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By Yin Wilczek
Oct. 13 — A shareholder challenge of Apollo Global Management LLC's $1.03 billion acquisition of specialty chemicals maker OM Group Inc. was dismissed by the Delaware Chancery Court Oct. 12 ( In re OM Grp. Inc. , 2016 BL 339835, Del. Ch., No. 11216-VCS, 10/12/16 ).
The lawsuit brought by former OM stockholders alleged that OM's board breached its fiduciary duty by rushing to sell the company “on the cheap” to avoid a costly activist proxy fight.
While the alleged facts were “disquieting,” Vice Chancellor Joseph R. Slights III said the case should be dismissed under Corwin v. KKR Financial Holdings LLC, 2015 BL 323544 (41 CARE, 10/6/15) because the merger was approved by fully informed and disinterested shareholders.
Corwin has been cited in several recent chancery court decisions to dismiss shareholder lawsuits over mergers and acquisitions (176 CARE, 9/12/16). This suggests that approval by fully informed and sophisticated investors will effectively insulate many deals from scrutiny by the Delaware courts, unless a controlling shareholder was involved, or the transaction amounted to a waste of corporate assets.
OM announced in June 2015 that it was going to be acquired by Apollo in a take-private transaction (13 CARE 1207, 6/5/15). The deal is one of the largest in the specialty chemicals industry. At the time, OM was under pressure by activist hedge fund FrontFour Capital Group for being overcapitalized.
The plaintiffs argued that OM's board sold the company in one package to Apollo rather than piecemeal to other potential acquirers because the Apollo sale could be completed quickly, before the activist could mount a proxy fight.
The court rejected the arguments, finding that shareholders were adequately informed about the material aspects of the transaction, including any conflicts of interest that might arise from the previous relationship between Deutsche Bank, which acted as an investment adviser to the deal, and Apollo.
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The ruling is available at http://www.bloomberglaw.com/public/document/In_re_OM_Grp_Inc_No_11216VCS_2016_BL_339835_Del_Ch_Oct_12_2016_Co.
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