Document: In re Delphi Fin. Group S’holders Litig., C.A. No. 7144-VCG (Del. Ch. Mar. 6, 2012)
The Delaware Court of Chancery found that plaintiffs had established a reasonable likelihood of success on the merits of their claims that Robert Rosenkranz (“Rosenkranz”), the controlling stockholder and founder of Delphi Financial Group (“Delphi”), breached his fiduciary duties in extracting more merger consideration for himself than for Delphi’s minority stockholders in connection with a proposed acquisition of Delphi by Tokio Marine Holdings, Inc. (“TMH”). However, the Court declined to grant plaintiffs’ request to enjoin the merger because Delphi’s minority stockholders would receive a substantial premium for their shares, no other potential purchaser had emerged, and money damages would be an available and adequate remedy.
Delphi had a dual-class structure: (1) Class A stock, held largely by public stockholders, and (2) Class B stock, held by Rosenkranz. Delphi’s certificate of incorporation required equal treatment of the Class A and Class B stock in a merger. However, Rosenkranz would not agree to any merger unless he received a control premium. As a result, the merger with Delphi was conditioned on a charter amendment being approved by stockholders that removed the equal treatment requirement. The merger was also conditioned on a vote of a majority of the minority stockholders; however, the Court found that the vote would be potentially coerced given Rosenkranz’s demand for a price differential. Although a controlling stockholder is entitled to negotiate for a control premium, the prohibition in Delphi’s post-IPO certificate of incorporation on disparate merger consideration presumably reflected that Rosenkranz had already received a control premium in connection with the sale of the Class A shares.
Accordingly, having found that the plaintiffs had established a reasonable likelihood of success on the merits of their claims, the Court turned to the issues of irreparable harm and the balance of the equities. Finding that the holders of Class A stock might suffer irreparable harm if an injunction were issued because they would lose a 76% premium, the Court denied the request for injunctive relief.