Supreme Court Finds Chairman’s Objections to Merger Material to Board’s Recommendation in Proxy Statement

On February 20, 2018, in Appel v. Berkman, the Delaware Supreme Court reversedthe Delaware Court of Chancery to find that the reasons given by the company’s founder, largest stockholder and chairman for abstaining from a merger vote based on price and timing were material to reasonable stockholders and would have altered the total mix of information available to stockholders. Thus, the Court concluded, the disclosure in the Schedule 14D-9 that the chairman abstained from the vote – without explaining that he did so because poor management led to a disappointing price and made it the wrong time to sell the company – made the proxy statement misleadingly incomplete. The Court ultimately found that the omission foreclosed a finding that a majority tender was “fully informed” for purposes of entitlement to Corwin business judgment review at the pleading stage, reversing the Chancery Court’s dismissal of plaintiffs’ claims.