In Re Siliconix Incorporated, Shareholders Litigation

Facts

P, a shareholder in Defendant Siliconix incorporated (Siliconix) brings this consolidated action, to challenge the stock-for-stock tender offer by Vishay (D) through its wholly-owned subsidiary, Vishay TEMIC Semiconductor Acquisition Holdings Corp. (Acquisition) for the 19.6% equity interest in Siliconix that Acquisition does not already own. P has owned Siliconix stock since February 1991. His holdings have a market value in excess of $4 million. P has moved to enjoin preliminarily the tender because of alleged breaches by D and the directors of Siliconix of their fiduciary duties to Siliconix shareholders. P alleges that D's disclosures to the minority shareholders contained material misrepresentations and omitted material facts and that the offered price is unfair. D, which is listed on the New York Stock Exchange, is a manufacturer of passive electronic components and semiconductor components. It owns 80.4% of the equity in Siliconix. Siliconix is listed on the NASDAQ. It manufactures power and analog semiconductor products. It is the leading manufacturer of power MOSFETS ('metal oxide semiconductor field effect transistors'), power integrated circuits, and analog signaling devices for computers, cell phones, fixed communications networks, automobiles, and other electrical systems. In March 1998, Daimler-Benz sold its TEMIC semiconductor division, which included an 80.4% equity interest in Siliconix, to D. D has assisted in marketing Siliconix's products, and the company itself is frequently referred to as 'Vishay Siliconix.' Siliconix has been successful since Vishay's acquisition. The price of the stock has fluctuated greatly during the last many months from a high of $165 in March 2000 to a low of under $17 in December 2000. Its profits have increased significantly, and it has been successful in developing and bringing to the market many new products. The recent economic downturn has adversely affected Siliconix, particularly because of its dependence on the cell phone industry. Siliconix's net sales in the first quarter of 2001 were $88.1 million; for the comparable period in 2000, its sales were $114.6 million. Over the same period, profits decreased by 65%. P claims that D started to look seriously at acquiring Siliconix because its price was starting to rise from its December low and its prospects were improving. If D did not act quickly, it would be forced to pay significantly more for the Siliconix minority interests. D publicly announced a proposed, all-cash tender offer at a price of $28.82 per share. It also announced that if it obtained over 90% of the Siliconix stock, it would consider a short-form merger of Siliconix into a D subsidiary for the same price. D determined the price by applying a 10% premium to the then-market price of Siliconix stock. D made no effort to value Siliconix. P maintains that the tender offer price of $28.82 per share was grossly inadequate and asserts that the public announcement was an effort to keep the price artificially depressed. D points out that the price represented a 20.1% discount from Siliconix's average closing price for the six-month period prior to the announcement of the cash tender offer. The Siliconix board designated a Special Committee consisting of directors Segall and Talbert. Both members of the Special Committee had done extensive work with D. Segall had been its attorney until shortly before the tender. Talbert had been active in providing banking services to D in the 1980s. Both were friends of D management, including particularly Avi Eden (Eden), who was D's principal representative for the Siliconix tender effort. Talbert was appointed to the Siliconix board shortly before the February 22, 2001, announcement of the tender offer with the purpose, at Eden's suggestion, that he would also serve on the Special Committee. Members of the Special Committee were to be paid a separate $50,000 fee and there were discussions about a 'special fee' to be determined later. P claims the entire mechanism and actions of the Special Committee were a sham. The Special Committee engaged Lehman Brothers (Lehman) as its financial advisor. After consulting with three prominent law firms, the Special Committee chose Heller, Ehrman, White & McAuliffe (Heller Ehrman) to provide legal counsel. Neither Lehman nor Heller Ehrman had any relationship with Siliconix or D. The Special Committee expressed the view that $22.82 per share was not a fair price for Siliconix. The Siliconix stock had risen above the $28.82 per share cash offer price. D started to consider a stock-for-stock transaction. D informed the Special Committee that it was considering proceeding with a stock-for-stock exchange offer without first obtaining the Special Committee's approval. Two days later, D announced the exchange offer under which it would exchange 1.5 shares of Vishay common stock for every share of Siliconix common stock. The record suggests that Siliconix's sales were continuing to fall. D also observes that the tender offer was at a premium over the February 22 closing price. P points out that Vishay initiated the stock-for-stock exchange offer without affording the Special Committee any opportunity to evaluate the fairness of the offer. On May 25, 2001, D filed with the Securities and Exchange Commission its S-4 Registration Statement and Schedule TO. Amendments with updated information were also filed on June 1, 2001. The offer to exchange/prospectus was distributed to Siliconix shareholders during the week of June 4, 2001. D stated that it intended to effect a short-form merger following a successful tender offer. The Registration Statement also advised the minority shareholders that if D pursued the short-form merger, it would be at the same per share consideration as the exchange offer and that objecting shareholders could invoke their appraisal rights under Delaware law. D was trading for $ 25.81, an equivalent of $38.71 per share of Siliconix. Since then, the price of D has dropped to roughly $ 20, thereby producing an imputed value of roughly $30 for each Siliconix share. Siliconix filed with the Securities and Exchange Commission its Schedule 14D-9 setting forth its disclosures concerning D's offer. It reported that the Special Committee has determined to remain neutral and make no recommendation with respect to the tender offer. The Special Committee never requested Lehman to prepare a fairness opinion as to the exchange offer. P argues that the Special Committee knew that if it asked for Lehman's opinion, Lehman would render an opinion that the exchange ratio was inadequate, especially given Lehman's reservations about giving a fairness opinion at below $34 per share. P argues that the exchange ratio constituted an inadequate and unfair price. He draws this conclusion from the fact that companies comparable to Siliconix are selling at price earnings multiples and EBIDTA multiples significantly higher than those represented by the exchange ratio. P contends that International Rectifier, a similar, but not as profitable company, as Siliconix, has been trading at a price-earnings multiple of approximately 23.9x and a LTM EBITDA multiple of approximately 15.1x, which are more than double the multiples for Siliconix represented by the exchange ratio.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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