In Re Emerging Communications, Inc. Shareholders Litigatio

Facts

Brickell Partners (P) represent a class of persons who owned shares in ECM between May 29, 1998, and October 19, 1998; and Greenlight. Greenlight owned 750,300 shares of ECM, and it was also the assignee of the litigation rights (which Greenlight had previously acquired) to 2,026,685 ECM minority shares. Greenlight brings its appraisal action on behalf of the 750,300 shares that it owns outright. Greenlight brings its class action on behalf of those shares, and also on behalf of the 2,026,685 ECM shares as to which Greenlight holds the litigation rights. There are two groups of defendants: (1) the “ECM defendants,” which consist of ECM, ICC, and Innovative; and (2) the “Board defendants,” who were ECM's directors at the time of the Privatization. ECM was a Delaware corporation that was headquartered in the U.S.Virgin Islands. At the time of the October 1998 Privatization, ECM's principal business was the Virgin Islands Telephone Co. (“Vitelco”), which was the exclusive provider of local wired telephone services in the USVI. Vitelco was 88% of ECM's revenues. ECM also owned Vitelcom, a subsidiary engaged in selling and leasing telecommunications equipment; and Vitelcom Cellular. ECM also owned SMB Holdings, which provided cellular service to the island of St. Maarten/St. Martin. Innovative was 100% owned by ICC, is a Delaware limited liability company with its principal place of business in the USVI. Prosser owned 100% of ICC, which in turn owned 52% of ECM's common stock and 100% of the stock of Innovative. In a split-off transaction with a prior entity, Prosser ended up owning 52% of ECM's 10,959,131 shares, and ECM's public shareholders were relegated to the position of minority stockholders. Prosser began acquiring telecommunication and other media companies. ICC (wholly owned by Prosser) acquired three Caribbean Cable Companies and the Daily News. Ps contend that these acquisitions were all corporate opportunities of ATN (the prior entity) and ECM. Prosser immediately appointed a number of his friends to ECM’s board. Prosser immediately indicated that he intended to merge Innovative into ECM. Advisors on the transaction were Prudential and the law firm of Cahill, Gordon, and Reindel, ECM's legal advisors. Prosser proposed the merger and the ECM board constituted a special committee, consisting of Messrs. Goodwin, Raynor, and Ramphal (the “First Special Committee”), to consider it. Those persons were appointed at the suggestion of Prosser. The law firm retained to serve as counsel to the First Special Committee was Cahill Gordon. The Committee never met, it had no financial or legal advisor, and that the Proposed Merger was “dropped within the month.” The Proposed Merger gained no traction, and low, market interest in ECM's common stock had caused that stock to be undervalued. Prosser then switched from being a seller of ECM stock to becoming a buyer of that stock. Although Prosser had placed a value of $13.25 per share on ECM for purposes of the Split-Off that had occurred only 5 months before, as a buyer of that same stock, he was ,now proposing to pay only $9.125 per share. Prosser, Prudential and Cahill formulated the terms of a Privatization proposal to be presented to ECM's board. Prosser knew that ECM's stock price was artificially depressed. P also informed the board that Prudential and Cahill would be acting for Innovative in the privatization. A new committee was formed and the directors selected to serve as members of this Second Special Committee were Messrs. Richard Goodwin, John Vondras, and Shridath Ramphal one of the members lived in Indonesia, and the, other lived in England. Goodwin lived in Massachusetts. By geographical default, Goodwin, was the chair. Goodwin recommended that the Committee retain Houlihan as its financial advisor. Prosser applied to the RTFC to finance the transaction. It was concluded in July 1998 that ECM was worth (for loan approval purposes) approximately $28 per share. The RTFC approved financing that would enable Prosser to offer up to $11.40 per share. Prosser made the June projections available to his legal advisor (Cahill), his financial advisor (Prudential), and his lender (the RTFC), the June projections were never provided to the Second Special Committee, Houlihan, or the ECM board. Instead, Prosser directed Heying to send Houlihan lower March projections, even though the June projections were available. Even so, the Second Special Committee agreed that $9.125 would not provide adequate compensation to the ECM minority. Prosser raised his offer to $10.25 per share but told Goodwin that $10.25 was his final offer. Because the price had been going up in roughly quarter-point increments, Goodwin countered by asking for $10.50 per share. Prosser rejected that request, pointing out that $10.25 was already “straining the limits of [his] financing” for the transaction. Goodwin made a judgment that the Committee “had reached the limits of how far we could push. Ramphal and Vondras agreed to stop the negotiations at that point. Prosser's financing would have enabled him to increase his offer to $11.40 per share, and that the implied equity value of ECM was $305 million, or $28 per share. They concluded that the revised offer price of $10.25 was fair to ECM's public shareholders from a financial point of view. Goodwin and Vondras thereafter voted to recommend that the full ECM board approve the Privatization. The Board members who had not served on the Special Committee had received copies of Houlihan's fairness analysis before the meeting. The Special Committee members described the process they had employed. Houlihan then explained its financial analysis and confirmed that in its opinion, the $10.25 per share price was fair to the minority stockholders from a financial point of view. After discussion, the board determined to approve the Privatization, but only if a majority of the shares held by the minority stockholders were tendered in the first-step tender offer. As of September 25, 1998, a majority of the minority shares had been tendered. On October 19, 1998, a special meeting of ECM shareholders took place, at which the Merger was approved by a vote of 5,760,660 FOR, and 4,466 AGAINST, out of 10,959,131 shares entitled to vote. The Merger was consummated that same day. Ps filed suit.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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