In re Anaplan, Inc. Stockholders Litigation
Unreported, Memorandum Opinion (2024)
Rule of Law:
When a transaction not subject to the entire fairness standard is approved by a fully informed, uncoerced vote of disinterested stockholders, the business judgment rule applies, insulating the transaction from all attacks other than on the grounds of waste.
Facts:
- As 2021 concluded, Anaplan Inc. began exploring a potential sale of the company amidst pressure from activist investors.
- In March 2022, Anaplan and Thoma Bravo entered into an Original Merger Agreement for Thoma Bravo to acquire Anaplan for $66.00 per share, which included interim operating covenants limiting Anaplan's equity awards.
- Section 5.1 of the Original Merger Agreement limited ordinary course merit-based equity awards to $105 million total, with a $20 million aggregate sub-limit for executives, and required Thoma Bravo's prior written approval for grants exceeding $500,000 to an individual employee.
- Post-signing, Anaplan's Compensation Committee and Equity Administration Committee (including Officer Defendants Frank Calderoni, Vikas Mehta, and Gary Spiegel) approved multiple equity grants.
- The Compensation Committee approved $22 million in executive equity grants, exceeding the $20 million sub-limit, for which Thoma Bravo provided its consent on April 8, 2022.
- Anaplan's committees continued approving additional equity grants for new hires and existing employees, ultimately exceeding the $105 million overall cap, totaling over $157 million, without obtaining Thoma Bravo's prior written consent for all grants.
- On May 23, 2022, Anaplan's CEO, Frank Calderoni, contacted Thoma Bravo to seek consent for additional awards and confirm that prior approvals increased the total equity allowance.
- Thoma Bravo responded by email, expressing disapproval and, on May 27, 2022, formally notified Anaplan that it had violated the Original Merger Agreement by exceeding the equity grant limits.
- On June 6, 2022, Anaplan and Thoma Bravo agreed to a Revised Merger Agreement, reducing the acquisition price to $63.75 per share (a $400 million reduction for stockholders) but also including concessions such as waiving specified closing conditions and increasing the termination fee from $586 million to $1 billion.
- On June 21, 2022, Anaplan's stockholders approved the Revised Merger Agreement.
Procedural Posture:
- Plaintiff Pentwater Capital Management LP filed a putative class action complaint on November 23, 2022, in the Court of Chancery of the State of Delaware.
- The complaint asserted three claims on behalf of a putative class of former Anaplan stockholders: Count I for breach of fiduciary duty against the Officer Defendants, Count II for breach of fiduciary duty against the Director Defendants, and Count III for waste against all Defendants.
- Defendants moved to dismiss the Complaint under Rule 12(b)(6) for failure to state a claim on which relief could be granted.
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Issue:
Does the Corwin doctrine apply to cleanse claims of fiduciary duty breach and waste, arising from alleged post-signing breaches of an original merger agreement that led to a reduced acquisition price, where the renegotiated transaction was subsequently approved by a fully informed and uncoerced stockholder vote?
Opinions:
Majority - COOK, V.C.
Yes, the Corwin doctrine applies to cleanse Plaintiff’s claims. The Court concludes that the claims for breach of fiduciary duty and waste must be dismissed because the Anaplan stockholders, through an informed and uncoerced vote, overwhelmingly approved the renegotiated transaction. The transaction was not subject to the entire fairness standard ab initio, which would preclude Corwin cleansing, as there was no allegation of a controller standing on both sides of the deal or competing with common stockholders for consideration. The stockholders were fully informed because the Supplemental Proxy provided substantial details, including the Board’s position, Thoma Bravo’s position, the dispute, and the negotiations leading to the revised agreement, most importantly, the price. Plaintiff failed to meet its burden in pleading a disclosure violation. The vote was uncoerced; neither situational nor structural coercion was present. Situational coercion did not exist because the Revised Merger Agreement still offered a substantial 41% premium over Anaplan’s unaffected share price, and stockholders had the genuine choice to retain their shares in a multibillion-dollar company. Structural coercion was also absent, as there were no allegations of self-dealing or extraneous factors akin to cross-conditionality that would render the vote non-representative of stockholder interests. Finally, the waste claim fails because stockholders received $10.4 billion in cash, representing a 41% premium, along with significant concessions from Thoma Bravo like waived conditions and an increased termination fee. Receiving a substantial premium and other benefits is not "literally nothing," which is the high threshold required to plead waste.
Analysis:
This case significantly reinforces the robust application of the Corwin doctrine in Delaware, demonstrating its capacity to cleanse alleged fiduciary breaches, even those occurring after the initial signing of a merger agreement but before its closing. The decision clarifies that a substantial acquisition premium, even if reduced from a prior agreement, typically negates claims of coercion by providing stockholders a meaningful choice. It also reiterates the extremely high bar for pleading a waste claim, particularly in transactions that deliver significant value to stockholders, emphasizing that a benefit, even if less than originally anticipated, is unlikely to meet the "literally nothing" standard for waste.
