Citations
- 158 F. Supp. 3d 751
Full opinion text
ORDER
David S. Doty, Judge United States District Court
This matter is before the court upon the motion for a preliminary injunction by plaintiff David Erickson. Based on a review of the file, record, and proceedings herein, and for the following reasons, the court denies the motion.
BACKGROUND
This securities dispute arises out of the proposed merger of defendant Hutchinson Technology Incorporated with entities owned by TDK Corporation. Hutchinson is a Minnesota corporation that researches, designs, manufactures, and supplies suspension assemblies for hard disk drives. Compl. ¶¶9, 17. Defendant Richard J. Penn is Hutchinson’s president and chief executive officer, and sits on the Board of Directors. Id. ¶ 10. Defendants Wayne M. Fortun, Martha Goldberg Aronson, Russell Huffer, Frank P. Russomanno, Philip E. Soran, and Thomas R. VerHage are independent outside directors. Id. ¶¶ 11-16.
On February 23, 2015, Albert Ong — the president and chief executive officer of Magnecomp Precision Technology (MPT), a subsidiary of TDK — met with Penn and David Radloff, Hutchinson’s vice president and chief financial officer. Steiner Aff. Ex. 1 at 34. During that meeting, Ong proposed that MPT acquire Hutchinson’s assembly operations for a cash purchase price of $120 to 130 million plus a potential long-term supply arrangement between the two companies. Id. Penn and Radloff took the proposal under consideration. Id. Within several days, Penn advised Ong that Hutchinson had no interest in the proposed transaction. Id.
In March 2015, Ong contacted Penn and inquired whether Hutchinson would consider a proposal for MPT to acquire Hutchinson. Id. Penn responded that Hutchinson was executing its strategic plans and was not for sale. Id On March 31, 2015, Penn relayed these communications to the Board during its regular meeting. Id.
In April 2015, MPT’s financial advisor contacted Penn and advised him that MPT intended to submit a formal offer to acquire Hutchinson. Id. at 35. Penn and Rad-loff then interviewed representatives of three investment banking firms based on recommendations from the Board, including Bank of America’s wealth management division Merrill Lynch, Pierce, Fenner & Smith Incorporated (BofA Merrill Lynch). Id. at 7, 35. On April 29, 2015, the Board held a telephonic meeting. Id. at 35. Penn and Radloff summarized their communications with MPT and its financial advisor, discussed the interviews with the investment banking firms, and recommended that Hutchinson engage BofA Merrill Lynch as its financial advisor. Id. The Board authorized and directed executive management to negotiate and execute an engagement letter with BofA Merrill Lynch. Id. On May 12, 2015, Hutchinson entered into an engagement letter with BofA Merrill Lynch, pursuant to which BofA Merrill Lynch agreed to act as Hutchinson’s financial advisor in connection with potential strategic transactions including the possible sale of Hutchinson. Id.
On May 26, 2015, Penn, Radloff, and BofA Merrill Lynch met with Ong and-MPT’s financial advisors .to present information about Hutchinson to MPT. Id. On June 12, 2015, MPT proposed to acquire Hutchinson for an enterprise value of $200 million, which equated to an equity value for Hutchinson of approximately $96.9 million or $2.81 per share. Id. Hutchinson’s closing stock price on that day was $2.03 per share. Id.
On June 15, 2015, the Board met and discussed MPT’s proposal. Id. The Board directed executive management and BofA Merrill Lynch to respond that, although the Board was interested in MPT’s proposal, the valuation was too low. Id. The Board also directed executive management and BofA Merrill Lynch to continue discussions with MPT in an effort to elicit an improved offer. Id. Hutchinson’s closing stock price on that day was $1.98 per share. Id. On June 16, 2015, BofA Merrill Lynch conveyed the Board’s position to MPT and its financial advisor. Id.
Over the next four months, Hutchinson and MPT, along with both companies’ financial advisors, continued to negotiate. Id. at 35-39. On September 24, 2015, Penn, Radloff, and representatives of BofA Merrill Lynch negotiated a per-share merger consideration proposal with Ong and MPT’s financial advisor. Id. at 39. The proposal consisted of a fixed base consideration of $3.62 per share plus additional cash consideration up to a maximum amount of $0.38 per share. Id. Hutchinson’s closing stock price on that day was $1.42 per share. Id.
On September 26, 2015, the Board directed executive management to finalize the merger agreement on those material terms. Id. On October 29, 2015, MPT completed its due diligence investigation of Hutchinson and both companies’ legal counsel finalized the merger agreement. Id. at 40. On October 30, 2015, TDK’s Board approved the merger agreement. Id. •
BofA Merrill Lynch conducted a financial analysis and provided its opinion of the merger. Id. at 41. Ultimately, BofA Merrill Lynch stated that the merger was financially fair to Hutchinson’s shareholders. Id.
On November 1, 2015, the Board met and reviewed the merger agreement and BofA Merrill Lynch’s fairness opinion. Id The Board then formed a special committee of disinterested directors to consider and vote on the merger agreement. Id. The special committee approved the merger agreement and recommended that the full Board approve the merger agreement. Id. The Board then unanimously (i) approved the merger agreement, (ii) declared it to be fair, advisable, and in the best interests of Hutchinson and its shareholders, (iii) directed that the approval of the merger agreement be submitted to a vote at a shareholder’s meeting, and (iv) recommended to shareholders that they approve the merger agreement. Id. On November 2, 2015, TDK and Hutchinson issued a joint press release announcing the merger agreement. Id:
On November 23, 2015, Hutchinson filed a nearly 200-page proxy statement with the Securities and Exchange Commission (SEC). Compl. ¶ 46. The proxy' includes information from BofA. Merrill Lynch’s‘financial analysis. Relevant to Erickson’s motion, the proxy provides a summary of BofA Merrill Lynch’s Selected Publicly Traded Companies Analysis, Selected Precedent Transactions Analysis, and Selected Precedent Transactions Premiums Analysis. Id. ff 47-49; Steiner Aff. Ex. 1 at 47-49. The proxy advises Hutchinson shareholders of the Board’s unanimous recommendation to vote in favor of the merger.-.Steiner Aff. Ex. 1 at 7. Shareholders are schedule to vote on the merger on January 28,2016. Id. at 2.
On November 30, 2015, Erickson filed a putative class action complaint alleging that the defendants violated §§ 14(a) and 20(a) of the- Securities Exchange Act of 1934 and Rule 14a-9. On December 18, 2015, Erickson filed a motion for a preliminary injunction to enjoin the shareholder vote until defendants disclose certain, omitted information. Specifically, Erickson alleges that the proxy’s summary of the aforementioned analyses omits material information.
DISCUSSION
A preliminary injunction is an extraordinary remedy, and the movant bears the burden of establishing its propriety. Watkins Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir.2003). The court considers four factors in determining whether a preliminary injunction should issue: , (1) the likelihood of the movant’s ultimate success on the merits, (2) the threat of irreparable harm to the movant in the absence of relief, (3) the balance between the harm alleged and the harm that the relief may cause the non-moving party, and (4) the public interest. Dataphase Sys., Inc. v. C.L. Sys., Inc., 640 F.2d 109, 114 (8th Cir.1981) (en banc). No single factor is determinative; Id. at 113. Instead, the court considers the particular circumstances of each case, remembering that the primary question is whether the “balance •of equities so favors the movant that justice requires the court to intervene to preserve the status quo until the merits are determined.” Id.
I. Likelihood of Success on the Merits
The court first considers the “most significant” Dataphase factor: the likelihood that the movant will prevail on the merits. S & M Constructors, Inc. v. Foley Co., 959 F.2d 97, 98 (8th Cir.1992). Erickson alleges that Hutchinson violated § 14(a) and Rule 14a-9 by filing a materially incomplete and misleading proxy asking its • shareholders to vote in favor of the proposed merger.
Section 14(a) prohibits the solicitation of any proxy in a manner which violates rules' promulgated by the SEC.' 15 U.S.C. § 78n(a). Rule 14a-9 prohibits solicitation of proxies by means of proxy statements which contain false or misleading statements concerning any material fact or omissions of material facts which make any part of' the statement misleading. 17 C.F.R. § 240.14a-9. In order to establish a violation of § 14(a) and Rule 14a-9, a plaintiff must prove: (1) the proxy statement contains a material misrepresentation or omission, (2) the defendants were negligent in drafting the statement, and (3) the proxy was an the essential link in completing the transaction in question. Lone Star Steakhouse & Saloon, Inc. v. Adams, 148 F.Supp.2d 1141, 1151 (D.Kan.2001).
A. Negligence and Essential Link
The first element is the lynchpin to a. § 14(a) claim, as the second and third elements typically fall in to place if the first element is established. “As a matter of law, the preparation of a proxy statement by corporate insiders containing materially false or misleading statements or omitting a material fact is sufficient to satisfy the ... negligence standard.'Accordingly, a director may be found negligent under Section 14(a) for a failure to notice material omissions upon reading a proxy statement.” Brown v. Brewer, No. CV06-3731-GHK SHX, 2010 WL 2472182, at *24 (C.D.Cal. June 17, 2010). Similarly, it is accepted that the proxy statement forms an essential link in such circumstances. See In re Bank of Am. Corp. Sec., Derivative, & Emp. Ret. Income Sec., Act (ERISA) Litig., 757 F.Supp.2d 260, 292 (S.D.N.Y.2010) (“The merger ,.. could have been consummated only with ... shareholder approval of the transaction. Thus, the Joint Proxy was an essential link in the transaction because the acquisition could not have occurred without the shareholder vote”). This case comports with the above-cited propositions. Accordingly, the critical question when evaluating the likelihood of success on the merits is the materiality of the omitted information.
B. Materiality
Erickson seeks two types of information: (1) the key metrics summarizing the multiples observed in BofA Merrill Lynch’s Selected Publicly Traded Companies Analysis and Selected Precedent Transactions Analysis; and (2) the key metrics or the specific transactions BofA Merrill Lynch used in its Selected Precedent Transactions Premiums Analysis. Erickson alleges that this omitted information is material and that, without it, Hutchinson’s proxy statement is misleading. He further alleges that Hutchinson shareholders need this omitted information to determine whether the implied per share equity reference ranges accurately reflect the value of the shares and whether the selected comparative transactions were appropriate.
1. Information Provided in the Proxy Statement
The proxy already provides a significant amount of detail about these financial anal-yses. As to the Selected Publicly Traded Companies Analysis, Erickson alleges that Hutchinson is required to disclose the range, mean, and median multiples regarding revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA)' for the selected companies. The proxy names eight publicly traded companies in the hard disk drive and high-precision components and manufacturing industries. Steiner Aff. Ex. 1 at 47.
Regarding the revenue multiples, the proxy states that BofA Merrill Lynch reviewed the companies’ enterprise values