The Court found that there was not a reasonable likelihood that plaintiffs would be successful on the merits of their claims that the board of directors of Plains Exploration & Production Company (“Plains”) breached its fiduciary duties by failing to conduct a pre-signing market check or negotiate for a go-shop where the board retained sufficient flexibility under the parties’ merger agreement to pursue a bidder that emerged post-signing.
In December 2012, Plains entered into a merger agreement to be acquired by Freeport-McMoRan Copper & Gold Inc. (“Freeport”) in a mixed stock and cash transaction with a combined value of approximately $50.00 per share. In the months leading up to the signing of the merger agreement, Plains walked away from the deal several times and did not seek out alternative bidders because the board strongly believed in Plains’ success as a stand-alone company. However, Plains eventually agreed to a deal with Freeport after Freeport increased the attractiveness of its offer price and agreed to modest deal protection terms which would allow Plains to pursue superior offers post-signing.
In this injunction action, plaintiffs alleged that the Plains board breached its fiduciary duties, under Revlon, as well as its disclosure obligations. The gravamen of plaintiffs’ Revlon claims was that the Plains board did not conduct a pre-signing market check, did not obtain a go-shop, and did not have the type of impeccable knowledge of the market that would just a single-bidder strategy. The Court found plaintiffs’ allegations insufficient to establish a reasonable probability that board’s decision-making process was inadequate or its actions were unreasonable under the circumstances. With respect to the board’s single-bidder strategy, the Court stated that a board may rely on a post-signing market check to fulfill its Revlon obligations absent impeccable knowledge of the market if the deal protection terms are modest and the board is competent and informed. In this case, the Plains board could (1) pursue a competing bid that “could reasonably be expected to lead” to a superior proposal under a fiduciary-out provision in the merger agreement, and (2) terminate the merger agreement to consummate a transaction with a topping bidder upon payment of a modest 3% termination fee. Thus, the deal protection terms were modest. The Court also found the board to be informed and did not fault the board for delegating the task of negotiating the deal to the company’s CEO (James Flores), who had agreed to stay on as an executive of the combined company following the merger. In the Court’s view, the board’s decision to delegate the negotiations to Flores was appropriate because: (1) the Plains board (a majority of the members of which were independent and disinterested) oversaw the negotiations, (2) Flores’ significant stock ownership aligned his interests with the interests of Plains stockholders generally, and (3) Flores possessed the best knowledge of the company’s business.
Before denying the plaintiffs’ motion for a preliminary injunction in its entirety, the Court addressed the disclosure claims in the complaint. The Court rejected plaintiffs’ argument that defendants breached their fiduciary duty of disclosure, inter alia, by failing to disclose in the proxy statement, unlevered cash flow projections derived by Plains’ investment banker (Barclays) in connection with rendering its fairness opinion on the merger. The proxy statement did disclose the underlying discretionary cash flow numbers which were prepared by Plains management and used by Barclays to derive unleveraged cash flows. In the Court’s view, the Barclay’s derived numbers were immaterial where the stockholders had management’s inside view of the company’s future financial performance.