Stay current on changes and developments in corporate law with a wide variety of resources and tools.
A Saba Software Inc. shareholder can proceed with claims alleging the company’s approximately $400 million acquisition by affiliates of private equity firm Vector Capital Management LP was tainted by conflicts, the Delaware Chancery Court ruled March 31 ( In re Saba Software Inc. Stockholder Litig. , 2017 BL 105912, Del. Ch., No. 10697-VCS, 3/31/17 ).
The ruling is one of the relatively rare instances in which the chancery court allowed the lawsuit even though the deal was supported by a stockholder vote. Vice Chancellor Joseph R. Slights III found that Saba shareholder Gary Poltash adequately alleged that the stockholder vote approving the transaction was “neither fully informed nor uncoerced.”
The court has allowed board members in at least six other cases to escape litigation under the “ Corwin doctrine.” Under the principles enunciated in Corwin v. KKR Financial Holdings LLC, 2015 BL 323544, directors can get an early exit from lawsuits challenging a deal if the transaction is ratified by informed and “uncoerced” stockholders.
“We are pleased with the court’s decision, which allows Saba stockholders to finally have their day in court,” Nichole Browning, a San Diego-based attorney at Robbins Arroyo LLP who is representing the shareholder class, told Bloomberg BNA.
A Saba representative didn’t immediately respond to a request for comment.
In 2014, Saba settled Securities and Exchange Commission allegations that two former executives engaged in an accounting fraud scheme. As part of the settlement, the company agreed to restate its financial reports. However, it couldn’t meet the SEC deadline to refile, causing its common stock to be deregistered. In 2015, the Redwood Shores, Calif.-based human resources services provider was acquired by Vector affiliates in an all-cash deal.
Poltash claimed that Saba directors orchestrated a rush sale in order to avoid the consequences of the company missing the SEC restatement deadline. He is seeking damages over any wrongdoing found by the court.
In allowing Poltash’s claims to move forward, the court said that Saba shareholders that voted on the transaction were forced to choose between accepting the $9-per-share merger consideration and holding onto deregistered stock. The shareholders had “no practical alternative but to vote in favor of the Merger,” Slights said.
The court found that Poltash sufficiently alleged that the directors failed to inform shareholders about available post-deregistration options. It also determined that there were sufficient allegations that stockholders were wrongfully induced into approving the deal.
“This Hobson’s choice was hoisted upon the stockholders because the Board was hellbent on selling Saba in the midst of its regulatory chaos,” Slights wrote. “Yet the Board elected to send stockholders a Proxy that said nothing about the circumstances that were preventing the Company from filing its restatements and therefore offered no basis for stockholders to assess whether the choice of rejecting the Merger and staying the course made any sense.”
To contact the reporter on this story: Michael Greene in Washington at mGreene@bna.com
To contact the editor responsible for this story: Yin Wilczek at email@example.com
The decision is available at http://www.bloomberglaw.com/public/document/In_re_Saba_Software_Inc_Stockholder_Litig_No_10697VCS_2017_BL_105.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)