.6
Plaintiffs’ allegations do not give rise to a colorable claim under this theory
of liability. First, this theory is belied by Plaintiffs’ own allegations. In order to
entrench itself from a potential proxy contest by Starboard, the TriQuint board
purportedly agreed to merge with RFMD—a company with which it had been
considering a transaction for quite some time—in a deal that Starboard supported.
These facts do not support a colorable claim because Plaintiffs have not articulated,
even for purposes of a motion to expedite, how the stock merger with RFMD—
pursuant to which Starboard will presumably become a shareholder of the
combined company, Rocky Holding—entrenches the TriQuint board from a
subsequent proxy contest.
6 493 A.2d 946 (Del. 1985). Plaintiffs’ submissions to the Court could arguably be read to suggest that the TriQuint board’s agreeing to the stock merger with RFMD implicated Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986), and the enhanced standard of review in which the Court examines the reasonableness of the directors’ conduct in maximizing the corporation’s value. However, this stock-for-stock transaction in which ownership of the corporation will remain “in a large, fluid, changeable and changing market” is outside the bounds of Revlon. See Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1290 (Del. 1994) (citing Paramount Commc’ns Inc. v. QVC Network Inc., 637 A.2d 34, 47 (Del. 1994)). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 7
Second, Plaintiffs have not alleged a colorable claim that the TriQuint
directors were sufficiently interested in continuing as directors that they could not
impartially consider the merits of the RFMD merger. “In most circumstances
Delaware law routinely rejects the notion that a director’s interest in maintaining
his office, by itself, is a debilitating factor.”7 Similarly, “the mere fact that the
directors receive fees for their service is not enough to establish an entrenchment
motive.”8 To state a claim that otherwise independent and disinterested directors
acted disloyally by agreeing to a transaction, “a plaintiff must allege facts as to the
interest and lack of independence of the individual members of that board,”9
including the materiality of that interest to the directors.10 Plaintiffs have not
demonstrated that remaining a director—especially where three of the eight
7 Solomon v. Armstrong, 747 A.2d 1098, 1126 (Del. Ch. 1999), aff’d, 746 A.2d 277 (Del. 2000) (Table). 8 Kahn v. MSB Bancorp, Inc., 1998 WL 409355, at *3 (Del. Ch. July 16, 1998), aff’d, 734 A.2d 158 (Del. 1999). 9 Orman v. Cullman, 794 A.2d 5, 22 (Del. Ch. 2002) (emphasis in original). 10 In re Orchard Enters., Inc. S’holder Litig., 88 A.3d 1, 25 (Del. Ch. 2014). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 8
TriQuint directors will not be on the board of the combined entity11—was material
to the TriQuint board, even to support a colorable claim of entrenchment.
Third, Plaintiffs’ contention that TriQuint’s board “staved off” Company B
is also undermined by their allegations. Plaintiffs pled that TriQuint’s CEO
reinitiated contact with Company B in February 2014 and that it was Company B
which withdrew from the sale process.12 It is not colorable, based on these
allegations, that the TriQuint board had any influence on Company B’s decision to
withdraw.
In summary, Plaintiffs’ process allegations, viewed separately or
collectively, do not give rise to a colorable claim of entrenchment that may warrant
enhanced scrutiny by the Court of the TriQuint board’s actions. Further, under the
resulting business judgment standard of review, it is not colorable that the merger
with RFMD was irrational. Thus, these allegations do not justify expediting this
action.
11 See Krim v. ProNet, Inc., 744 A.2d 523, 528 n.16 (Del. Ch. 1999) (“[T]hat several directors would retain board membership in the merged entity does not, standing alone, create a conflict of interest.”). 12 Compl. ¶ 28. In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 9
B. The Deal Protection Devices
Plaintiffs also contend that enhanced scrutiny should apply because the
merger agreement contains certain deal protection devices, including a no
solicitation provision, matching rights for RFMD, and a termination fee of $66.7
million (representing approximately 2.8% of the $2.385 billion preliminary
purchase price).13 When evaluating the reasonableness of deal protection measures
under Unocal, this Court engages in a “nuanced, fact-intensive inquiry”14 and will
consider “the preclusive or coercive power of all deal protections included in a
transaction, taken as a whole.”15 For purposes of a motion to expedite, Plaintiffs
must articulate a sufficiently colorable claim that a “given set of deal protections
operate[s] in an unreasonable, preclusive, or coercive manner.”16
The individual contract provisions that Plaintiffs challenge are not
uncommon. This Court has recently declined to enjoin transactions because of
13 TriQuint Defs.’ Br. in Opp’n to Pls.’ Mot. for Expedited Proceedings (Defs.’ Br.), Ex. 2 at 47. 14 In re Toys “R” Us, Inc. S’holder Litig., 877 A.2d 975, 1015 (Del. Ch. 2005). 15 Louisiana Mun. Police Employees’ Ret. Sys. v. Crawford, 918 A.2d 1172, 1181 n.10 (Del. Ch. 2007). 16 Cf. id. (analyzing various deal protection devices in the preliminary injunction context). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 10
their existence, even in combination with other deal protection devices.17 This
preliminary injunction case law is not dispositive of the Court’s analysis here
because a given set of deal protection devices must be analyzed under the facts and
circumstances alleged in the case at hand,18 but it is nonetheless instructive.
Plaintiffs have not sufficiently articulated how these familiar and generally
permissible merger agreement provisions, individually or in tandem, operate in a
colorably unreasonable, preclusive, or coercive manner. Plaintiffs’ allegations
regarding the contract provisions of the merger agreement do not support an
expedited proceeding.
17 See, e.g., In re BioClinica, Inc. S’holder Litig., 2013 WL 673736, at *2-4 (Del. Ch. Feb. 25, 2013) (declining to enjoin a transaction where the operative agreement included a no-shop clause, a top-up feature, matching rights, a termination fee, a poison pill feature, and a standstill agreement); see also In re Orchid Cellmark Inc. S’holder Litig., 2011 Wl 1938253, at *6-8 (Del. Ch. May 12, 2011). 18 See In re Toys “R” Us, Inc., 877 A.2d at 1016 (“That reasonableness inquiry [of deal protection devices] does not presume that all business circumstances are identical or that there is any naturally occurring rate of deal protection, the deficit or excess of which will be less than economically optimal. Instead, that inquiry examines whether the board granting the deal protections had a reasonable basis to accede to the other side’s demand for them in negotiations. In that inquiry, the court must attempt, as far as possible, to view the question from the perspective of the directors themselves, taking into account the real world risks and prospects confronting them when they agreed to the deal protections.”). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 11
C. The Disclosure Claims
Plaintiffs also assert a series of disclosure claims that can be grouped into
four general categories: (i) TriQuint’s financial projections; (ii) Goldman Sachs’s
financial analysis; (iii) alleged conflicts of interest; and (iv) the sale process.
“[D]irectors of Delaware corporations are under a fiduciary duty to disclose fully
and fairly all material information within the board’s control when it seeks
shareholder action.”19 Such information is material when there is a substantial
likelihood a reasonable shareholder would regard it as having significantly altered
the “total mix” of information available.20 Thus, the inquiry here is whether it is
sufficiently colorable that the alleged misstatements or omissions are material
information within the TriQuint board’s control.
1. TriQuint’s Financial Projections
Plaintiffs argue that the quantified effects of certain non-routine transactions
and certain acquisition and restructuring charges are material information that
should have been disclosed in the summary of TriQuint’s projections in its proxy
19 Arnold v. Soc’y for Sav. Bancorp, Inc., 650 A.2d 1270, 1277 (Del. 1994). 20 See id. (emphasis omitted). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 12
materials. Plaintiffs, in effect, seek additional details that are not just granular, but
border on minutiae. It is not colorable that this additional information would be
material because, by its very terms, it is non-routine. In addition, it is not colorable
that this non-routine information is necessary to make the financial projections
non-misleading.21
For similar reasons, Plaintiffs have not stated a colorable claim that the
TriQuint directors must disclose whether the projections contemplate spin-offs or
divestitures. Under Delaware law, “[s]peculation is not an appropriate subject for
a proxy disclosure.”22 Plaintiffs have not demonstrated, even under the minimal
colorable claim standard, that this type of speculative information is currently
within the TriQuint board’s control, let alone material.
2. Goldman Sachs’s Financial Analysis
According to Plaintiffs, the proxy statement fails to disclose certain material
analyses conducted by Goldman Sachs, TriQuint’s financial advisor. When a
board of directors relies upon a financial advisor in justifying to shareholders the
21 See, e.g., Maric Capital Master Fund, Ltd. v. Plato Learning, Inc., 11 A.3d 1175, 1178 (Del. Ch. 2010). 22 Loudon v. Archer-Daniels-Midland Co., 700 A.2d 135, 145 (Del. 1997). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 13
merits of a proposed transaction, the board must disclose “a fair summary of the
substantive work performed by the investment bankers upon whose advice the
recommendations of their board as to how to vote . . . rely.” 23 In other words,
“when a banker’s endorsement of the fairness of a transaction is touted to
shareholders, the valuation methods used to arrive at that opinion as well as the key
inputs and range of ultimate values generated by those analyses must also be fairly
disclosed.”24
The Court cannot conclude that it is colorable that a fair summary of
Goldman Sachs’s financial analysis was not disclosed in the proxy materials. The
desired value uplift range was provided in the Value Uplift section of the proxy,
relative equity contribution ratios were disclosed, and the implied per share value
uplift ranges for the fiscal years 2015-17 were disclosed. Again, Plaintiffs seek
more information, such as the basis for using certain earnings per share multiples,
more information in the Selected Companies Analysis, and the assumptions behind
the cost of equity for TriQuint and the post-merger company, Rocky Holding. It is
23 In re Pure Res., Inc., S’holders Litig., 808 A.2d 421, 449 (Del. Ch. 2002). 24 In re Netsmart Techs., Inc. S’holders Litig., 924 A.2d 171, 203-04 (Del. Ch. 2007). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 14
not colorable that this information, although certain TriQuint shareholders may not
mind having to parse through an even longer proxy statement, was within the
TriQuint board’s control or material to a reasonable TriQuint shareholder.25 This
claim epitomizes the “limitless opportunities for disagreement on the appropriate
valuation methodologies to employ, as well as the appropriate inputs to deploy
within those methodologies.”26 Plaintiffs have plainly not stated a colorable claim.
3. Alleged Conflicts of Interest
Next, Plaintiffs allege additional disclosure violations regarding potential
management and financial advisor conflicts of interest. As to the first category, the
TriQuint board’s supplemental proxy disclosures included additional information
on this point, such as noting the conversations between the CEOs of TriQuint and
RFMD regarding management retention and board composition. It is not colorable
that additional information beyond this and related supplemental disclosures would
alter the total mix of information available to TriQuint shareholders in considering
25 Counsel for the TriQuint board represented to the Court that Goldman Sachs did not calculate, and thus did not present to the TriQuint board, a range of prices per share using a discounted- cash flow approach because the proposed transaction is a stock-for-stock merger. See Letter from Peter J. Walsh, Esquire (June 10, 2014). Plaintiffs’ suspicions to the contrary do not change the Court’s conclusion. See Letter of Brian D. Long, Esquire (June 11, 2014). 26 In re 3Com S’holders Litig., 2009 WL 5173804, at *6 (Del. Ch. Dec. 18, 2009). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 15
the merits of the proposed merger. That is, it is not colorable that the additional
information sought by Plaintiffs here is material.
As to the second category, Plaintiffs seek further information regarding the
possible contingency of Goldman Sachs’s $23 million fee and the TriQuint board’s
discretion to pay Goldman Sachs an additional $3 million.27 The proxy statement
notes:
Pursuant to the terms of the engagement letter, TriQuint has agreed to pay Goldman Sachs a transaction fee of approximately $23 million plus an additional amount in TriQuint’s sole discretion of up to approximately $3 million, all of which is payable upon completion of the mergers.28
The only reasonable reading of this sentence is that, were the merger with RFMD
not to close, then Goldman Sachs would not receive any portion of the $23 million
fee. Consequently, the $23 million mandatory fee appears to be fully contingent.
Plaintiffs’ allegations do not support a colorable claim to the contrary. The
additional $3 million discretionary fee is less than 15% of the $23 million fee
payable to Goldman Sachs upon closing of the merger. Given the disclosed fee 27 As with the alleged management conflict disclosure violations, the TriQuint board disclosed additional information underlying Plaintiffs’ financial advisor conflict disclosure claims in the supplemental proxy materials. 28 Defs.’ Br., Ex. 2 at 97. In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 16
and this easy-to-calculate ratio, it is not colorable that additional information
regarding the $3 million would be material to TriQuint stockholders.
4. The Sale Process
Finally, Plaintiffs contend the TriQuint board failed to disclose material
information about its efforts to sell the company. The allegation advanced most
strongly by Plaintiffs relates to the value the board attributed to the company’s
infrastructure and defense business in early 2013 when it concluded that RFMD’s
acquisition proposal was inadequate. This information is not colorably material.29
The failure to disclose the value ascribed to a division of TriQuint’s business at
one point during a years’ long sale process cannot be said to state a colorable claim
that this information would alter the total mix regarding the negotiations between
TriQuint and RFMD. The other sale process allegations, to the extent the
underlying information was not disclosed in TriQuint’s supplemental proxy, are
likewise not colorable disclosure claims.
29 See, e.g., Van de Walle v. Unimation, Inc., 1991 WL 29303, at *15 (Del. Ch. Mar. 7, 1991) (“Where, as here, ‘arm’s-length negotiation has resulted in an agreement which fully expresses the terms essential to an understanding by shareholders of the impact of the merger, it is not necessary to describe all the bends and turns in the road which led to that result.’”). In re TriQuint Semiconductor, Inc. Stockholders Litigation C.A. No. 9415-VCN June 13, 2014 Page 17
For the reasons set forth above, Plaintiffs have failed to allege a colorable
claim that TriQuint’s directors have breached their fiduciary duties to warrant
expediting these proceedings.30 Therefore, Plaintiffs’ motion is denied.
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap cc: Ryan M. Ernst, Esquire Blake A. Bennett, Esquire Register in Chancery-K
30 Without a colorable claim, there is no need to address the likelihood of irreparable harm.