Polygon Global Opportunities Master Fund v. West Corporatio

Facts

D announced a leveraged recapitalization in the form of a squeeze-out merger sponsored by an investor group led by Thomas H. Lee Partners and Quadrangle Group, LLC. The controlling stockholders, Gary and Mary West, are participating in the recapitalization and exchanging part of their stock for equity in the resulting entity. The other stockholders will receive cash for all of their stock. A special committee of independent directors, with Morgan Stanley & Co. as its financial advisors and Potter Anderson & Corroon as its legal advisors, was created to negotiate the transaction with the buyout group. Gary and Mary West reportedly did not participate in the negotiations. The special committee recommended and approved the recapitalization. D's minority stockholders will be entitled to receive $48.75 per share in cash, a 13% premium over the company's closing stock price the day before the transaction but is below the trading level of the stock a month prior. Gary and Mary West will sell approximately 85% of their stock in the company for $42.83 in cash and will convert the remaining 15% into shares of the surviving corporation. The Wests have agreed to vote their shares in favor of the transaction, guaranteeing the approval of the recapitalization. The merger agreement provides for a 21-day “go shop” period during which D actively shopped the company and solicited other acquisition proposals. After this go-shop period, the merger agreement still permits the company to respond to unsolicited proposals or further proposals from persons solicited during the go-shop period. The agreement also contains a fiduciary out that permits the special committee to change its recommendation and thereby terminate the Wests’ voting agreement. P made its first purchase of D stock immediately after the announcement of the proposed recapitalization because it believed that the situation presented an attractive risk arbitrage opportunity. P owned 3,268,300 shares at a price of $48.32 per share. P made a written demand on D. seeking production of certain books and records. D rejected the demand on the basis that it was not made under oath and, therefore, did not comply with the technical requirements of section 220, and also because it failed to state a proper purpose. P demanded and D refused again. P sued. D. The court asked P to produce a chart linking the categories of documents it continued to seek with a proper purpose asserted in the demand. P states it seeks an appraisal, an investigation of mismanagement and potential breaches of fiduciary duties by D pointing out that the Wests are being treated differently than the other stockholders. P argues that the 21-day go-shop period was too short and may have acted as an obstacle to other potential bidders and that the financial terms of the recapitalization fail to offer what P considers a “meaningful premium.” P claims that D gave conservative earnings guidance prior to the announcement of the transaction. P maintains it has a proper purpose in communicating with other stockholders to provide them with information they may consider of interest and to encourage them to seek appraisal. D claims that P is an “interloper,” a greenmailer, and seeks to benefit itself at the expense of other stockholders. D claims that P does not need any additional information to value its stock and, therefore, valuation for determining whether to seek appraisal is not a proper purpose under the circumstances because all necessary and essential information is publicly available. D maintains that P does not have a proper purpose to investigate wrongdoing because the alleged wrongdoing occurred before its purchase of the stock, and, in any event, Polygon cannot demonstrate any credible basis of wrongdoing.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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