Varjabedian v. Emulex Corporation

888 F.3d 399 (9th Cir. 2018)


Emulex is a Delaware-incorporated technology company that sold storage adapters, network interface cards, and other products. On February 25, 2015, Emulex and Avago issued a joint press release announcing that they had entered into a merger agreement, with Avago offering to pay $8.00 for every share of outstanding Emulex stock. The $8.00 price reflected a premium of 26.4% on Emulex's stock price the day before the merger was announced. A subsidiary of Avago, Emerald Merger Sub, Inc. (Emerald), initiated a tender offer for Emulex's outstanding stock on April 7, 2015. Emulex hired Goldman Sachs to determine whether the proposed merger agreement would be fair to shareholders. Goldman Sachs determined that the agreement would be fair and provided financial analyses supporting its position. Emulex filed a 48-page Recommendation Statement with the SEC. It supported the tender offer and recommended that shareholders tender their shares. It listed nine reasons for the recommendation: (1) the value shareholders would receive in the merger 'was greater than could be reasonably expected' in the future if they continued to hold Emulex stock; (2) other available alternatives and transactions were less favorable; (3) Emulex shareholders would receive a premium on their stock; (4) Goldman Sachs found that the merger was fair; (5) the cash consideration shareholders would receive was certain; (6) the agreement provided that Emulex could back out if it received a better offer before closing; (7) the agreement permitted Emulex to modify its recommendation; (8) a termination fee built into the merger agreement would not preclude subsequent third-party offers for Emulex; and (9) closing conditions were appropriate. The Statement included a summary of Goldman Sachs's fairness opinion and the basis for that opinion. Goldman Sachs also provided a comparable table for seventeen transactions involving a semiconductor company between 2010 and 2014. It concluded that Emulex's 26.4% premium fell within the normal range of semiconductor merger premiums listed, but it was below average. Goldman opined that the merger was fair despite a below-average premium. Emulex elected not to summarize the comparables in the Recommendation Statement. Enough shareholders accepted and on May 5, 2015, Emerald merged into Emulex, with Emulex surviving as a wholly-owned subsidiary of Avago. Ps are shareholders who brought a lawsuit against Ds. The district court eventually named Mutza Lead Plaintiff. P alleges that Ds violated Section 14(e) of the Exchange Act, by failing to summarize Goldman's comparable analysis in the Recommendation Statement, which would have disclosed that the 26.4% premium was below average compared to similar mergers. Ps sought to hold the directors of Emulex vicariously liable as 'controlling persons' under Section 20(a) of the Exchange Act. The district court concluded that Section 14(e) requires a showing of scienter and P failed to plead scienter. The district court rejected P's separate claim under Section 14(d), concluding that Section 14(d)(4) does not establish a private right of action for shareholders confronted with a tender offer. the court dismissed the Section 20(a) claim because { did not adequately plead a claim under Section 14(d) or (e). P appealed.