Additional Valuation Information Worthless? Delaware Chancery Thinks So
In re Trulia Stockholder Litig., 2016 Del. Ch. LEXIS 8 (Jan. 22, 2016)
When it comes to disclosure settlements, more information does not necessarily equate to more value to the recipient. That's according to the Chancellor of the Delaware Court of Chancery in a shareholder class action suit arising out of the acquisition of Trulia, an online provider of information on homes for purchase or rent, by the real estate site Zillow.
The plaintiffs, shareholders of Trulia, alleged Trulia's board of directors breached its fiduciary duty when it approved the merger. But only four months after the transaction occurred, the plaintiffs and the defendants had worked out an agreement-in-principle to settle the case. The settlement envisioned a broad release of claims from the class of plaintiffs in return for some additional disclosures related to the various financial analyses Trulia's financial advisor had performed prior to the transaction.
The settlement required the approval of the court. The plaintiffs, now aligned with the defendants, advocated in favor of the agreement.
Asked to probe the value of the disclosures, and by extension the fairness of the settlement, to the absent class members, the Chancellor used the occasion to detail the problems related to disclosure settlements. He noted the Chancery’s historical practice of approving such settlements even though they frequently were of marginal value to the plaintiffs. He considered this past attitude of the court one of the causes for the explosion of deal litigation “beyond the realm of reason." And he noted: "It is all too common for a plaintiff to identify and obtain supplemental disclosure of a laundry list of minutiae in a financial advisor's board presentation that does not appear in the summary of the advisor's analysis in the proxy materials." But the extra information seldom was material and helpful to the plaintiffs, the Chancellor observed.
Read more about the court's analysis of the additional valuation information and the outcome of the instant case here.