Former R.L. Polk Shareholders Get Day in Court Over 2011 Buyback

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By Yin Wilczek

Former R.L. Polk & Co. shareholders can proceed with their claims that the company’s chief executive officer and certain board members shortchanged them in a 2011 stock buyback, the Delaware Chancery Court said July 24.

The former shareholders adequately made out a case against Stephen Polk, R.L. Polk’s chairman, CEO and president, and members of the board who are related to the Polk family, the court said ( Buttonwood Tree Value Partners LP v. R.L. Polk & Co. , Del. Ch., No. 9250-VCG, 7/24/17 ).

Based on the complaint, it is reasonably conceivable that the Polk family acted as a “controlling block comprising” more than 90 percent of the company’s stock, wrote Vice Chancellor Sam Glasscock III. It also is reasonably conceivable that the controlling shareholders “engineered” and “stood on both sides of“ the 2011 transaction in which the minority shareholders tendered their stock, he said.

Stephen Polk and three family relations who sit on the company’s board must now prove that the self-tender transaction was “entirely fair” at the time it was made.

In March 2011, Southfield, Mich.-based R.L. Polk, a consumer information provider that owns Carfax Inc., offered to buy back stock from shareholders at $810 per share in cash. In June 2013, R.L. Polk was acquired by IHS Inc. for $1.4 billion, or $2,675 per share. In December 2012, before the sale was completed, shareholders who didn’t participate in the buyback also received a dividend of $240 per share.

Self-Dealing Claims

Buttonwood Tree Value Partners LP and Mitchell Partners LP, who together had sold over 1,700 shares back to the company in the 2011 self-tender, filed a would-be class suit in 2014. They alleged that the buyback was a self-dealing transaction in an overall scheme by Stephen Polk and R.L. Polk directors to later sell the company for three times the self-tender valuation. The plaintiffs pointed to the fact that after R.L. Polk’s merger with IHS, the remaining shareholders received dividends amounting to one-third, and merger consideration of 300 percent, of the self-tender price.

The court noted that there was an exculpatory provision in the company’s certificate of incorporation that barred director liability for breaches of the duty of care. An exculpatory provision doesn’t apply to a defendant in his or her capacity as a controlling stockholder, it said. It also concluded that the plaintiffs alleged enough facts in their complaint against Stephen Polk and related board members to survive the defendants’ motion to dismiss.

The directors who weren’t related to the Polks were shielded by the exculpatory provision with respect to their duty of care, the court said. It also said that the plaintiffs failed to support the inference that the non-Polk directors breached their duty of loyalty or otherwise acted in bad faith. Accordingly, it granted the directors’ motion to dismiss.

The court also dismissed the lawsuit against R.L. Polk’s financial adviser, Stout Risius Ross Inc., and the company’s legal adviser, Honigman Miller Schwartz & Cohn LLP. The facts in the plaintiffs’ complaint fell short of a viable claim of aiding and abetting against each of the advisers, it held.

To contact the reporter on this story: Yin Wilczek in Washington at ywilczek@bna.com

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com

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