In In re TriQuint Semiconductor, Inc. Stockholders Litigation, plaintiff stockholders of TriQuint Semiconductor, Inc. (“TriQuint”) moved to expedite their breach of fiduciary duties claims against TriQuint’s board of directors for approving a merger of equals with RF Micro Devices, Inc. (“RFMD”) in which the shares of each company would be exchanged for 50% of the shares of a newly formed entity, Rocky Holding, Inc. (“Rocky Holding”). In this letter opinion, the Delaware Court of Chancery ruled on plaintiffs’ motion for expedited proceedings with regard to plaintiffs’ claims that the TriQuint board (i) engaged in defensive entrenchment tactics, (ii) agreed to preclusive deal protection devices, and (iii) failed to provide all material information to the stockholders in advance of the stockholder vote.
In order to show good cause for expedited proceedings under Delaware law, plaintiffs must articulate “a sufficiently colorable claim” and show “a sufficient possibility” of irreparable injury so as to justify imposing the costs of an expedited preliminary injunction proceeding on the defendants and the public.
With regard to the claims that TriQuint’s board members took defensive actions to retain their positions, the court found no colorable claim under Unocal v. Mesa Petroleum Co. (with the court noting that the Revlon standard examining the directors conduct to maximize value in certain contexts did not apply to this stock-for-stock transaction). The plaintiffs failed to articulate, in the court’s view, how the RFMD merger would entrench the TriQuint board from a proxy contest because the stockholder group would become stockholders of the combined company (Rocky Holding) – and could bring a subsequent proxy contest. Furthermore, the court noted that a director’s interest in remaining in office is not “a debilitating factor” that prevents a director from impartially considering a merger.
The court also considered the reasonableness of the deal protection measures under the Unocal standard, which for purposes of a motion to expedite, requires the plaintiffs to articulate a sufficiently colorable claim that “…a given set of deal protections operate in an unreasonable, preclusive, or coercive manner.” The court found that the deal protection measures in this case, including a no solicitation provision, matching rights for RFMD, and a 2.8% termination fee, were not uncommon and thus did not support an expedited proceeding.
Finally, the court evaluated plaintiffs’ disclosure claims. Directors of a Delaware corporations have a fiduciary duty to disclose “all material information within the board’s control when it seeks shareholder action.” 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.” The court found that the disclosure claims regarding the following items did not result in colorable claims that any omissions were material: (i) additional details related to TriQuint’s financial projections; (ii) additional information regarding the financial analysis by Goldman Sachs (TriQuint’s financial advisor); (iii) additional disclosures regarding conflicts of interest; and (iv) details regarding certain aspects of the sale process. Thus, the Court of Chancery denied plaintiffs’ motion to expedite the proceedings, finding no colorable claim that the TriQuint board breached its fiduciary duties.