BOUCHARD, C.
In this action, a stockholder of TIBCO Software Inc. ("TIBCO" or the "Company") challenges the per-share consideration that Vista Equity Partners V, L.P., a private equity fund, agreed to pay in a recently announced merger (the "Merger") in which TIBCO stockholders currently stand to receive $24.00 in cash per share. In its press release announcing the Merger, TIBCO stated that the transaction, at $24.00 per share, reflected an enterprise value for the Company of approximately $4.3 billion. This enterprise value implies an equity value of approximately $4.244 billion.
The enterprise value stated in the press release was incorrect because it was based on inaccurate information about the number of fully diluted shares of TIBCO stock to be acquired by Vista. A merger at $24.00 per share, based on the accurate number of fully diluted shares, translates to an enterprise value for TIBCO of approximately $4.2 billion and an equity value of approximately $4.144 billion—a difference of approximately $100 million, or approximately $0.58 per share, from what the Company had announced.
On October 16, 2014, TIBCO filed its preliminary proxy statement for the Merger, which disclosed the error in the share count and that, based on the accurate share count, the enterprise value of the transaction would be approximately $100 million lower than what had been announced in the press release. The financial press quickly picked up on this surprising development, prompting this lawsuit.
On October 23, 2014, the TIBCO board of directors (the "Board") met to consider its options after the share count error was discovered. The preliminary discovery record shows that the Board did not know at that time how the error had occurred or whether Vista had relied on the incorrect share count in making its $24.00 per share bid. The record does reflect, however, that the Company's financial advisor in the Merger, Goldman, Sachs & Co. ("Goldman"), did know by that time that Vista had in fact relied on the inaccurate share count. The Board decided not to approach Vista to seek to modify the $24.00 per-share price stated in the merger agreement and, instead, decided to proceed with the Merger on the terms stated in the merger agreement. The Board also decided not to change its recommendation that TIBCO stockholders vote in favor of the Merger.
TIBCO stockholders are set to vote on the Merger on December 3, 2014, and the Merger is expected to close shortly thereafter. Plaintiff seeks to enjoin the stockholder vote until the Court can decide, after an expedited trial, his claim that the per-share consideration in the merger agreement between TIBCO and Vista should be reformed from $24.00 to $24.58. Plaintiff also seeks a preliminary injunction based on a breach of fiduciary duty claim against the directors of TIBCO and aiding and abetting claims against Vista and Goldman.
Plaintiff's fiduciary duty claim challenges the actions of the TIBCO board after the error in the share count was discovered. Plaintiff does not challenge the sale process that led to the execution of the merger agreement, or any of the disclosures in the proxy statement issued in connection with the upcoming meeting of TIBCO stockholders to vote on the Merger. Plaintiff candidly acknowledges that he has no quarrel with the quality of the sale process but, instead, seeks only to maintain what he believes was the result of that process—a transaction with an equity value of $4.244 billion.
In this opinion, I conclude that Plaintiff has failed to demonstrate a basis for the issuance of a preliminary injunction. Regarding Plaintiff's claim for reformation, Plaintiff has demonstrated a reasonable probability of proving by clear and convincing evidence that Vista and TIBCO both operated under a mistaken assumption that the Merger would be consummated at an aggregate equity value of $4.244 billion. Plaintiff has failed to demonstrate, however, a reasonable probability of proving by clear and convincing evidence—as he must to prevail on a claim of reformation under Delaware law—that Vista and TIBCO had
Regarding Plaintiff's fiduciary duty-related claims, Plaintiff has failed to demonstrate the existence of irreparable harm given that his claims concern a quantifiable sum of money (approximately $100 million) that may be remedied by an award for damages. In my view, moreover, the balance of the equities clearly weighs in favor of permitting TIBCO's stockholders to decide whether or not to approve the Merger, which was the product of an extensive sale process and affords stockholders an opportunity to obtain a meaningful premium for their shares.
Defendant TIBCO, a Delaware corporation based in Palo Alto, California, is in the enterprise software industry. TIBCO is named as a defendant "solely as a necessary party for the Count seeking reformation of the merger agreement."
Defendants Vivek Ranadivé, Nanci Caldwell, Eric Dunn, Manuel A. Fernandez, Phil Fernandez, Peter Job, David J. West, and Philip Wood were the eight members of the Board during the events in question. Each has been a director since at least June 2014, with three directors having joined the Board in 2014. Ranadivé is the chair of the Board and the Company's Chief Executive Officer. He owns more than 9 million shares of TIBCO stock.
Defendant Vista Equity Partners V, L.P. is a fund affiliated with private equity firm Vista Equity Partners. It formed two entities to acquire TIBCO: (i) Defendant Balboa Intermediate Holdings, LLC, a Delaware limited liability; and (ii) its merger subsidiary, Defendant Balboa Merger Sub, Inc., a Delaware corporation. For simplicity, I refer to these three defendants collectively as "Vista."
Defendant Goldman is an investment bank. It had been TIBCO's financial advisor before the Board initiated the sale process. In September 2014, a special committee formed to manage the sale process hired Goldman to act as its financial advisor. For its advisory services, Goldman stands to earn a percentage of the aggregate consideration to be paid in the Merger. According to the proxy statement, this equates to a transaction fee of approximately $47.4 million.
Plaintiff Paul Hudelson ("Plaintiff") has been a TIBCO stockholder at all relevant times. Plaintiff brings this lawsuit individually and on behalf of a class of all TIBCO stockholders, excluding defendants and their affiliates, during the period from September 26, 2014, through the present.
During the first half of 2014, several financial sponsors (i.e., private equity firms) contacted Ranadivé, TIBCO's CEO, to indicate their interest in potential strategic transactions with the Company. The suggested transactions included an acquisition and a capital raise. At the time, the Board largely did not pursue these inquiries.
On June 3, 2014, TIBCO pre-announced its financial results for the second quarter of 2014, which were lower than Wall Street estimates for the Company's performance. On June 6, 2014, the Board held a special meeting to discuss the Company's financial outlook, as well as the possibility that potential acquirers may be interested in the Company. Representatives of Goldman attended the meeting and gave a presentation on TIBCO's general position in the market and its strategic alternatives.
On July 11, 2014, at a special meeting, the Board instructed Goldman to "engage in a comprehensive review of the strategic alternatives available to TIBCO."
On August 15, 2014, the Company received two preliminary, non-binding indications of interest. One financial sponsor indicated its interest in acquiring TIBCO for between $20.00 and $21.00 per share. The other financial sponsor ("Sponsor B") indicated its interest in acquiring TIBCO for between $24.00 and $25.00 per share.
On August 16, 2014, the Board held a special meeting with Goldman representatives in attendance. The Board resolved (i) to engage in a further review of the Company's available strategic alternatives; and (ii) to form the Special Committee for this purpose. The Special Committee was formed for the sake of efficiency to permit a smaller group of outside directors living in the same time zone to explore these alternatives.
On August 18, 2014, the Special Committee held its first meeting. By this time, several potential acquirers already had expressed interest in the Company. The Special Committee engaged (i) Wilson Sonsini Goodrich & Rosati, P.C. ("Wilson Sonsini"), which had been counsel to the Board, as its legal advisor; and (ii) Goldman as its financial advisor. The Special Committee directed Goldman to contact a list of potential acquirers.
Goldman's engagement with the Special Committee was later memorialized in a September 1, 2014, engagement letter. The engagement letter included various disclaimers, including that Goldman would be entitled to "rely upon and assume the accuracy and completeness of all of the financial . . . and other information provided by" TIBCO. Goldman received a $500,000 upfront payment as a credit towards a potential transaction fee, which is equal to a progressive percentage of the aggregate consideration paid to acquire TIBCO, and is payable upon closing of the transaction. Goldman's base fee is 1% of the aggregate consideration.
The negotiations between the Company and potential acquirers, which now included Vista, were generally conducted through Goldman.
On August 30, 2014, Vista submitted a preliminary, non-binding indication of interest for "an all-cash transaction at $23.00 to $25.00 per share of common stock and common stock equivalents."
On September 3, 2014, TIBCO issued a press release announcing the formation of the Special Committee and its review of the Company's strategic alternatives.
In August and September 2014, Goldman discussed an acquisition of the Company with twenty-four potential acquirers: fourteen strategic buyers and ten financial sponsors. Some of those potential acquirers were identified by TIBCO or Goldman; others had contacted the Company in response to its announcement on September 3.
Vista and Sponsor B were the only parties that received access to TIBCO's data room, which the Company had established to facilitate ongoing due diligence.
TIBCO prepared an initial spreadsheet reflecting the Company's share count as of August 15, 2014 (the "First Cap Table").
The First Cap Table did not list the number of fully diluted shares—it was up to the bidders to compute that number.
On September 11, 2014, the Special Committee instructed Goldman to request final proposals from the bidders by September 24, 2014.
On September 23, 2014, Sponsor B submitted a proposal to acquire TIBCO for $21.00 per share.
In the afternoon of September 25, 2014, Sponsor B raised its proposal to $22.50 per share. Later on September 25, Goldman requested that Vista and Sponsor B submit their final proposals by early in the afternoon the following day.
On the morning of September 26, 2014, the Vista investment committee met to discuss the maximum bid that Vista could make without needing further committee approval. In acquiring companies, Vista focuses on "cash on cash returns"—that is, "the equity invested, what multiple of equity [is] returned at the end of the investment."
By midday on September 26, and before either Vista or Sponsor B submitted a final bid, someone at TIBCO discovered that the share count information in the Second Cap Table was incorrect.
After hearing about this issue, Vista requested more information from Goldman about TIBCO's share count data.
TIBCO, with Goldman's assistance,
Shortly after the Final Cap Table was provided to the bidders, TIBCO's counsel circulated to Goldman and Vista's counsel a draft of a representation about the Company's capitalization (the "Draft Cap Rep") to be included in the negotiated merger agreement.
Vista incorporated the share count data from the Final Cap Table into its internal valuation analysis.
As with its previous bid letter, Vista's bid letter for the $23.85 per share offer did not refer to a total purchase price or express any assumption about the approximate number of shares of outstanding common stock and stock-based awards to be acquired. Vista attached to its bid letter a markup of the merger agreement.
Around the time of Vista's $23.85 per share bid, Sponsor B bid $23.75 per share.
In response to Goldman's request, several of Vista's principals met and discussed what to bid. Vista raised its offer from $23.85 per share to "$24.00 per share of common stock and common stock equivalents."
Vista's $24.00 per share bid, based on the Final Cap Table, implied an aggregate equity value of $4.244 billion and an enterprise value of $4.31 billion. Plaintiff notes that this enterprise value was only modestly higher than the $4.305 billion ceiling set earlier that day by Vista's investment committee (when Vista was relying on the Second Cap Table). The equivalent enterprise value, according to Plaintiff, would have required Vista to bid "an awkward $23.97 per share."
Ford testified that Vista's $24.00 per share bid represented the "highest price per share" that Vista was willing to pay.
In contrast to Vista, Sponsor B declined to increase its last offer of $23.75 per share. It also declined the offer to have additional time to consider improving its bid.
Late in the evening of September 26, Vista learned from Goldman that its $24.00 per share bid was in the lead. Vista's and TIBCO's counsel then worked to finalize the merger agreement that they had been negotiating.
Around this time, Vista decided to change how it would finance the acquisition. Specifically, Vista changed its funding from a combination of cash and debt to be all cash.
Attached to the Equity Commitment Letter was a spreadsheet "showing the calculations used to arrive at the amount of the commitment."
Vista's Ford testified that the approximately $4.244 billion reflected in the Equity Commitment Letter spreadsheet was "the equity value that we expected we were paying for the business."
On September 27, 2014, the Special Committee and the Board met concurrently during a telephonic meeting to review the acquisition proposals. The meeting began at approximately 5:00 a.m. (California time).
Goldman's presentation on the fairness of Vista's final offer was based on the inaccurate share count data from the Final Cap Table. Specifically, Goldman had calculated that, at $24.00 per share, and assuming (incorrectly) that there were approximately 176.8 million fully diluted shares, Vista's offer implied an equity value of approximately $4.244 billion and an enterprise value of approximately $4.311 billion.
TIBCO's West testified that his focus during Goldman's presentation was on the $24.00 per share figure,
At the end of its presentation, Goldman gave its opinion that $24.00 per share was fair, from a financial point of view, to TIBCO stockholders.
Later on September 27, 2014, TIBCO and Vista executed the Agreement and Plan of Merger (the "Merger Agreement"), which is governed by Delaware law.
The Merger Agreement included a capitalization representation (the "Cap Rep") that had been updated from the earlier Draft Cap Rep. The Cap Rep stated that there were 163,851,917 outstanding common shares of TIBCO common stock, a figure that
The Merger Agreement provides a termination right to Vista in the event that the Cap Rep is inaccurate at closing and that any inaccuracies, individually or in the aggregate, would require Vista to pay more than $10 million above the product of $24.00 per share multiplied by the number of fully diluted shares derived from the Cap Rep.
Certain terms of the Merger Agreement were negotiated by TIBCO and Vista as a percentage of the assumed equity value of $4.244 billion. For example, the final termination fee was negotiated as 2.75% of the assumed $4.244 billion equity value,
The Merger Agreement contains a "drop dead" date of March 27, 2015, after which Vista can terminate the agreement if the Merger has not closed.
On September 29, 2014, TIBCO issued a press release announcing the Merger. The press release stated, in relevant part:
Representatives of Vista and Goldman reviewed the release before it was issued.
After signing the Merger Agreement, Vista made several statements reflecting its expectation that it would need to pay approximately $4.3 billion to acquire TIBCO. For example, in October 2014, Vista prepared presentations to give to several ratings agencies in its efforts to obtain debt financing for the Merger. Drafts of these presentations, including those dated October 9 and 14, stated that Vista was to acquire TIBCO "for $4.3b."
Goldman likewise thought that the implied enterprise value of the Merger was $4.3 billion. It prepared an internal "case study" on the Merger for its investment banking division to use for marketing purposes. The case study calculated the implied equity value as $4.244 billion, based on the incorrect Final Cap Table, and it reflected that the Merger implied an enterprise value for TIBCO of approximately $4.3 billion.
On Sunday, October 5, 2014, TIBCO's counsel circulated a draft of the proxy statement for a special meeting of TIBCO's stockholders to vote on the Merger. Upon reviewing the draft, a Goldman employee commented in an email that "[t]he aggregate value calculation doesn't look right"
After a series of conversations between TIBCO and Goldman, the magnitude of the error eventually was discovered—i.e., the Final Cap Table, and everything based on the information in that document, had caused the number of fully diluted shares to be overstated by double-counting the 4,147,144 unvested restricted shares. The decrease in the number of the fully diluted shares, at the $24.00 per share offer, had the effect of reducing the total implied equity consideration by about $100 million, from approximately $4.244 billion to approximately $4.144 billion.
On October 11, 2014, after the Board was informed of the error, the Board convened a special meeting to review the situation. Representatives of Goldman attended this meeting. The minutes reflect the manner in which Goldman "described" the "error" in its initial fairness opinion presentation:
Defendant West did not recall that Goldman specifically explained that the error would lead to an approximately $100 million reduction in the amount expected to be paid to TIBCO stockholders for their equity in the Company.
After Goldman concluded its presentation, the Board met in executive session along with members of the Company's management and representatives of Wilson Sonsini to discuss the issues raised by Goldman. According to the minutes, the Board ultimately "concluded that the revised analysis presented by Goldman Sachs at the meeting did not impact the Board's recommendation that stockholders adopt the merger agreement."
Outside of this October 11 Board meeting, the preliminary record suggests a lack of effective communication between Goldman and the Board about the overstated share count in the Final Cap Table. According to the deposition testimony of Goldman's Pawan Tewari, no member of the Board asked Goldman: (a) how the overstated share count error was made; (b) if the error was Goldman's fault or the Company's fault; (c) whether Goldman had discussed the overstated share count with Vista; or (d) whether Vista should or would pay $4.244 billion in equity consideration in the Merger.
On October 15, 2014, a Vista representative informed Goldman that, in fact, Vista had relied on the information presented in the Final Cap Table "for the calculation of equity value" in its final $24.00 per share offer.
Vista's team, for its part, claims it had mixed emotions after it learned of the share count error and, soon thereafter, that the error cut in its favor. Ford testified that one of his reactions was "pleasure because, you know, we were potentially buying the company for less than we had expected at that point in time."
On October 16, 2014, TIBCO filed its preliminary proxy statement for the Merger. The preliminary proxy disclosed information about the overstated share count in the "Background of the Merger" section. It also disclosed that, based on the accurate share count, the $24.00 per share consideration implied an enterprise value of approximately $4.2 billion, or approximately $100 million less than the $4.3 billion that the Company initially announced.
On October 23, 2014, the Board held a telephonic meeting. A contingent of Wilson Sonsini attorneys dialed in to the call, but Goldman's representatives did not attend. In addition to discussing matters related to the proxy statement, the Board considered what, if anything, TIBCO should do in light of the overstated share count issue.
At this time, according to director West, "[t]here wasn't certainty about how the error had occurred."
According to the minutes, the Board weighed four courses of action: (i) seek to renegotiate the per-share purchase price with Vista; (ii) pursue the matter further with Goldman; (iii) reconsider its recommendation in favor of the Merger; or (iv) proceed with the Merger. Ultimately, the Board decided to proceed with the Merger on the terms set forth in the Merger Agreement.
The Board decided not to ask if Vista would be willing to pay an aggregate purchase price of $4.244 billion ($24.58 per share times the accurate fully diluted share count). According to the minutes, although the Board acknowledged that the termination fee and limited guaranty terms of the Merger Agreement were negotiated based on the implied equity value derived from the $24.00 per share consideration, the Board did not believe that the Merger Agreement provided "a basis for the Company to force Vista to increase the per share price paid to stockholders or otherwise change the agreement."
The Board ultimately never approached Vista.
During the October 23 Board meeting, Wilson Sonsini reminded the TIBCO directors of their fiduciary duties in the sale of control context to, in language evoking Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.,
On October 29, 2014, the Company scheduled a special meeting for stockholders to vote on the Merger for December 3, 2014.
On October 6, 2014, the first of seven putative class action lawsuits challenging the Merger was filed in this Court. On November 5, 2014, Plaintiff filed his initial complaint. On November 8, 2014, I granted Plaintiff's motion for consolidation and lead counsel and his motion for expedited proceedings.
On November 12, 2014, Plaintiff moved for a preliminary injunction of the TIBCO stockholder vote that is currently scheduled for December 3, 2014. On November 16, 2014, Plaintiff amended his complaint. On November 21, 2014, I heard oral argument on Plaintiff's motion for a preliminary injunction.
Plaintiff's motion for a preliminary injunction seeks to enjoin the vote of TIBCO stockholders on the Merger scheduled for December 3, 2014, "until a trial is held and a decision [is] rendered on [Plaintiff's] claim for the reformation of the merger agreement." Specifically, Plaintiff seeks to reform the Merger Agreement to provide for TIBCO stockholders to receive $24.58 per share, rather than the current $24.00 per share. Alternatively, although it was not evident from Plaintiff's motion, he seeks to enjoin the stockholder meeting based on an alleged breach of fiduciary duty concerning the Board's actions after it learned that the proposed Merger would not yield an equity value of $4.244 billion.
To obtain a preliminary injunction, Plaintiff must establish three elements: (i) a reasonable probability of success on the merits; (ii) irreparable harm absent interim relief; and (iii) that the balance of the equities favors the relief requested.
Reformation "is an equitable remedy which emanates from the maxim that equity treats that as done which ought to have been done."
A claim for reformation must be proven by clear and convincing evidence.
Plaintiff contends that Vista and TIBCO specifically agreed to a transaction at $4.244 billion in aggregate equity value. He argues that Vista decided to offer $24.00 per share based on the implied equity value of $4.244 billion, contending that it "defies logic" for a sophisticated financial sponsor like Vista to "not calculate what [its] total expenditure in a transaction will be before agreeing to it."
In opposition, Vista
Vista further argues that the parties' mistaken assumption "as to how contractual terms will operate in practice"—here, Vista's and TIBCO's references to the Merger being for an aggregate equity value of $4.244 billion—"cannot supplant the actual agreement that is reached between the parties as memorialized in a contract."
To evaluate the parties' competing contentions, I use the analytical framework that the Supreme Court employed to analyze the reformation claim at issue in Cerberus. There, a financial sponsor (Apollo) acquired a target company (MTI) pursuant to a merger agreement that set forth a formula reflecting the total consideration that MTI stockholders would receive: $65 million, less transaction costs, and less proceeds from the sale of certain options and warrants. After the transaction closed, the plaintiffs filed suit and alleged that the executed contract contained a drafting error that warranted reformation because Apollo and MTI actually had agreed to a different purchase price: $65 million, less transaction fees, plus the proceeds from the sale of the options and warrants. According to the Supreme Court, the plaintiffs would need to prove three facts (each by clear and convincing evidence) to justify reformation of the purchase price under the doctrine of mutual mistake: "(i) MTI thought that the merger agreement gave MTI's stockholders the proceeds of the options and warrants; (ii) . . . Apollo was also similarly mistaken . . .; and (iii) that MTI and Apollo had specifically agreed that the proceeds of the options and warrants would go to MTI's stockholders."
Applying the analytical framework used in Cerberus to this case, Plaintiff could recover on his reformation claim only if he were to establish three facts at trial: (i) Vista thought that the Merger would be consummated at an aggregate equity value of $4.244 billion; (ii) TIBCO also thought that the Merger would be consummated at an aggregate equity value of $4.244 billion; and (iii) Vista and TIBCO
In my opinion, Plaintiff has a reasonable probability of establishing by clear and convincing evidence that Vista thought it would pay $4.244 billion in aggregate equity value to acquire the outstanding stock of TIBCO. The presentation book used when the Vista investment committee met on September 26 and approved a maximum bid of $24.25 per share (based on the Second Cap Table) reflects that Vista clearly was cognizant of the relationship between a per-share bid and the total purchase price implied by that bid. It also is reasonable to infer from Vista's request for Goldman to confirm the accuracy of the Final Cap Table mere hours before it made its $23.85 per share bid on September 26, that Vista needed to know the share count to determine the aggregate equity value it would pay in making a per-share bid. Vista's final $24.00 per share bid, based on the Final Cap Table, is functionally equivalent to the earlier total purchase price ceiling set by its investment committee. And, at the same time that Vista was considering the aggregate equity value when submitting its final $24.00 per share bid, it offered to decrease the termination fee to 2.75% of that equity value, which equated to $116.7 million.
The spreadsheet accompanying the Equity Commitment Letter, which was provided to TIBCO only hours before the Board met to evaluate the Merger Agreement and which explicitly equates the $24.00 per share price to an equity value of $4.244 billion, further provides strong evidence that Vista anticipated paying approximately $4.244 billion to acquire the equity of TIBCO. This conclusion is consistent with the reference to an approximate enterprise value of $4.3 billion not only in the September 29 press release announcing the transaction, which Vista reviewed, but also in the early drafts of Vista's ratings agency presentations for debt financing.
Although Ford testified that Vista was considering other factors beyond the total purchase price when it submitted its final bid for $24.00 per share,
On the whole, Plaintiff has shown in my view a reasonable probability that he could prove, by clear and convincing evidence, that Vista mistakenly believed it would pay $4.244 billion in total to acquire the equity of TIBCO in the Merger.
Similarly strong evidence, in my view, demonstrates a reasonable probability of success for Plaintiff to prove by clear and convincing evidence that the Board mistakenly thought that TIBCO was agreeing to a transaction in which TIBCO stockholders would receive $4.244 billion in aggregate equity value. The Special Committee's request on September 26 for the remaining two bidders to improve their offers by decreasing the termination fee of the merger agreement, which was being negotiated as a percentage of aggregate equity value, reflects that these directors were aware of the total value of the proposals, particularly for Vista's final $24.00 per share offer. Likewise, during the Board's review of the terms of Vista's final offer on September 27, Goldman noted on several slides of its presentation that the $24.00 per share consideration equaled an aggregate equity value of $4.244 billion and an enterprise value of $4.3 billion.
This preliminary record is sufficient for me to conclude that Plaintiff has a reasonable probability of success in establishing, by clear and convincing evidence, that TIBCO mistakenly believed that Vista would pay $4.244 billion in total to acquire the equity of TIBCO in the Merger.
Despite the evidence reflecting that Vista and TIBCO both mistakenly believed before signing the Merger Agreement that Vista would pay $4.244 billion in total to acquire the equity of TIBCO, Plaintiff has not, in my opinion, demonstrated a reasonable probability that he could prove by clear and convincing evidence that Vista and TIBCO
To the contrary, key evidence from September 26 and 27 strongly demonstrates that what Vista ultimately offered and what TIBCO ultimately accepted was expressed in terms of dollars per share and not in terms of an aggregate equity value. The three documents that evidence their agreement to a transaction based on a per-share price are (1) Vista's September 26 bid letter conveying the $24.00 per share offer,
Instead, the sale process reflects that Vista and TIBCO understood that the number of fully diluted shares to be acquired in a transaction, and thus the aggregate equity value, was a bit of a moving target. For example, the fact that Goldman had circulated different cap tables for the Company on August 29,
Notably, the Merger Agreement does not provide that the consideration of $24.00 per share would change in proportion to any increase in the share count after signing. Thus, it is difficult to see how Vista and TIBCO could be said to have specifically agreed to a fixed aggregate equity value of $4.244 billion, as Plaintiff claims, when they agreed in the Merger Agreement that the aggregate equity value could change.
Vista argues that, rather than specifically agreeing on an aggregate equity value, Vista and TIBCO agreed to allocate the risk of the Merger's aggregate equity value through the representations and warranties, closing conditions, and termination rights set forth in the Merger Agreement.
Against this evidence, Plaintiff relies on Goldman's September 27 fairness presentation, Vista's Equity Commitment Letter, and TIBCO's September 29 press release, which Vista approved. In my opinion, although these three documents appear to reflect a shared misunderstanding on the aggregate equity value for the Merger, they do not support the existence of a specific, prior agreement on that aggregate equity value— and they fall well short of the type of persuasive evidence necessary to prove this element of a reformation claim by clear and convincing evidence. The Equity Commitment Letter and the accompanying spreadsheet are not compelling evidence of either an offer by Vista, or an acceptance by TIBCO, to consummate a transaction at an aggregate equity value of $4.244 billion. By its terms, the Equity Commitment Letter was not a commitment to pay an aggregate amount, but rather a commitment to pay up to an aggregate amount. Goldman's presentation is also not compelling evidence of a specific, prior agreement for at least two reasons: there is no evidence that Vista or TIBCO prepared that document, or that it was intended for a purpose other than for Goldman's opinion on the fairness of the Merger consideration. The September 29 press release announcing the Merger, furthermore, was drafted after the parties approved the Merger Agreement and, thus, is not strong evidence of a specific, prior agreement.
Finally, the fact that the parties negotiated the termination fee and the limited guaranty in the Merger Agreement as a percentage of the assumed $4.244 billion equity value (derived from the $24.00 per share consideration and the Final Cap Table) does not outweigh, in my view, the strong evidence showing that the $24.00 per share figure in the Merger Agreement accurately reflects what Vista offered and what TIBCO accepted.
In sum, on the preliminary record before me, Plaintiff has failed to show a reasonable probability that he could prove, by clear and convincing evidence, that there was a specific agreement between Vista and TIBCO for $4.244 billion in aggregate equity value. The Merger Agreement accurately reflects, on this record, the meeting of the minds on the essential economic term of the Merger: $24.00 per share. Plaintiff has therefore failed to demonstrate a probability of success on his claim for reformation. For this reason, his motion for a preliminary injunction based on the reformation claim is denied.
Plaintiff argues that, independent of the reformation claim, a preliminary injunction should be issued based on his breach of fiduciary claim against the Board and his aiding and abetting claims against Goldman and Vista. These claims do not challenge any actions taken during the sale process before the Merger Agreement was signed, or any of the disclosures in the proxy statement that was issued in connection with the scheduled meeting for TIBCO's stockholders to vote on the Merger. Rather, these claims focus on events occurring after the error in the share count was discovered.
Specifically, Plaintiff contends that the Board breached its duty of care by failing "to adequately inform itself about the nature [and/or] circumstances surrounding the share count problem."
Plaintiff also contends that the Board breached its fiduciary duties under Revlon by failing "to act reasonably in the circumstances to secure the highest price available."
The form of injunctive relief Plaintiff seeks based on his fiduciary duty claim was not explained in his moving papers. At oral argument, Plaintiff's counsel suggested that a vote on the transaction be enjoined until the Board satisfies its fiduciary duties—i.e., until the Board seeks recourse to recover the $100 million in lost equity value from Vista and/or Goldman.
In opposition, the Board emphasizes that Plaintiff "does not challenge . . . the independence and disinterestedness of the Board or otherwise allege that the directors were incentivized to achieve anything other than the highest price for TIBCO's stockholders."
Focusing on the time period relevant to Plaintiff's fiduciary duty claim, the Board argues that the record reflects that it acted reasonably: it consulted with its legal counsel, Wilson Sonsini, "thoroughly discussed the potential options available,"
Finally, the Board contends that "[P]laintiff's claims unquestionably seek monetary relief that can be remedied . . . through damages post-closing"
As an initial matter, the form of preliminary injunction Plaintiff seeks based on his fiduciary duty-related claims, which was articulated on the fly during oral argument, is vague and impracticable. Plaintiff's suggestion that the stockholder vote be enjoined until the Board seeks recourse to recover the $100 million in lost equity value from Vista and Goldman amounts to an open-ended injunction of potentially indefinite duration that, from my perspective, would be impossible to implement effectively.
Putting aside the impracticability of the remedy sought, I conclude for the reasons discussed below that a preliminary injunction based on Plaintiff's fiduciary duty-related claims is not warranted for lack of a showing of irreparable harm and because the balance of the equities weighs in favor of permitting TIBCO's stockholders to vote on the proposed Merger. Given this conclusion, it is not necessary that I engage in a probabilistic assessment of the merits of Plaintiff's fiduciary duty and aiding and abetting claims, and I decline to do so from the limited record before the Court. There are, however, two troubling aspects of the record that bear mention.
First, as should be obvious, precision is critical in a conducting a corporate sale process. In this case, the process appears to have been flawed, in my opinion, because bids were presented to the Board and considered on a per-share basis without anyone simultaneously confirming the share count assumptions underlying those bids.
Second, and more to the point of Plaintiff's fiduciary duty-related claims, serious issues have been raised concerning the quality of the information that was provided to the Board after the share count error was discovered.
Separate from the possible merits of Plaintiff's fiduciary duty-related claims, I conclude that a preliminary injunction is not warranted because Plaintiff has plainly failed to establish the existence of irreparable harm or that the balance of the equities weighs in favor of denying TIBCO's stockholders the opportunity to vote on the proposed Merger.
"An injunction, being the `strong arm of equity,' should never be granted except in a clear case of irreparable injury, and with full conviction on the part of the court of its urgent necessity."
Here, Plaintiff's fiduciary duty-related claims concern a definable sum of money: approximately $100 million. Based on Plaintiff's theory of the case, at least on the record before me, the potential harm is circumscribed by this amount. Even if the Board is later able to demonstrate that its members are exculpated from any monetary liability pursuant to a Section 102(b)(7) provision in TIBCO's charter, that potential affirmative defense does not change the fact that the damages alleged by Plaintiff are quantifiable. Although "the one-two punch of exculpation under Section 102(b)(7) and the full protection under Section 141(e)" may limit (but does not eliminate) the prospects for recovery against the members of the Board,
This is not a case in which an injunction is required to rectify, before the transaction closes, the irreparable harm to stockholders of a tainted sale process. The Court is not being asked to intervene and prevent the proverbial eggs from being scrambled in order to open the door to a superior proposal from a third party who was not given a reasonable opportunity to bid on TIBCO because of an unreasonable sale process. Thus, Plaintiff's significant reliance on the Court's analysis in In re Del Monte Foods Co. Shareholders Litigation is misplaced.
In Del Monte, the Court enjoined a stockholder vote on a proposed transaction for a period of twenty days during which certain deal protection devices would not apply in order to remedy (to the extent practicable) the taint on a sale process, particularly the post-signing go-shop process, caused by the conflicts of interest of the board's financial advisor.
Finally, in my view, the balance of the equities clearly weighs against enjoining the upcoming stockholder vote. As noted, Plaintiff has no quarrel with the quality of the process that resulted in the proposed Merger, and no bidder has emerged with a topping offer since the Merger Agreement (reflecting a price of $24.00 per share) was signed and disclosed publicly almost two months ago. Although the share count error colors the sale process here, the existence of that error and the Board's response to its discovery has been disclosed to TIBCO's stockholders. Thus, in my opinion, delaying for some indefinite period the opportunity for TIBCO's stockholders to vote on the Merger on December 3, would harm TIBCO's stockholders by unnecessarily delaying them from receiving $24.00 per share if they decide to approve the Merger. This, along with the fact that the alleged harm to TIBCO's stockholders is readily quantifiable, persuades me that the balance of the equities does not favor entry of a preliminary injunction and that TIBCO's stockholders should have "the chance to decide for themselves about the Merger."
For the foregoing reasons, Plaintiff's motion for a preliminary injunction is denied.
IT IS SO ORDERED.
In expedited discovery in this action, Plaintiff deposed three individuals: (i) Defendant David J. West, a TIBCO director (Pl.'s Ex. 7 ("West Dep.")); (ii) James F. Ford, a principal and the Chief Operating Officer of Vista Equity Partners (Pl.'s Ex. 5 ("Ford Dep.")); and (iii) Pawan Tewari, a Goldman managing director assigned to the TIBCO engagement (Pl.'s Ex. 6 ("Tewari Dep.")).