In re Ness Technologies, Inc. Shareholder Litigation. Delaware Court of Chancery Grants Shareholders Expedited Discovery with Limitations
In In re Ness Tech., Inc. S'holder Litig., C.A. No. 6569-VCN (Del. Ch. July 22, 2011), the court granted the plaintiff’s motion for expedited discovery regarding the plaintiff’s conflict of interest claim, but denied the motion for expedited discovery involving disclosure concerns and price and process claims.
The sale process began on July 16, 2010, when to Citi Venture Capital International (“CVCI”) made an unsolicited bid to acquire Ness Technologies, Inc. (“Ness”). A special board committee that excluded the one director “appointed” by CVCI was created to deal with the offer. The four disinterested directors also relied on legal and financial advisors, specifically Ropes & Gray LLP as legal advisor and Jefferies & Co. as the financial advisor. .
The special committee attempted to negotiate a higher price with CVCI but negotiations ended in September 2010. After the negotiations ended, the special committee contacted a total of 27 strategic and financial buyers and obtained confidentiality agreements from three additional potential buyers.
The three buyers offered between $6.40 and $6.70 per share to acquire Ness. In January 2011, a fourth bidder (“Bidder D”) entered the scene offering between $6.50 and $7.00 per share. On March 16, 2011, following Bidder D’s increased bid of $7.40 per share, Ness and Bidder D entered into an exclusivity agreement. On March 31, 2011, CVCI returned with an unsolicited expression of interest in acquiring Ness at $7.75 per share. When Bidder D’s exclusivity agreement expired on May 20, 2011, Bidder D lowered its bid to $7.00 per share. CVCI confirmed the offer of $7.75 per share and the parties entered into a confidentiality agreement on May 25, 2011. Ness and CVCI announced their merger agreement on June 10, 2011.
Plaintiff sought expedited discovery. The court first addressed the plaintiff’s “concerns” over the sale process but concluded that the allegations had not sufficiently shown a colorable claim that the price or the process were unfair to the shareholders. As the court noted:
This sale process lasted eleven months, involved approximately thirty potential bidders, and resulted in a sale price that is $2.00 per share higher than the price at which CVCI originally expressed its interest in acquiring Ness, higher by at least $0.65 per share than any other bidder was willing to pay, and 68% higher than Ness's stock price on day before potential acquirors' interest in Ness became public. There is little in the Plaintiffs' allegations to suggest that either the price of, or the process leading up to, the Proposed Transaction were unfair to Ness's shareholders.
Plaintiff also alleged a possible conflict of interest between the financial advisor used by the special committee and CVCI. Specifically, Jefferies and its affiliates allegedly provided “financial advisory and financing services” for CVCI and related companies. The court conceded that “if the amount of business involved would be material to either of the advisors, the Plaintiffs might have a colorable claim” and therefore granted the right to expedited discovery to determine whether the past, present, or future dealings between the advisors and CVCI created a conflict of interest. To the extent the relationships were material, a disclosure issue could exist.
The plaintiff’s requests for additional detail regarding Ness’ continued performance, additional detail regarding the financial advisors selection of comparable companies, and a detailed description of the sale process were dismissed by the court. The court determined that the “shareholders are not entitled to a ‘play-by-play’ description of the merger negotiations.” Based on the foregoing reasons, the court granted the Plaintiff’s Motion for Expedited Proceedings limited to whether the advisors to the board and special committee were conflicted because of their relations with CVCI.
The primary materials for this case may be found on the DU Corporate Governance website