In re Ness Technologies, Inc. Shareholders Litigation
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Plaintiffs, shareholders of Ness Technologies, Inc. (Ness), moved to expedite proceedings in this putative class action, which they filed to enjoin a proposed transaction through which Ness's largest shareholder, Citi Venture Capital International (CVCI), would, through a wholly owned subsidiary, acquire Ness in a cash transaction at $7.75 per share (Proposed Transaction). Plaintiffs contended that the Proposed Transaction was the product of a flawed sales process and that the members of the Board, aided and abetted by CVCI, breached their fiduciary duties to plaintiffs and the class by approving the transaction. Plaintiffs asserted both price and process claims and claims that the Board's disclosures regarding the Proposed Transaction were inadequate. The court held that plaintiffs' Motion for Expedited Proceedings was granted only to the extent that they could take expedited, but necessarily limited and focused, discovery regarding the question of whether either the Board's or the Special Committee's financial advisors were conflicted because of their relationships with CVCI. The motion was denied in all other aspects.
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EFiled: Aug 3 2011 4:45PM EDT Transaction ID 39075335 Case No. 6569-VCN COURT OF CHANCERY OF THE STATE OF DELAWARE JOHN W. NOBLE VICE CHANCELLOR 417 SOUTH STATE STREET DOVER, DELAWARE 19901 TELEPHONE: (302) 739-4397 FACSIMILE: (302) 739-6179 August 3, 2011 Brian D. Long, Esquire Rigrodsky & Long, P.A. 919 North Market Street, Suite 980 Wilmington, DE 19801 Robert S. Saunders, Esquire Skadden, Arps, Slate, Meagher & Flom LLP One Rodney Square Wilmington, DE 19801 William M. Lafferty, Esquire Morris, Nichols, Arsht & Tunnell LLP 1201 North Market Street Wilmington, DE 19801 Re: In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN Date Submitted: July 22, 2011 Dear Counsel: The Plaintiffs, shareholders of De have moved to expedite proceedings in this putative class action, which they filed , would, through a wholly owned subsidiary (Jersey Acquisition Corporation), acquire Ness in a cash In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 2 that the Proposed Transaction is the product of a flawed sales process and that the members of the Board, aided and abetted by CVCI, breached their fiduciary duties to the Plaintiffs and the Class by approving the transaction. The Plaintiffs assert the Proposed Transaction are inadequate. I. BACKGROUND1 On July 16, 2010, CVCI made an unsolicited indication of interest in acquiring Ness for between $5.50 and $5.75 per share. Because one member of the Board, Defendant Ajit Bhusan, had been appointed by CVCI, the Board formed a disinterested directors, and directed it to respond 2 The Special Committee engaged Ropes & Gray LLP as its legal advisor and Jefferies & Co. 1 The facts are drawn from the allegations of the Verified Consolidated Amended Class Action rom the Ness Technologies, Inc. Preliminary Proxy Statement (Schedule 14A) (the incorporated by reference into the Complaint. 2 Compl. ¶¶ 41-43. In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 3 Jefferies 3 To date, Mr. Bhusan has not been present for any negotiations, presentations, or decisions regarding CVCI or any other strategic buyer throughout the Ness sale process.4 The Special Committee first tried to negotiate a higher price from CVCI. After negotiations with CVCI collapsed in September 2010, the Special Committee then contacted twenty-one potential strategic buyers and six potential financial buyers in October and November; three potential buyers entered confidentiality agreements as a result of these contacts.5 Also in October 2010, Ness received offers to acquire the company at prices ranging from $6.40 to $6.70 per share from three additional strategic bidders (described in the Prelim. Proxy as Bidders A, B, and C, respectively).6 Once 3 Id. at ¶ 45. The Preliminary Proxy discloses that Jefferies Prelim. Proxy at 41. Similarly, commercial banking and other financial services to Citigroup, Inc. . . . and certain of its affiliates Id. at C-3. 4 Prelim. Proxy at 21. 5 Compl. at ¶ 46. 6 Id. at ¶¶ 48-51. In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 4 rged in January 2011 with an indication of interest in acquiring Ness for between $6.50 and $7.00 per share.7 Negotiations with Bidders A, B, and D continued through early March 2011, and these bidders submitted revised bids of $7.30, $7.00, and $7.30 per share, respectively.8 Bidder D increased its bid to $7.40 per share, a price that the other bidders were unwilling to match, and Ness entered into an exclusivity agreement with Bidder D on March 16, 2011.9 On March 31, while this exclusivity agreement was in effect, CVCI submitted another unsolicited expression of interest in acquiring Ness, this time at $7.75 per share.10 Ness continued exclusive negotiations with Bidder D through 7 Id. at ¶¶ 52, 54; Prelim. Proxy at 24. Prelim. Proxy at 24-25. 9 Prelim. Proxy at 25-26; Compl. ¶ 54. 10 Compl. ¶ 55. 8 In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 5 May 20, 2011, at which time the exclusivity agreement expired.11 Bidder D then lowered its offer to $7.00 per share.12 CVCI then confirmed that it was willing to offer $7.75 per share, a price discussions with potential buyers became public on December 10, 2010.13 Ness and CVCI entered a confidentiality agreement on May 25, 2011. Ness and CVCI announced that they had entered the Merger Agreement on June 10, 2011. II. DISCUSSION A. Legal Standard for Granting Expedition The Court acts regularly to grant requests to expedite proceedings: expedite the discovery related thereto, is normally granted. Exceptions to that 14 11 Although the burden is not high, a plaintiff seeking expedition Id. at ¶ 56. The exclusivity agreement had been extended twice, for a total of more than two months, in response to concessions from Bidder D. Prelim. Proxy at 26. 12 Prelim. Proxy at 30. Bidder D later increased its offer to $7.10 per share, but refused to move above that price. Id. at 32. 13 Id. at 24, 31; Compl. ¶ 58. 14 , 1996 WL 422345, at *1 (Del. Ch. July 16, 1996). In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 6 possibility of a threatened irreparable injury, as would justify imposing on the defendants and the public the extra (and sometimes substantial) costs of an 15 B. 1. The Price and Process Claims and the Special Committee engaged.16 In most cases, however, these concerns are not sufficiently specific to rise to the level of colorable claims. For example, the Plaintiffs allege that Mr. Bhusan was conflicted, but do not dispute that a Special Committee was formed or that Mr. Bhusan was excluded from the sale process. The Plaintiffs allege that Bidder D has sent Ness a letter threatening legal action, but they have not alleged anything regarding the contents of that letter. They allege that CVCI gained an improper advantage in negotiations 15 Police & Fire Ret. Sys. of the City of Detroit v. Bernal, 2009 WL 1873144, at *1 (Del. Ch. June 26, 2009). 16 Tr. at 4. In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 7 by staying out of the bidding until late March.17 G its offer price after its exclusivity period expired, however, there seems to be little to support this notion. M ision to offer a comparatively high bid late in the sales process indicates that the sale process was somehow deficient. Finally, the Plaintiffs complain that the Board agreed to accept deal protections provision, a termination fee amounting to 2.72% of the sale price, and a fiduciary before it can engage in negotiations that, together, are onerous and preclusive. The Plaintiffs offer no explanation as to how these relatively mundane deal protections would prevent a serious bidder from making a superior offer.18 This sale process lasted eleven months, involved approximately thirty potential bidders, and resulted in a sale price that is $2.00 per share higher than the price at which CVCI originally expressed its interest in acquiring Ness, higher by 17 Id. at 11. 18 merger terms, are not per se unreasonable, and do not alone constitute breaches of fiduciary holders Litig., 2009 WL 5173804, at *7 (Del. Ch. Dec. 18, 2009). In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 8 at least $0.65 per share than any other bidder was willing to pay, and 68% higher than Ness terest in Ness became shareholders. Only in one instance have the Plaintiffs possibly stated a colorable claim. that would impair the financial partial fairness opinion on the $7.75 per 19 19 Further, the Plaintiffs Compl. ¶ 70. See id. at ¶ 81: The Proxy Statement also fails to detail prior work Jefferies or BofA Merrill Lynch has provided any parties to the transaction or this litigation, or affiliates thereof, including: a. Specific services Jefferies has provided to CVCI in the last two years, and compensation received and expected for those services; b. Compensation BofA Merrill Lynch has received from Citigroup, or any of its affiliates in the last two years; and c. Compensation BofA Merrill Lynch has received from Ness in the last two years. See also id. at ¶ 45: On August 16, 2010, the Special Committee retained Ropes & Grey [sic], LLP as its legal advisor, which promptly advised the Special Committee to retain a financial advisor with no prior connections to the Company. Nonetheless, the Special Committee engaged Jefferies, despite the fact that in the two prior years, Jefferies had provided financial advisory and financing services to CVCI affiliates. In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 9 have worried 20 The bases for these allegations are that the Preliminary Proxy discloses that: Jefferies in the past provided financial advisory and financing services to certain affiliates of CVCI and continues to do so and received, and may receive, fees for the rendering of such services, including, during the two-year period prior to the date of Jefferies financial advisor to an affiliate of CVCI in connection with a sale transaction,21 and that: [Bank of America Merrill Lynch] and [its] affiliates have in the past provided, currently are providing, and in the future may provide investment banking, commercial banking and other financial services to Citigroup, Inc. . . . and certain of its affiliate and affiliates of [CVCI] . . . , and have received or in the future may receive compensation for rendering these services . . . .22 These disclosures do not indicate how much business the financial advisors have done, are doing, or might expect to do in the future with CVCI or its affiliates; if the amount of business involved would be material to either of the advisors, the Plaintiffs might have a colorable claim. Therefore, because the Court acts 20 Tr. at 11. Prelim. Proxy at 41. 22 Id. at C-3. 21 In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 10 certain solicitude for plaintiffs in this procedural setting, 23 the Court grants the Plaintiffs the right to engage in expedited to discovery to answer the narrow question of whether s past, present, or expected future dealings with CVCI or its affiliates created a conflict of with respect to their other price and process claims. 2. The Disclosure Claims s of interest may give rise to related disclosure claims. If the amount of business that one of the financial advisors has done with CVCI or its affiliates is material, then the failure to disclose fully the extent of that business could violate the duty of disclosure.24 By contrast, if the amount of business involved is not material to either financial advisor, then the existing disclosures would likely be adequate. 23 Giammargo v. Snapple Beverage Corp., 1994 WL 672698, at *2 (Del. Ch. Nov. 15, 1994). See holders Litig., 2011 WL 532014, at *16 (Del. Ch. Feb. 14, 2011) on, selection, and implementation of strategic alternatives, this Court has required full disclosure of In re Atheros holder Litig., 2011 WL 1379815, at *8 (Del. Ch. Mar. 4, 2011). 24 In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 11 The discovery necessary to pursue this potential claim, however, precisely overlaps with that needed to investigate the related price and process claim. three other general categories, are not colorable. First, the Plaintiffs seek additional detail regarding The Preliminary Proxy provides a fair summary of these projections;25 the Plaintiffs have not offered a theory as to how additional detail would be relevant to .26 Second, the Plaintiffs seek additional details regarding the financial the reasons why different companies were selected for advisors arrived at the multiples they used for those comparable companies. Again, the Preliminary Proxy provides shareholders with fair summaries of the 25 26 Prelim. Proxy at 48-49. See In re 3Com S holders Litig., 2009 WL 5173804, at *3. In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 12 27 and the Plaintiffs have not shown that additional detail would be material to shareholders. Third, the Plaintiffs seek a more detailed description of the sale process that led up to the announcement of the Proposed Transaction. The Preliminary Proxy describes, over fourteen pages, the eleven-month sale process in which the Special Committee and the Board engaged.28 The Plaintiffs have not indicated how additional information regarding the contacts the Board had with over thirty potential buyers, the extensive negotiations with Bidder D and CVCI, or the role Jefferies regarding the Proposed transaction. 27 hareholders are not entitle -by- See , 2007 WL 3262188, at *2-*3 (Del. Ch. Nov. 1, ve work performed by the investment bankers upon whose advice the recommendations of their board as statement contains an adequate and fair summary of the work the [financial advisor] did to come holders Litig., 808 A.2d 421 (Del. Ch. 2002); Prelim. Proxy at 36-47, B1-B3, C1-C4. 28 Prelim. Proxy at 20-33. In re Ness Technologies, Inc. Shareholders Litigation C.A. No. 6569-VCN August 3, 2011 Page 13 sale process.29 that the Preliminary Proxy failed to provide such a fair summary. III. CONCLUSION For the foregoing reasons, the is granted only to extent that they may take expedited, but necessarily limited and focused, Special Committ s were conflicted because of their relationships with CVCI. The motion is denied in all other respects. IT IS SO ORDERED. Very truly yours, /s/ John W. Noble JWN/cap cc: Register in Chancery-K 29 Skeen v. Jo-Ann Stores, Inc., 1999 WL 803974, at *7 (Del. Ch. Sept. 27, 1999), aff'd, 750 A.2d 1170 (Del. 2000).
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