A Delaware Chancery judge has rejected a proposed settlement in the lawsuit challenging the $1.5 billion acquisition of private equity-controlled Aeroflex Holding Corp. by British defense manufacturer Cobham PLC. The judge ruled that the deal brought no value to the putative class and “undercuts the litigation process.” During a hearing in Wilmington, Vice Chancellor J. Travis Laster said that the settlement consideration – additional disclosures, a 40 percent reduction in the $32 million break-up fee and one day taken away from a four-day matching period – didn’t actually address what, at the time, appeared to be stopping an undisclosed third party from making a topping offer.
Vice Chancellor Laster likened the settlement to a car being brought to a mechanic for a faulty transmission, but getting an oil change instead. He also said the global release of the Defendants from practically any claims over the deal set out in into the agreement was much too broad. The vice chancellor said from the bench: “This is not a settlement I can approve in its current form. The class gets nothing, zip, zero.”
The vice chancellor said that one of the issues in the case was that an undisclosed potential topping bidder appeared to be dissuaded from making an offer because the company wouldn’t waive a non-disclosure agreement, but said the settlement agreement fails to even address that issue.
The vice chancellor did say that the lawsuit, when it was filed a year ago, seemed like might include some plausible claims, but Plaintiffs apparently found no conflicts regarding the sale process when they got to discovery and perhaps should have backed off then. The vice chancellor said the parties had several options, which included revising the settlement to only release the Delaware fiduciary duty claims asserted in the First State lawsuit or the Defendants filing a motion to dismiss and the case proceeding from there.
The case arose from a deal Aeroflex and Cobham announced in May that the British aerospace and defense manufacturer agreed to pay $10.50 per share to purchase the microelectronic equipment maker through a special purpose subsidiary called Army Acquisition Corp. The companies said the transaction was valued at $940 million for Aeroflex’s common stock, as of March 31, plus $540 million for the target’s net debt. The $10.50 per-share price represented a premium of roughly 26 percent of Aeroflex’s closing the day before the deal announcement, and the company’s private equity controlling shareholders had pledged to vote in favor of the transaction. It will be interesting to see where this case winds up. Based on the statements from the bench, this one may be a real uphill battle.
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