In Re Synthes, Inc. Shareholder Litigation

50 A.3d 1022 (Del. Ch. 2012)

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Nature of the Case

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Facts

Synthes was a global medical device company. The board was composed of ten directors, each of whom is a defendant in this action. Wyss founded Synthes in the 1970s and served as its CEO for thirty years until his retirement in 2007. Ps alleged that Wyss controlled a majority of the board by dominating five other members through a mix of alleged close familial and business ties. Wyss owned 38.5% of the company's stock, making him the company's largest stockholder. Ps also alleged that Wyss controlled approximately 52% of Synthes' shares through his control of 13.25% of the company's shares owned by family members and trusts. Ps are the Norfolk County Retirement System and the Inter-Local Pension Fund of the Graphic Communications Conference of the International Brotherhood of Teamsters. Ps contend that because of Wyss’ age he could not sell his shares without crashing the stock price. As such, his liquidity trap infected the sales process. The Board, through some unknown process, agreed to consider a sale or merger and appointed independent director Amin Khoury as lead director, and it hired Credit Suisse Securities (USA) LLC as its financial advisor. Synthes entered into confidentiality agreements with three potential suitors. Four private equity firms also signed confidentiality agreements and received Synthes' financial due diligence materials to determine if they wanted to purchase the company. Synthes authorized three of the private equity firms to club for bidding purposes. Multiple bids were submitted, and Board met with its advisors on February 10 and 11, 2011 to compare the competing proposals in view of its strategic alternatives, such as foregoing a transaction in favor of growing by acquisition or maintaining the status quo. At that meeting, the Board discussed the Partial Company Bid's requirement that Wyss roll a 'substantial portion of his equity' in order to finance a cash buy-out. Wyss was opposed to this aspect of the deal because he wanted to cash out alongside the rest of Synthes' shareholders rather than trade one illiquid block of stock (his Synthes shares) for another (shares in the private post-merger entity). J&J eventually raised its offer to CHF 155 per share in stock and cash and displayed a willingness to bid more than that pending the outcome of its due diligence review. J&J agreed to increase its offer to CHF 159 per share, with a consideration mix of 65% stock (subject to a collar) and 35% cash. There are no allegations that Wyss tried to negotiate a higher price for his own shares. On April 25, the boards of both companies separately met to review the Merger. At the Synthes board meeting, Credit Suisse opined that the Merger was fair from a financial perspective to the holders of Synthes common stock, and the Board approved the Merger Agreement and recommended that stockholders vote in favor of it. Synthes and J&J entered into the Merger Agreement and Voting Agreement, which was publicly announced. The Merger implied an equity value of $21.3 billion, representing a 26% premium to Synthes' average trading price during the month preceding the announcement. The deal closed.