From JDSupra:
City of Fort Myers General § Employees’ Pension Fund v Haley, which was commenced in the Delaware Court of Chancery, grew out of the merger of equals between Towers Watson & Co. and Willis Group Holdings Public Limited Company. ...
ValueAct Capital Management, L.P., an institutional stockholder of Willis, through its Chief Investment Officer, Jeffrey Ubben, presented to John J. Haley, the Chief Executive Officer and Chairman of Towers who was spearheading the merger negotiations, a compensation proposal with the post-merger company that would potentially provide Haley with a five-fold increase in compensation. Haley did not disclose this proposal to the Towers Board.
From the Morris James blog:
A plaintiff challenging a merger when a majority of the board approving the transaction is disinterested and independent and there is no controlling stockholder on both sides cannot state a cognizable claim of breach of fiduciary duty unless it can plead facts demonstrating that the business judgment rule does not apply.
One way to plead around the business judgment rule is to assert that a merger partner offered material compensation to the opposing party’s lead negotiator in the midst of uncertain merger negotiations to incentivize him to do as little as possible to improve the merger consideration for his stockholders. That allegation would have to be coupled with a claim that the compensation was subjectively material to the lead negotiator and that he failed to disclose it to the full board. ...
The Court defined “materiality” as “relevant and of a magnitude to be important to directors in carrying out their fiduciary duty of care in decision-making.”
It is interesting to compare that definition of materiality to the one in the federal securities laws, which requires a showing that there is a substantial likelihood that the reasonable investor would consider the information to be important in deciding how to vote (or to enter into a transaction or whatever). As the Haley court explained (at 31):
Although we need not look to the stockholder disclosure cases, we pause to address the parties’ competing assertions about the relevance of those cases. In Brehm v. Eisner, we noted that the term “material,” when used in the context of a director’s obligation to be candid with the other members of the Board, “is distinct from the use of the term ‘material’ in the quite different context of disclosure to stockholders in which ‘[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider itimportant in deciding how to vote.’”61 ...
In this case, although the materiality inquiry is different in the two contexts, we conclude that the allegedly omitted information would be material in either context.
61 Brehm, 746 A.2d at 259 n.49. Delaware has adopted the federal standard for materiality in the shareholder disclosure context. See Morrison v. Berry, 191 A.3d 268, 282 (Del. 2018) (“An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.”) (quoting Rosenblatt v. Getty Oil Co., 493 A.2d 929, 944 (Del. 1985) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976))). We reject any contention in the briefing that the Delaware standard differs from the federal standard in this context.
It has never been clear to me why the materiality standard should differ in these two contexts. The opinions I've read in which the issue has come up tend to state that the two are different, but do not explain why.
BTW, here's an interesting tidbit from the Morris James post:
The fact that a dissenting Justice found that the disclosure of the Proposal was not material in light of the Towers Board’s knowledge that post-merger, Haley would be the CEO of the combined, larger entity, underscores that these judgements are not always clear-cut.
The fact that experienced jurists and lawyers who sit on the top corporate law court in the country disagreed as to the materiality of the information illustrates once again the risibility of asking lay jurors to decide whether information is material. Craziness.
