1 in re trulia, inc. : civil action - the d&o diary
Post on 31-Dec-2021
1 Views
Preview:
TRANSCRIPT
1
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN RE TRULIA, INC. : Civil Action STOCKHOLDER LITIGATION : No. 10020-CB
- - -
Chancery Courtroom No. 12A New Castle County Courthouse 500 North King Street Wilmington, Delaware Wednesday, September 16, 2015 10:05 a.m.
- - - BEFORE: HON. ANDRE G. BOUCHARD, Chancellor. - - -
SETTLEMENT HEARING
------------------------------------------------------ CHANCERY COURT REPORTERS
New Castle County Courthouse 500 North King Street - Suite 11400
Wilmington, Delaware 19801 (302) 255-0523
2
CHANCERY COURT REPORTERS
APPEARANCES: BRIAN D. LONG, ESQ. Rigrodsky & Long, P.A. for Plaintiffs RUDOLF KOCH, ESQ. Richards, Layton & Finger, P.A.
-and- MICHAEL T. JONES, ESQ. of the California Bar
Goodwin Procter LLP for Defendants Trulia, Inc., Pete Flint, Robert
Moles, Theresia Gouw, Greg Waldorf, Sami Inkinen, Erik Bardman, and Steve Hafner
KEVIN M. COEN, ESQ. Morris, Nichols, Arsht & Tunnell LLP for Defendants Zillow, Inc. and Zebra Holdco,
Inc.
- - -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
3
CHANCERY COURT REPORTERS
MR. KOCH: Good morning, Your Honor.
THE COURT: Good morning, Mr. Koch.
MR. KOCH: I just rise to make one
brief introduction. I have with me today my
co-counsel, Mr. Michael Jones from Goodwin Procter.
MR. JONES: Good morning, Your Honor.
MR. KOCH: And we represent the Trulia
defendants.
THE COURT: Good morning.
Mr. Long.
MR. LONG: Good morning, Your Honor.
May it please the Court, Brian Long from Rigrodsky &
Long on behalf of plaintiffs. This is the time that
the Court has set down for the consideration of the
proposed settlement of Civil Action No. 10020, In re
Trulia Stockholder Litigation. Notice of the proposed
settlement was disseminated pursuant to the Court's
June 12, 2015, scheduling order. Beginning on or
around July 17, 2015, almost 13,000 copies of the
notice were mailed. Mailing of the notice was
attested to by an affidavit submitted on August 28,
2015, by Markham Sherwood of Kurtzman Carson
Consultants. To date, plaintiffs' counsel are unaware
of any objections to the settlement, class
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
4
CHANCERY COURT REPORTERS
certification, or to the requested award for the
attorneys' fees and expenses.
I'd also note for the record that I
canvassed the well before the hearing, as well as the
courtroom, and that no one here today is to object.
In fact, my colleagues from Andrews & Springer
actually represent one of the plaintiffs in the case.
THE COURT: I'm sorry. Could you
repeat the last part of what you said?
MR. LONG: Sure.
THE COURT: About Mr. Andrews. I'm
not sure what --
MR. LONG: Yeah. My colleagues, they
represent one of the plaintiffs in one of the later
consolidated actions.
THE COURT: All right.
MR. LONG: So turning to the
challenged transaction, this was a deal that was
announced on July 28, 2014. It's a stock deal through
which, eventually, Zillow would acquire Trulia
pursuant to the merger agreement. The exchange ratio
was .444 shares of the holding company common stock.
It equated to approximately 33 percent equity for the
holders of Trulia, and the remaining 67 percent would
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
5
CHANCERY COURT REPORTERS
go to the stockholders of Zillow.
We've been in front of Your Honor
several times over the past few weeks: Open Table, TW
Telecom, World Energy. Before I go through sort of
the background of the litigation, I guess I would
harken this one much closer to World Energy than to
the others. I know Your Honor's expressed some
concerns about what you called self-expediting
matters. This, candidly, there was no hearing on a
motion for expedited discovery.
THE COURT: Well, in fact, wasn't the
stipulated schedule entered the same day as the motion
for expedition was filed?
MR. LONG: No. The stipulated
schedule was entered the same day that the
consolidation order was filed.
THE COURT: Okay.
MR. LONG: I think we filed the motion
for expedited discovery back -- I think it was
September 24th.
THE COURT: Okay.
MR. LONG: And it actually was the
subject of a lot of negotiation.
THE COURT: All right.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
6
CHANCERY COURT REPORTERS
MR. LONG: And so we didn't submit the
scheduling order until a couple of things had gotten
worked out, consolidation being one of them. And
then, once we were able to lock down everything and go
through all the negotiations with respect to the
documents, the search terms, the e-mails, everything
that we had to do in that part, then, you know, we had
an agreement and we went forward.
THE COURT: What was the date, again,
of the MOU?
MR. LONG: The date of the MOU was --
I want to say November 19th.
THE COURT: Why did it take so long
for us to get to this point? This deal happened over
a year ago.
MR. LONG: Sure. Well, a couple of
reasons. The transaction closed -- didn't close --
let me just get that right. So the MOU was November
19. The stockholder vote actually wasn't until
several weeks later, in December. And so in that
regard, normally -- it's unusual, at least in my
experience, to wrap up the confirmatory discovery
before the deal closes.
Here, it was a large transaction,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
7
CHANCERY COURT REPORTERS
$3.5 billion. It was a strategic transaction. And so
there was a very -- as I understand, a rigorous
antitrust clearance process. So we didn't get the --
you know, the MOU was before Thanksgiving. We didn't
really pick up until after the beginning of the new
year, in terms of scheduling confirmatory discovery.
Scheduled confirmatory discovery. I
think the confirmatory deposition, Mr. Waldorf, was
sometime in the mid-February range. And I think it
wasn't until after that that they got the necessary
clearance from the FTC to close the deal. So it took
three or four months, I think, from that point to
negotiate the terms of the stipulation and settlement.
Again, nothing was easy in this one.
The negotiations over the fee dragged things out, to
be candid. And then I think this one -- you know, we
submitted it, I want to say, in July. And it was --
we're 90 days. I think part of this also has to do
with Your Honor's schedule, making sure that we had
the requisite amount of time for notice. We are
mindful of trying to keep things moving forward.
Sometimes things are out of our control. Sometimes
things slip through, candidly.
So we were able to negotiate the scope
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
8
CHANCERY COURT REPORTERS
of expedited discovery. As I said, it wasn't a huge
production of documents, a little more than a bankers'
box, but it was core documents, core presentations,
bankers' books, e-mails from several custodians, you
know, and a wrangle back and forth over search terms.
And we took two adversarial depositions.
We didn't make a settlement demand
until after we had completed the depositions. We made
the demand. We had discussions with the defendants
about the scope of our demand. You know, we asked for
several things. It became clear after a while the
only thing we were going to be able to do, in terms of
settlement, was going to be the disclosures. Doesn't
mean we didn't ask for more. We weren't -- we didn't
think we were heading towards a settlement that we
wanted, and so we had to file our opening PI brief.
And I think we filed that -- I think we filed that on
or around November 4.
THE COURT: So remind me what you put
at issue in your opening PI brief.
MR. LONG: Sure.
THE COURT: Other than disclosures.
MR. LONG: Well, I mean, obviously,
there was a detailed recitation of the facts we
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
9
CHANCERY COURT REPORTERS
expressed --
THE COURT: I meant like a legal
theory for relief.
MR. LONG: The sole focus of the PI
brief was three discrete disclosure issues --
THE COURT: The same ones that were
the basis of settlement, or different ones?
MR. LONG: The same ones, and then
there was an additional one I'd like to talk about as
well.
THE COURT: Okay.
MR. LONG: So we basically got
everything we asked for in the PI brief plus one other
one that I think is also material, in light of the
circumstances. So, you know, against that backdrop,
we'd also served subpoenas, deposition notices. Sort
of came at this as we were going to have to litigate
this aggressively. We were able to work things out.
Now, I'm not going to speak for my
colleagues. I'd like to think that when they read the
brief in support of the motion for expedited
discovery, they perceived some risk, at least as to
the relief we were requesting in that motion. I'd
also like to think that when they read the PI brief we
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
10
CHANCERY COURT REPORTERS
filed, they were concerned about some level of risk
about the disclosure-based injunctive relief.
So that takes us, then, through to the
stipulation of settlement. It did take a little bit
longer than we'd like to get that done, but we were
able to do that, submit papers, and then we're here
today for consideration of the proposed settlement.
With respect to class certification,
our arguments are in our papers. There were
approximately, I'm going to say, 37.78 million shares
of Trulia common stock outstanding. I think all of
the prerequisites of Rule 23(a) and (b) are met here.
I'd also respectfully submit that the
settlement that we're proposing to Your Honor today is
fair, reasonable, and adequate. We did go to some
length in our papers to try to set forth the give
versus the get here. Again, this is a disclosure-only
settlement. I mean, there were risks that we faced.
They're detailed in the brief. This was a
stock-for-stock transaction. There would have been a
strong argument by the defendants that Revlon didn't
apply. We had arguments, we had our theories. It was
a single-bidder process.
THE COURT: What was your theory that
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
11
CHANCERY COURT REPORTERS
Revlon would apply in this deal?
MR. LONG: Well, I mean, in the end, I
don't have a theory that Revlon would apply. I mean,
we've taken a look at everything. It was a
single-bidder process. There was no presigning market
check. The board tried to include -- the
transaction included the board trying to include a
go-shop in the merger agreement. Eventually, after
consideration, consultation with their advisors, and
including their lawyers, they decided to take the bird
in the hand.
THE COURT: Right. What was the
percent of the deal that was in the breakup fee?
MR. LONG: 2.75 percent. There was a
$69 million breakup fee.
THE COURT: How is it -- what's the
denominator in that calculation?
MR. LONG: I think it's the 37.78
million shares.
THE COURT: No. I mean, I know what
the fee was, but what was, basically, the implied
market value that was applied to Trulia to determine
the percentage of the breakup fee? If you know.
MR. LONG: Yeah. I don't want to
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
12
CHANCERY COURT REPORTERS
speculate. I think it was, you know, the value at the
time of closing, in terms of the market price of
Zillow stock. But I'll be candid. Standing here
today, I just can't remember, for the life of me.
THE COURT: I'd be surprised if it's
closing value. Usually those are calibrated at the
time the deal is done, but all right.
MR. LONG: All right. So we turn to
the disclosures. There are just a few discrete
disclosures that we got here.
THE COURT: Start with your best one.
MR. LONG: Sure. I have two best
ones. The one that I like the best is the disclosure
of the additional synergy numbers. So --
THE COURT: All right.
MR. LONG: So originally, in the S-4
originally, there was a disclosure to the effect that,
you know, they were looking at $100 million in
synergies. All right? Through discovery, we
discerned that, in fact, the board of Trulia thought
that $175 million in synergies was achievable. Now,
this is significant, for a couple of reasons. First
and foremost, you take the 37.78 million shares,
that's another $1.98 a share in synergies. Now, I'm
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
13
CHANCERY COURT REPORTERS
not suggesting -- I'm not suggesting that that's
another $2 a share that could, you know, have gone to
the shareholders of Trulia, but this is information
that wasn't disclosed.
I mean, there was another $1.98 in
value, potentially, to the buyer. And perhaps there
was something more that the board could have pushed
for in terms of additional consideration.
THE COURT: Well, okay. You're going
to have to explain that a little bit more for me. But
on page 123 of the Definitive, there is a little
chart, even though it's only two lines, that says
"Trulia Management Estimated Synergies." And there
are numbers from 2014 estimated to 2024 estimated,
including 175 million in 2016.
Now, if I understand the disclosures
that were made correctly, that was in the Definitive
long before you came along; is that right?
MR. LONG: That might be. I'm
embarrassed, I might just be mistaken. My
recollection was that this wasn't disclosed.
But there's another reason why it's material.
THE COURT: All right. Well, tell me
the other reason.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
14
CHANCERY COURT REPORTERS
MR. LONG: Sure. JPMorgan used the
$175 million synergy in one of its analyses, all
right? They did a value-creation analysis.
THE COURT: Right.
MR. LONG: And there was no disclosure
originally about, you know, the level of synergies
that were used in the two respective analyses.
THE COURT: Well, but they did, for
example -- let me find that part. So if I look at
page 130 of the Definitive, which is the
value-creation analysis that was done based on an
intrinsic-value approach --
MR. LONG: Right. The intrinsic-value
approach.
THE COURT: Now, I get your point that
when you get to subpart 3 of what I guess is the
second sentence, it doesn't say some specific synergy
value for any particular year. But it does say that
when they did this analysis, that they present-valued
Trulia's management-expected after-tax synergies;
right? Minus certain costs. And those synergies are
the table I just referred to on page 123; right? So
that's in there.
MR. LONG: Well, the fact of the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
15
CHANCERY COURT REPORTERS
matter is, in the market-based approach they used --
THE COURT: We'll get to the
market-based approach. But isn't it telling you where
the synergies are coming from in the intrinsic-value
approach?
MR. LONG: One could conclude that,
yes.
THE COURT: Now, let's go to the
market approach for a second. Would you agree with me
that even JPMorgan, in the disclosures concerning
JPMorgan's analysis, put less emphasis or less
importance on the market approach? And I say that
because it all appears under the heading "Other
Information." My reading of it -- and if you disagree
with me, you can tell me -- is that the "other
information" is things that were less significant to
JPMorgan than the things that came before that part.
MR. LONG: I think that's a fair
reading as well.
THE COURT: All right.
MR. LONG: I think what's obfuscated
is the fact that if you look at them side by side --
if you have them side by side, if they'd have used the
$100 million synergy number, the value-creation -- it
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
16
CHANCERY COURT REPORTERS
would have only been 16 percent under --
THE COURT: I'm sorry. Could you just
repeat that? I didn't hear it.
MR. LONG: Yeah. No, no. I'm going
to go through my calculation. I don't know that it
matters. You know, using the $100 million synergies
number, you would be looking at value creation in the
realm of 16 percent.
THE COURT: All right. Could you just
explain to me the 16 percent you're referring to
again.
MR. LONG: Sure. You look at --
looking on page 130, there's a reference at the bottom
of the paragraph to the effect that the implied pro
forma accretion in economic equity value to the
holders of Trulia common stock is 28 percent.
THE COURT: Right. Okay. That's the
bottom line. Right.
MR. LONG: Sure. That's the bottom
line. That's using the $175 million synergy number.
THE COURT: Right.
MR. LONG: So they don't -- you know,
it's not clear -- it wasn't clear to me, at least,
wasn't clear to our expert, at least -- that they were
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
17
CHANCERY COURT REPORTERS
using the $175 million synergy number. It wasn't
clear that JPMorgan had used the $175 million synergy
number here. So if they had, you'd only be looking at
value creation on the level of 16 percent.
THE COURT: And I'm just not following
how you've got to 16 percent.
MR. LONG: Well, first, I mean, it's
reflected in the board book on page 741, I think.
THE COURT: That, I don't have. Can
you just explain to me the math?
MR. LONG: Sure.
THE COURT: I just didn't understand
it.
MR. LONG: No, no. I think I can.
We're looking at -- this is how I did it. It's very
simple.
THE COURT: Okay.
MR. LONG: You have $100 million of
synergies, versus 175.
THE COURT: Right. That's for a
particular year.
MR. LONG: Sure. Sure. These are the
assumptions --
THE COURT: And some multiple is
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
18
CHANCERY COURT REPORTERS
applied and all that. Right.
MR. LONG: So 100 over 175 is 4/7ths.
THE COURT: Right.
MR. LONG: 28 times 4/7ths is 16.
THE COURT: Okay.
MR. LONG: So, I mean, in that regard,
again, is it misleading? Is it obfuscatory? Is it a
fair summary? I think the additional information
makes the summary far more fair.
THE COURT: Okay.
MR. LONG: So the second disclosure --
THE COURT: The second best one?
MR. LONG: Yeah. Yes, sir.
THE COURT: Giving new meaning to the
use of the superlative. It's okay, Mr. Long.
MR. LONG: The second disclosure we
would like to highlight as beneficial is the one that
relates to the selected precedent transaction
analysis.
THE COURT: Okay.
MR. LONG: Now, I know that in the
past, Your Honor has not necessarily espoused a
predilection for the value of the benefit of the
disclosure of multiples. I think -- and I'm going to
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
19
CHANCERY COURT REPORTERS
hope to persuade you -- that this situation is
slightly different, for a couple of reasons.
In the initial disclosure, there was a
list of 32 transactions.
THE COURT: Right.
MR. LONG: All right? And it began
based upon publicly available information. So with
respect to the additional disclosure that we got, we
got disclosure of all the multiples. All right? So
when you saw the multiples for these -- you know, this
robust body of precedent transactions they looked at,
all of a sudden you realize you saw that 15 of 32 of
these transactions didn't have any information that
they were able to use. Wasn't available. All right?
And perhaps even more important is the
fact that one of the 16 transactions was a public
transaction for which they had information. And this
was the first time that you learned, A, that the
implied EBITDA multiple for that transaction -- the
implied multiple for that transaction was over 100 and
that, B, they determined to discard it, not use it, as
not meaningful.
THE COURT: Which one was that?
MR. LONG: It was the ExactTarget,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
20
CHANCERY COURT REPORTERS
Inc. acquisition by Salesforce.com.
THE COURT: Am I correct about the
following -- hint: I think I am, so you're going to
have to tell me I'm wrong, if I'm wrong -- that each
of these individual multiples you're talking about
were derived based on publicly available information?
MR. LONG: Except for the ones when
there was no publicly available information.
THE COURT: Okay. Fine. But the
point is, if somebody wanted to figure out, if
somebody really cared about what the multiple was of
any particular one of these potential comparable
transactions -- or arguably comparable transactions,
because there's lots of disclosures about all the
judgment that goes into determining whether something
has any true comparability -- they can go out and
figure that out; right?
MR. LONG: I suppose if they're so
inclined they can.
THE COURT: Yeah. I mean, the proxy
statement even says explicitly that these multiples
were derived from publicly available estimates; right?
MR. LONG: I think there can be an
argument with respect to that statement, though, that
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
21
CHANCERY COURT REPORTERS
that doesn't paint the whole picture. Because, you
know, 15 of them, there was no publicly available
information.
THE COURT: Here's the issue that's on
my mind whenever I'm confronted with this argument:
It must be like Financial Advisor Malpractice 101,
under the plaintiffs bar theory, because almost every
one of these settlements, somebody walks in and says,
"Oh, we got the individual multiples." So that must
tell me you basically think every financial advisor in
America is committing malpractice -- or the lawyers --
when they disclose these summaries. Because they're
never there. And the reason, I surmise, is because
what matters is the judgment of the financial advisor,
and that is what's here.
So riddle me that. Tell me why I'm
wrong.
MR. LONG: Well, as you mentioned, it
took a while to get from the time the disclosures were
made until we're here today.
THE COURT: Right.
MR. LONG: All right? And so,
candidly, at the time we got the disclosures -- you
know, and there are cases we cite, I believe it's
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
22
CHANCERY COURT REPORTERS
Celera and Turberg v. ArcSight. We were operating
under the notion that these are material. You know,
and there was some case law to support that. I
understand Your Honor drilling down. I understand the
notion of these being publicly available. But here,
some of the information wasn't publicly available.
Here -- I mean, at the time, you know, consulting with
our financial advisor, he's telling us this is
material. And we're looking at the case law as we
knew it then, and this was material.
I mean, if it's not material, it's not
material now, but we thought it was. We thought it
created a benefit. We thought it was, you know, very
helpful, very positive, in terms of providing a fair
summary of the bankers' analysis. You know, we've
taken discovery. We've consulted with our expert. We
did a balance.
And so balancing what we're getting --
which we thought was material at the time and think is
material now -- versus what we were giving up, which
we really didn't determine to be a whole lot when it
really came down to it, we thought it was fair. We
thought it was beneficial. We thought it would be
sufficient, under the Court's precedents, to support
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
23
CHANCERY COURT REPORTERS
settlement.
And so that was the rubric we were
working under. And that same argument applies, I
guess, for better or for worse, with respect to the
comparable companies. Now, I don't -- you know, I
like the fact that 15 of the 32 precedent
transactions --
THE COURT: Right.
MR. LONG: I like that. I think
that's better.
You know, we have arguments in our
brief, and I don't have to belabor them, about why a
disclosure of the comparable companies was material
for a couple of reasons and, B, why those comps were
elucidating in terms of, you know, looking at the
multiples, the implied exit multiples that they
disclosed with respect to the discounted cash flow
analysis and allowing the shareholders to see that
perhaps those exit multiples that they used might be
skewed downwards slightly, or to some extent, based
upon the comps.
THE COURT: Why don't you discuss with
me your fourth disclosure.
MR. LONG: I'm sorry?
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
24
CHANCERY COURT REPORTERS
THE COURT: The fourth disclosure. I
think it was the implied multiples on the terminal
values.
MR. LONG: Sure. So the banker,
JPMorgan, performed a discounted cash flow analysis,
and they used the perpetuity growth model.
THE COURT: Right.
MR. LONG: So perpetuity growth rates,
discount rates, were all disclosed. And in the book,
page 751 -- or Bates page 751 -- they also did a
cross-check with the implied exit multiples.
THE COURT: Right.
MR. LONG: So a couple of things.
There's an argument that we make in our papers that,
given the relative growth rates of Trulia and Zillow,
that, A, it was unusual for very similar implied exit
multiples to be applied to those two companies.
THE COURT: And why is that?
MR. LONG: Well, based on the I/B/E/S
estimates, Trulia's projected growth was about 148
percent.
THE COURT: And this is as of when?
MR. LONG: Well, this is as of -- this
is as of in the bankers' book. May --
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
CHANCERY COURT REPORTERS
THE COURT: Well, no. I'm sure the
bankers' book has some temporal context for that
assertion. Growth rate as of the time of the deal?
As of when, for what period of time?
MR. LONG: I think that was July 27,
2014.
THE COURT: Okay. So 148 percent over
what period of time?
MR. LONG: I'd have to look. I think
it's over the five-year period, but I have to confirm
that.
THE COURT: So the Definitive
disclosed that when they did this model, they DCF'd
Trulia and Zillow separately; right?
MR. LONG: They did, yes.
THE COURT: And they used a perpetual
growth rate model in doing their DCF?
MR. LONG: With a --
THE COURT: Right. And they disclosed
that the range of growth rates they used for both
models was 2 1/2 to 3 1/2 percent; right?
MR. LONG: Uh-huh.
THE COURT: Why would I be surprised
that the implied multiples to EBITDA would be similar?
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
26
CHANCERY COURT REPORTERS
MR. LONG: I don't know that you
would. I don't know that you would.
THE COURT: Okay. So what's the point
of this information, the additional information,
having any social utility?
MR. LONG: Sure. The other point in
that regard would be that based on the disclosure of
the EBITDA multiples that were observed for the
comparable companies, those ranges seemed low to us.
THE COURT: They were what?
MR. LONG: Those ranges, the ranges
that they used for Trulia and Zillow, seemed low,
based upon the comps. And obviously, if they used a
higher range of implied exit multiples, the implied
range of value with DCF would be higher.
THE COURT: What was the discrete
period in the model? Do you know?
MR. LONG: It was through, I want to
say, 2019.
THE COURT: Oh. I thought it was even
longer than that. The projections go to like 2028 or
something, don't they?
MR. LONG: I'll take your word for it.
THE COURT: Well, I don't know this
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
27
CHANCERY COURT REPORTERS
for a fact, because I haven't cross-referenced the
bankers' book. But the projections, I think, that are
disclosed in here, if we look at page 122, and I think
it's on 123, the Trulia projections, one's a June
2014, the other is a July 2014 projection, run through
2028. And the projection for Zillow runs through 2028
as well.
Now, I don't know what they did in the
bankers' book, so I'm speculating here a little bit.
And that's why I asked the question, like, what was
the discrete period versus -- you know, from what
point in time was the terminal value calculated. You
don't know offhand?
MR. LONG: I don't. I apologize.
THE COURT: Well, it's pointless for
me to ask then. Okay.
MR. LONG: Sorry.
THE COURT: So let me ask you a
different question, which is one that has been on my
mind for some time. What is the standard I am
supposed to apply to these disclosures, in this sense:
You're familiar, I'm sure, with Chrysler vs. Dann.
I'm sure you're familiar with the Cox Communication
discussion by Vice Chancellor Strine. And the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
28
CHANCERY COURT REPORTERS
question on my mind is, for this all to make sense and
to be fair, there has to be a benefit conferred.
And what I want to know is, in
deciding when there's a benefit, can there only be a
benefit, for example, when something you, as a result
of the settlement you're bringing forward, added to
the mix of information is material, in the traditional
sense of materiality under the securities laws? Or is
it something different than that? And if so, what is
it?
MR. LONG: Well, it's a difficult
question that you pose. I'm going to try to answer
it. My sort of gut reaction, the first thing that
popped into my head, is the fact that the Court's got
several tasks it has to do today: certify the class,
consider the reasonableness of the settlement, and
other things. And the settlement has to -- the test
is whether the settlement is fair, reasonable, and
adequate. I mean, so I think, you know, the
disclosures need to provide a benefit.
THE COURT: Right. Let's assume I'm
on the same page with you up to that point. So now I
have to, in terms of determining what's a benefit --
MR. LONG: Sure. I think it's a lot
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
29
CHANCERY COURT REPORTERS
more art than science.
THE COURT: Okay.
MR. LONG: And, you know, material --
I mean, an example, with respect -- and I'm going to
try to do my best to recollect. I was looking through
the Turberg v. ArcSight transcript yesterday. You
know, what's required under the law, Delaware law, I
think is a fair summary. So on one hand, one could
argue, you know, by not including some of this
information -- and again, we were working, at the time
we negotiated this, you know, we were working under
the understanding that these multiples were something
that needed to be disclosed.
You know, we argue it's not a fair
summary. It's not a fair summary. I think that's a
violation of law. I think that's arguably something
you can win a discrete, limited-in-time disclosure
injunction on.
THE COURT: And see, that's the thing.
I mean, this is the question that's going to linger on
my mind a bit, which is if I were at the PI stage, you
would agree with me, wouldn't you, that you wouldn't
get a PI to stop a deal -- a very serious thing --
unless material information was not disclosed or there
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
30
CHANCERY COURT REPORTERS
was a misleading disclosure that you corrected; right?
MR. LONG: I think -- yeah. That's
fair.
THE COURT: Right. It would have to
be material. I mean, it would have to really matter.
Now we're at the end stage. Is it the same standard,
or is it a different one?
MR. LONG: Well, I don't want to be
glib, but obviously it would be a lot better if we
could say they're material. I mean, you know, some
disclosures are better than others, to be sure.
You're the final arbiter of what's material and what's
not material. Again, we think that if -- I guess I
could answer Your Honor one way and say if there's not
a fair summary, something material, arguably, is
missing.
THE COURT: Okay. Let me ask you a
different question that relates to the other side of
the ledger. You went through your brief, efforts to
try to show how tailored the release was. I looked at
the release. It's still very broad, and very broad in
one very material respect.
MR. LONG: The unknown claims.
THE COURT: It includes unknown
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
31
CHANCERY COURT REPORTERS
claims. Why should those be in there?
MR. LONG: Well, I don't want to --
why should those be in there? I mean, there's a
couple of answers, I guess. I mean, again, at the
time we negotiated the release -- and I don't want you
to think I'm copping out here. I truly don't. But, I
mean, we entered into a contract. At the time, that
release, you know, was not necessarily anything of
great controversy, based on what had been approved
time and again.
And so did we look carefully at the
release language? Of course we did.
THE COURT: Yeah.
MR. LONG: Did we have changes to the
release language? Of course we did. But this Section
1542 of the California Code, this "unknown claims," I
mean, that's been around longer than I've been doing
this.
THE COURT: Yeah, I know. It's easy
to go back to "it's standard," and I'm not faulting
you for that. I would be hard-pressed to disagree
that it's in almost every one of these I see, if not
every one. But then again, when I started practicing,
very few people sued on every deal, and we never dealt
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
32
CHANCERY COURT REPORTERS
with the kind of volume of this stuff that we see
nowadays. And it just can't be that this is socially
useful.
MR. LONG: With respect to the unknown
claims, I mean, candidly, you know, since all of this
has been happening, since some of the closer scrutiny,
we have been in discussions -- I don't want to say
constant, but it's pretty frequent discussions --
THE COURT: Right.
MR. LONG: -- with counsel from all
over; defendants counsel from Delaware, plaintiffs
counsel from Delaware, counsel from out of state. And
there is some movement, but there's a real hesitancy,
a real reluctance on the part of defendants' counsel,
to give this up just on their own volition.
I mean, you know, I get the sense --
and I could be wrong -- but until a member of the
Court of Chancery says, "You can't do this anymore.
I'm not going to approve your settlement because you
have unknown claims," or you take some extraordinary
step and say, "I'm going to approve your settlement
but I'm going to modify the release this way. I'm
going to take out this. I'm going to" --
THE COURT: I don't have the power to
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
33
CHANCERY COURT REPORTERS
modify the release. I have a binary decision. I
approve or disprove the settlement.
MR. LONG: Right. And I would argue,
if I were them, that if you try to change the release,
they have the right to walk away from the settlement.
So that would be that, in and of itself.
THE COURT: All right.
MR. LONG: So, I mean, would I love to
get more narrow releases all the time? Sure. Am I
trying to do it? I am. Am I successful every time?
No. But, you know, as the body of jurisprudence
continues to evolve, it's organic. It's constantly
changing. It's constantly growing. You know, we're
mindful of everything. We're mindful of trying to do
the best job that we can.
I mean, like I said, when we did what
we did, we thought that was very standard. And so we
were very comfortable in doing that.
THE COURT: All right.
MR. LONG: And I'm sorry that it's --
that's my best answer, I think.
THE COURT: Okay.
MR. LONG: So settlement, you know, we
still submit, respectfully, that it's fair,
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
34
CHANCERY COURT REPORTERS
reasonable, and adequate. Obviously, Your Honor has
some trouble with it. I apologize that I wasn't able
to do a better job explaining some of those things
today. I think I actually overprepared, just for this
scenario. You know, we'd ask you to approve the
settlement.
We have made a request for an award of
attorneys' fees, and I'm not going to belabor it.
Your Honor is familiar with the --
THE COURT: I've read the papers on
it.
MR. LONG: Yeah. I think, again, it
was arm's length. I mean, again, at the time, we
thought it was below market. The metrics are in the
brief. So thank you very much.
THE COURT: All right. Thank you,
Mr. Long.
Defense counsel, do you have anything
you want to add? I do have a couple of questions for
you, so --
MR. KOCH: Sure, Your Honor. I'm
happy to take the Court's questions, but also I'm
happy to add a few things in response to the questions
that the Court had for Mr. Long.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
35
CHANCERY COURT REPORTERS
THE COURT: Sure. Go ahead.
MR. KOCH: So the first question the
Court asked is it tasks us to consider whether the
settlement is fair, reasonable, and adequate, and if
that's something different from a materiality standard
that would be sufficient to get a preliminary
injunction, for example. And I do think, Your Honor,
that it is a difference standard. Whether something
is material as it alters the total mix would be asking
a question of whether this is something that justifies
extraordinary relief of a preliminary injunction,
where you're actually going to, you know, take the
step of enjoining the deal.
And I think the standard of whether
something is fair, reasonable, and adequate is more
akin to a traditional standard on, you know, is the
class getting something in return for what they're
giving? In this case a release. And if so, are they
getting something that's fair or are they just sort of
laying down? And you have to look at that, I think,
in the context not just of the disclosures themselves,
but of the actual case and how it's been litigated.
And if you were to go back to some of
the things that Mr. Long said here, you know, this is
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
36
CHANCERY COURT REPORTERS
a situation where, I can tell you, there was almost
three weeks between where he first pitched -- you
know, asked for expedition and when we actually did
agree to expedition. It was actually a very
hard-fought negotiation, Your Honor. And I understand
in some cases they're not, but in this case it was.
He did insist on taking three
depositions, which he ultimately got. One,
admittedly, was confirmatory. But these were, you
know, three serious depositions he took. We did give
him e-mails. We did give him core documents as well.
If you look at the complaint -- I looked at this while
Mr. Long was at the podium -- the amended complaint,
pages 14 through 29 do get into the process. And the
process was a focus, as well, in some of these
depositions, Your Honor.
This is a situation where Mr. Long
also filed a preliminary injunction brief. So in the
context of that, where it turns out there really are
not good, supported process claims, but where Mr. Long
did kick the tires and where we did have a true
arm's-length, hard-fought negotiation, in that
context, and given the types of disclosures we've got
in this case, I think it's very fair to say that, even
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
37
CHANCERY COURT REPORTERS
if the Court were inclined to find that they weren't
material to meet the total-mix standard, that they're
still fair, adequate, and reasonable.
That said, you know, it's a little
awkward for defense counsel to be taking this
position, but I do say that they are material, for the
reasons that Mr. Long stated.
THE COURT: So you would agree that if
he had pressed his preliminary injunction, I should
have enjoined the deal?
MR. KOCH: I think there is -- there
was a risk, Your Honor. And that risk is one of the
reasons that we decided to settle, certainly. I would
have argued, obviously, in the preliminary injunction
setting that you should not have enjoined the deal,
and that's why I said it's awkward to be in the
position of defense counsel --
THE COURT: Right.
MR. KOCH: -- supporting the
materiality of the disclosures.
THE COURT: Right.
MR. KOCH: So in all fairness, I
suspect that --
THE COURT: Let me sort of recalibrate
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
38
CHANCERY COURT REPORTERS
what you've been discussing. So to be fair, there has
to be a benefit. It can't be a big zero on the
plaintiffs' side.
MR. KOCH: Right.
THE COURT: There's got to be
something. There's got to be a benefit.
MR. KOCH: Correct.
THE COURT: So then the question, to
me, is, packed into finding what a benefit is, what is
the operative standard? Is it materiality or is it
something less? You don't have to take a position on
the spot, because I'll just preview I'm going to want
more briefing from you on this issue before I decide
this motion. That's where I'm at right now,
because --
MR. KOCH: Sure.
THE COURT: -- I just don't have
confidence in what the answer to that question is. So
anyway, I'll spare you, because that is something I do
want more briefing on.
MR. KOCH: No, I appreciate that.
THE COURT: I'll just say that.
MR. KOCH: I appreciate that, Your
Honor. We're happy to provide supplemental briefing.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
39
CHANCERY COURT REPORTERS
I think that is an important question and, obviously,
it's better to have thorough, well-thought-out
briefing than for me to pontificate.
THE COURT: Yeah.
MR. KOCH: One other thing, just for
Your Honor, on the unknown claims. In this situation
they are tethered pretty tightly to the deal itself.
So it's not just whether there's any unknown claims
whatsoever, you know, relating to anything. It's
unknown claims relating to the issues that were in the
litigation where Mr. Long was able to take discovery.
So that would give me some comfort. But obviously, if
that's something Your Honor wanted supplemental
briefing on, we can do that as well.
THE COURT: I had two issues with
that, and that's the other one. I'm sorry. I didn't
mean to speak over you. And it's difficult for me.
Because, look, I understand. I used to write these
things and negotiate these things from both sides.
And anybody on that side of the courtroom wants the
broadest release in the universe possible, and that
includes anything unknown.
MR. KOCH: Sure.
THE COURT: I'm just trying to
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
40
CHANCERY COURT REPORTERS
understand why that makes sense in this context.
Especially when the ante is, like, down in the weeds
here. I mean, it's not like you guys are agreeing to
pay another $2 per share -- it's not even a cash
deal -- or to adjust the exchange ratio in a way
that's fairer to Trulia stockholders, or anything like
that.
MR. KOCH: Right.
THE COURT: We're talking about the
underbelly of settlements.
All right. I'll spare you, Mr. Koch,
because I am going to want some briefing on this.
MR. KOCH: And we appreciate the
opportunity.
THE COURT: All right.
I don't think -- did you have anything
else you wanted to add, Mr. Long?
MR. LONG: I don't know if it would be
helpful.
THE COURT: All right.
MR. LONG: The only other point I
would make with respect to unknown claims is the fact
that we did disseminate -- defense disseminated --
almost 13,000 copies of the notice, and not one
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
41
CHANCERY COURT REPORTERS
stockholder wrote a letter, called --
THE COURT: What rational stockholder
would take the time to do anything here?
MR. LONG: Well, no, no. And I think
there's an answer to that question, and I think it's
one that has claims that we didn't know about. And in
the past, in my experience, we have had situations in
other courts and other cases where perhaps there was a
securities fraud case that may have, arguably, some
tangential relation to the deal.
THE COURT: Yeah. I mean, the one
that's coming to mind to me -- and I could be wrong
about this, because I was just trying to do this from
memory in speaking about this with my clerks -- is the
MCA Matsushita case.
MR. LONG: Uh-huh.
THE COURT: You know, I could have
these facts wrong, full disclosure, but my vague
recollection is that there was a settlement, probably
not dissimilar to this one, that was approved by the
Court with a very broad release. There was a very --
looked really good -- my firm had some involvement in
it, so that's a disclosure, so maybe I'm biased on
this -- a discriminatory tender offer claim to be
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
42
CHANCERY COURT REPORTERS
litigated that was ultimately barred by virtue of the
release that was entered. And at the time, that
wasn't even a glimmer in anybody's eye, but it ended
up knocking out what potentially could have been a
very valuable claim.
Now, I could be wrong. Maybe it was
known at the time and I could be wrong about that.
But that did cross my mind.
MR. LONG: I had a case in
Philadelphia County involving an acquisition of
Sovereign Bank by Santander, and there were related --
this is arguably --
THE COURT: Right.
MR. LONG: And as sure as the day is
long, they came in and argued. You know, and once
they were to effect a concession from the defendants
that the scope of the release, in fact, didn't cover
those claims, that went away.
THE COURT: Okay.
MR. LONG: So it's -- it has happened.
THE COURT: All right.
So as I've already told everybody, I'm
going to take this under advisement. I'm not
comfortable yet with approving the settlement on the
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
43
CHANCERY COURT REPORTERS
spot or making a call on it, but I want additional
briefing. And it's really on two issues that I think
are important that I get your positions on in a
thoughtful way before I rule.
One issue -- and I'm going to do my
best to articulate it to make this as precise as
possible -- is in a disclosure-only settlement, which
is what we have here, what standard do I have to apply
in considering the supplemental disclosures? And what
I mean by that is I understand all the law that
settlements have to be fair, reasonable, adequate, and
that evaluates the give and the get. And I understand
all the law that says there has to be a benefit
conferred.
But in determining the benefit, is the
standard that the supplemental disclosure must be
deemed material in the traditional securities law
sense of what materiality means, to alter the total
mix of information, or is it something different? And
if it's something different -- i.e., helpful
information, or marginally useful information --
whatever that standard may be, what is the standard?
That's one issue.
The second issue on my mind, I'm going
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
44
CHANCERY COURT REPORTERS
to have a harder time articulating how to look at it.
What's troubling me is the inclusion in the release,
in particular in this circumstance, of unknown claims.
And I expect I'll hear from you it's common,
traditional, always happens. Okay, fine. I'll cede
that territory. But does it make sense? And if so,
why does it make sense that the Court would be
endorsing releases with unknown claims included in
them?
Here, three depositions were taken,
two in an adversarial posture, one in a post-MOU
posture. Okay. Maybe the tires were kicked on
whether the sales process was any good or not.
Additional things -- and you have a record, and people
can say those are things that legitimately should be
released -- but why go beyond where the tires have
been kicked into this unknown realm, especially if the
consideration on the other side -- assuming for the
sake of argument it's not a zero -- is marginal?
That's the other question on my mind.
I'm not sure I can articulate it better than that. If
you have questions, I'll be glad to try to answer
them, but those are the two issues on my mind.
This obviously wasn't presented to me
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
45
CHANCERY COURT REPORTERS
in any rush, so I'm not in any rush to get the
submissions. If you can give me something from each
side in 30 days, I'd appreciate it. And then I'm
going to take it under advisement.
All right? Thank you, Counsel.
(Court adjourned at 10:53 a.m.)
- - -
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
46
CHANCERY COURT REPORTERS
CERTIFICATE
I, JULIANNE LaBADIA, Official Court
Reporter for the Court of Chancery of the State of
Delaware, Registered Diplomate Reporter, Certified
Realtime Reporter, and Delaware Notary Public, do
hereby certify the foregoing pages numbered 3 through
45, contain a true and correct transcription of the
proceedings as stenographically reported by me at the
hearing before the Chancellor of the State of
Delaware, on the date therein indicated.
IN WITNESS WHEREOF, I have hereunto
set my hand at Wilmington this 16th day of September,
2015.
/s/ Julianne LaBadia ----------------------------
Julianne LaBadia Official Court Reporter
Registered Diplomate Reporter Certified Realtime Reporter Delaware Notary Public
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
top related