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Exhibit (i)(23)
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
IN RE AQUILA INC. ) Consolidated
SHAREHOLDERS LITIGATION ) Civil Action No. 19237
MEMORANDUM OPINION
Submitted: January 2, 2002
Decided: January 3, 2002
Norman M. Monhait, Esquire, ROSENTHAL, MONHAIT, GROSS & GODDESS, P.A.,
Wilmington, Delaware; Pamela S. Tikellis, Esquire, Beth Deborah Savitz, Esquire,
CHIMICLES & TIKELLIS, LLP, Wilmington, Delaware; Gregory M. Castaldo, Esquire
(argued), SCHIFFRIN & BARROW, LLP, Bala Cynwyd, Pennsylvania; Karin Fisch,
Esquire, ABBEY GARDY, LLP, New York, New York; FARUQI & FARUQI, LLP, New York,
New York; ATTORNEYS FOR PLAINTIFFS.
Michael D. Goldman, Esquire, Peter J. Walsh, Jr., Esquire, Brian C. Ralston,
Esquire, Richard L. Renck, Esquire, POTTER ANDERSON & CORROON LLP, Wilmington,
Delaware; Thomas F. Cullen, Jr., Esquire (argued), Lawrence D. Rosenberg,
Esquire, J. Andrew Read, Esquire, JONES, DAY, REAVIS & POGUE, Washington, D.C.,
Attorneys for DEFENDANT AQUILA INC. AND THE INDIVIDUAL DEFENDANTS IN THEIR
CAPACITIES AS DIRECTORS OF AQUILA, INC.
Alan J. Stone, Esquire, Megan E. Ward, Esquire, MORRIS, NICHOLS, ARSHT &
TUNNELL, Wilmington, Delaware; William G. McGuinness, Esquire (argued), David B.
Hennes, Esquire, Julie E. Kamps, Esquire, Arnie K. Riggle, Esquire, FRIED,
FRANK, HARRIS, SHRIVER & JACOBSON, New York, New York, ATTORNEYS for DEFENDANT
UTILICORP UNITED, INC.
LAMB, Vice Chancellor.
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Plaintiffs seek a preliminary injunction against the consummation of a
tender offer by UtiliCorp United Inc. ("UtiliCorp") for the approximately 20% of
the outstanding shares of common stock of Aquila, Inc. ("Aquila") not already
owned by it. Until April 23, 2001, when it completed its initial public
offering, Aquila was a wholly owned subsidiary of UtiliCorp. The tender offer is
set to expire tomorrow, January 4, 2002.
Aquila has no independent or "outside" directors. As a consequence,
Aquila has not expressed an opinion in favor or in opposition to the offer. In
addition, while Aquila obtained an independent financial analysis of the offer
and published an extensive summary of that analysis in the Schedule 14D-9 sent
to its stockholders, it did not ask its financial advisor to express an opinion
on the fairness of UtiliCorp's offer.
Plaintiffs contend that the defendants had an obligation, arising from
the Aquila certificate of incorporation and representations found in the IPO
Prospectus, to appoint at least two independent directors to the Aquila board.
They say this should have been done no later than July 23, 2001. Further, they
claim that the absence of independent Aquila directors is depriving them of
valuable protections to which they are entitled by law and is threatening all
the Aquila stockholders with imminent, irreparable harm. The plaintiffs urge the
court to enjoin the tender offer until independent directors are appointed, or
in the alternative until a court-appointed expert can conduct an appropriate
analysis of the financial information and make a recommendation about the offer
to the stockholders.
After careful consideration, I will refuse the request for an
injunction. My decision rests both on a sense that the merits of plaintiffs'
claims are weak and on my conclusion that the pending exchange offer poses
little, if any, risk of irreparable harm to the plaintiffs. Importantly, this
potential injury is clearly outweighed by the risks that the relief sought
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might deprive the Aquila stockholders of the valuable opportunity to determine
for themselves whether or not to accept this offer, in circumstances in which no
other offer is available to them.
I. FACTS
A. THE PARTIES
UtiliCorp, a Delaware corporation with its principal offices in Kansas
City, Missouri, is an electric and gas company with energy customers and
operations in North America, the United Kingdom, New Zealand, and Australia.
Aquila, also a Delaware corporation with its principal offices in Kansas City,
Missouri, is a wholesale energy risk merchant. Aquila provides risk management
products and services and owns and controls a variety of merchant assets
including power plants, gas storage, pipeline, and processing facilities, and
other merchant infrastructure. Aquila was a wholly owned subsidiary of UtiliCorp
until April 2001, when it completed an initial public offering of its Class A
common stock. UtiliCorp still owns 80% of Aquila's equity and holds
approximately 98% of the combined voting power of Aquila's voting stock.
The three individual defendants comprise the Aquila board of directors.
Each is a senior officer of UtiliCorp. Defendant Robert K. Green is and at all
relevant times has been Chairman of the Board of Directors of Aquila. Robert
Green assumed the office of Chief Executive Officer of Aquila as of November 26,
2001. Robert Green also serves as President and Chief Operating Officer of
UtiliCorp and assumed the office of CEO of UtiliCorp on January 1, 2002.
Defendant Richard C. Green, Jr. is and at all relevant times has been a director
of Aquila. Richard Green is also Chief Executive Officer and Chairman of the
Board of UtiliCorp. Defendant Keith G. Stamm is and at all relevant times has
been
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a director of Aquila. Stamm was Chief Executive Officer of Aquila until November
26, 2001, when he became President and Chief Operating Officer of UtiliCorp's
Global Networks Group. At the time of Aquila's IPO, Stamm served as a Senior
Vice President of UtiliCorp.
The plaintiffs are shareholders of Aquila. None of the plaintiffs
purchased Aquila stock in its IPO. It has been stipulated that none of the
plaintiffs read Aquila's IPO Prospectus or certificate of incorporation.
B. AQUILA'S IP0
In Aquila's April 2001 IPO, it sold 14,225,000 shares of Class A common
stock to the public for $24 per share. As part of the IPO, UtiliCorp sold
5,750,000 shares of Aquila's Class A common stock to the public at the same
price. In the IPO Prospectus, Aquila indicated that some of the benefits to be
realized by separating from UtiliCorp included "increased capital financing
flexibility, enhanced strategic focus, increased speed and responsiveness, a
more targeted investment for stockholders and more targeted incentive for
management and employees." According to Richard Green, Aquila was taken public
because the market was not putting a full value on Aquila through UtiliCorp
stock, and Aquila believed that it could get fuller value if it were separated
from UtiliCorp to a certain extent. In connection with the IPO, UtiliCorp
announced its intention to spin Aquila off entirely to UtiliCorp's shareholders
within twelve months, unless doing so was no longer in the interest of UtiliCorp
and its shareholders.
Nearly all of the shares sold in the IPO were purchased by
institutional investors. Today more than 80% of the publicly owned shares of
Aquila are owned by 94 institutional investors, and 22 of those investors
control a majority of the publicly owned shares. The
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plaintiffs in this action are individual shareholders. No institutional
investors have joined in this action.
Aquila performed well after the IPO from a financial perspective and
its stock traded as high as $35 per share in May 2001. By the third quarter of
2001, however, Aquila's stock price began to decline as a result of, among other
things, general market uncertainty following the events of September 11 and a
substantial drop in market prices for companies in the merchant energy business
in light of the well-publicized financial woes of Enron Corp.
C. UTILICORP DETERMINES NOT TO COMPLETE THE SPIN-OFF
At some point in late October or early November 2001, UtiliCorp
determined that it was not in the interests of its own stockholders to proceed
with its plans to spin Aquila off completely due to dramatic changes in general
economic conditions and in the energy merchant sector specifically. UtiliCorp
was also worried that Aquila would soon be presented with opportunities to
acquire critical energy generation assets but would be unable to do so in the
face of declining equity markets and tightening credit markets because of its
relatively small asset base. A reacquisition, UriliCorp reasoned, would provide
Aquila with access to UtiliCorp's asset base, earnings potential, and cash flow.
Accordingly, UtiliCorp announced on November 7, 2001 that it would seek
to acquire each share of Aquila stock sold in the IPO for 0.6896 share of
UtiliCorp common stock by means of a tax-free exchange followed by a short-form
merger under Section 253 of the Delaware General Corporation Law. UtiliCorp has
slated that it intends to adopt Aquila's name, as well as its energy merchant
business strategy, when the exchange offer is complete. As of November 7, the
proposed transaction valued each Aquila share at approximately $20.68, a 15%
premium to the closing price of Aquila's Class A shares at that
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time, though at a discount to the mid-October price of over $25 per share.
UtiliCorp's market price on December 3, the date upon which the exchange offer
was commenced, yielded a price of approximately $18 per share of Aquila Class A
common stock.
UtiliCorp structured its offer so that it would not be coercive and
would contain important safeguards for the shareholders of Aquila. The exchange
offer contains a majority of the minority condition, which requires that at
least a majority of Aquila's Class A shares must be tendered for the offer to
succeed. UtiliCorp has also committed to effect a short-form merger of Aquila
with another UtiliCorp subsidiary on the same terms as the exchange offer if the
offer is successful. If the offer is successful, holders of Class A common stock
who do not tender will receive the same consideration as those who do or will be
able to seek appraisal under Section 262 of the DGCL.
D. AQUILA FAILS TO APPOINT INDEPENDENT DIRECTORS
The listing rules of the NYSE require that Aquila form an audit
committee comprised of at least two independent directors within three months
of listing in conjunction with its 1PO.(1) As described more fully below,(2)
the plaintiffs contend that Article VI of Aquila's certificate of
incorporation elevated this NYSE requirement to a contractual undertaking.
Moreover, in the IPO Prospectus, the Company disclosed that the Aquila board
would have three standing committees, including an audit committee that would
be appointed within three months of the closing of the IPO. The Prospectus
stated further that the audit committee would be "responsible for acting on
our behalf in connection with transactions in which UtiliCorp has an interest
adverse to us."
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(1) NYSE Listed Company Manual ("Manual") Section 303.02(F).
(2) SEE INFRA pp. 14-16.
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After the IPO, defendants Robert Green and Keith Stamm, along with
Jeffrey Ayers, Aquila's General Counsel, began the task of finding outside
directors. By June 2001, two candidates, John Clark and Vince Foster, had been
identified. Because the candidates were an officer and a director, respectively,
of a company, Quanta Services, Inc. ("Quanta"), in which UtiliCorp held a 35%
ownership interest, Aquila asked the NYSE for a determination of their
independence. After the independence issue was resolved, interviews with Clark
and Foster were scheduled for September 2001. On September 5, 2001, Ayers sent a
letter to the NYSE explaining that Aquila was aware that it had not complied
with the NYSE's listing requirements but that its search for independent
directors was still ongoing. The interviews with Clark and Foster were delayed
until October after the September 11 terrorist attacks. Then, in mid-October,
UtiliCorp's relationship with Quanta became strained and the candidacies of
Clark and Foster were abandoned.
At that point Aquila decided to appoint two of UtiliCorp's outside
directors, Stanley Ikenberry and Robert Jackson, to its board. The idea of
appointing UtiliCorp directors to the Aquila board for the purpose of responding
to the exchange offer was abandoned after news of the offer led to the filing of
litigation naming Aquila's directors as defendants. To this point, Aquila still
has not appointed any independent directors, and it has stated that it will not
do so unless the exchange offer fails.
E. AQUILA RESPONDS TO THE EXCHANGE OFFER
On November 15, 2001, Aquila's three-member board met to consider the
exchange offer. At that meeting, the board ratified the engagement of Jones,
Day, Reavis & Pogue and Potter Anderson & Coroon as its legal counsel. The board
also authorized the retention of an independent financial advisor to evaluate
the exchange offer. Independent officers of Aquila
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then interviewed several investment banks, ultimately selecting Blackstone Group
LP ("Blackstone") as Aquila's independent banker.
On December 14, 2001, Aquila filed its Schedule 14D-9. Given the
conflicts of each of its members, the Aquila Board remained neutral and made no
recommendation to Aquila's stockholders on whether to tender their shares in the
exchange offer. A summary of Blackstone's analysis was published in the 14D-9.
This analysis consisted of a historical stock price performance analysis, a
comparable transaction analysis, a comparable company analysis, a series of
discounted cash flow analyses, a discounted dividend analysis, a pro forma
merger analysis, and a relative contribution analysis. Many of the analyses
disclosed show that the price implied by the exchange ratio is at the low end of
the range presented. As described in the 14D-9, "Blackstone did not consider the
relative merits of the Offer as compared to any other business plan or
opportunity that might be available to Aquila." The board did not request a
fairness opinion, and no fairness opinion was delivered.
II. STANDARD OF REVIEW
To obtain a preliminary injunction, a plaintiff must establish that
there is a reasonable probability of success on the merits, that irreparable
harm will result if an injunction is not granted, and that the balance of
equities favors the issuance of the injunction.(3) A preliminary injunction
will not issue if any of these three factors are not present. Moreover, this
Court has held repeatedly that in the absence of a competing offer a
plaintiff must make a particularly strong showing on the merits to obtain a
preliminary injunction because an
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(3) SEE, E.G., REVLON, INC. v. MOCANDREWS & FORBES HOLDINGS, INC., Del.
Supr., 506 A. 2D 173, 179 (1986).
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injunction in such circumstances risks significant injury to shareholders.(4)
I will address each of these elements in turn.
III PROBABILITY OF SUCCESS ON THE MERITS
Any assessment of the merits of plaintiffs' claims must begin with a
recognition that Delaware law does not impose a duty of entire fairness on
controlling stockholders making a non-coercive tender or exchange offer to
acquire shares directly from the minority holders. This principle was most
recently reaffirmed in IN RE SILICONIX INC. SHAREHOLDERS LITIGATION.(5) As the
Delaware Supreme Court wrote in SOLOMON V. PATHE COMMUNICATIONS CORP.: "In the
case of totally voluntary tender offers . . . courts do not impose any right of
the shareholders to receive a particular price. . . . [I]n the absence of
coercion or disclosure violations, the adequacy of the price in a voluntary
tender offer cannot be an issue."(6)
Reduced to its essentials, plaintiffs' argument is that a different
rule should apply here because (i) there are no independent, outside directors
of Aquila, and (ii) the absence of such independent board representation is
inconsistent with undertakings made during the IPO that there would be such
representation within three months of the closing of that offering, or not later
than July 23, 2001.
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(4) SEE, E.G., MCMILLAN V. INTERCARGO CORP., Del. Ch., C.A. No. 16963,
Jacobs, V.C., mem. op. at 11 (May 3, 1999) ("`[T]he balance of harm in this
situation in which there is no alternative transaction and issuance of the
injunction inescapably involves a risk that the shareholders will lose the
opportunity to cash in their investment at a substantial premium requires not
only a special conviction about the strength of the legal claim asserted, but
also a strong sense that the risks in granting the preliminary relief of an
untoward financial result from the stockholders' point of view is small.'"
(quoting SOLASH v. THE TELEX CORP., Del. Ch., C.A. Nos. 9518, 9528, 9525,
Allen, C., mem. op. at 28-29 (Jan. 19, 1988)); KOHLS v. DUTHIE, Del. Ch., 765
A.2d 1274, 1289 (2000) ("This court is understandably cautious when the
issuance of an injunction would deprive ... shareholders of the benefits of
[a] merger transaction without offering them any realistic prospect of a
superior alternative, or for that matter, any alternative.'" (quoting IN RE
WHEELABRATOR TECH,. INC. SHAREHOLDERS LITIG., DEL. Ch., C.A. No. 11495,
Jacobs, V.C., mem. op. at 20 (Sept. 6, 1990)).
(5) Del. Ch., C.A. No. 18700, 2001 WL 716787, Noble, V.C. (June 21, 2001).
(6) Del. Supr., 672 A.2d 35, 39-40 (1996) (citing LYNCH V. VICKERS ENERGY
CORP., Del. CH., 351 A.2d 570, 576 (1976), REV'D ON OTHER GROUNDS, Del. Supr.,
383 A.2d. 278 (1977); WEINBERGER V. U.O.P. INC., Del. Supr., 457 A.2d 701,
703 (1983)).
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Ultimately, I conclude that the motion for preliminary injunction
should be denied because there is only an insubstantial showing of imminently
threatened irreparably harm and because the balance of equities clearly weighs
in favor of allowing the Aquila stockholders to choose for themselves whether or
not to accept the offer on the terms presented by UtiliCorp. Nevertheless, I
will briefly discuss the likelihood of success on the merits of plaintiffs'
claims.
A. THERE ARE NO SUBSTANTIAL CLAIMS FOR BREACH OF FIDUCIARY DUTY
Plaintiffs have not shown the existence of a substantial claim that
UtiliCorp has breached its fiduciary duties. As already discussed, the offer
is clearly a voluntary one because the terms and conditions of the exchange
offer are structured so that the decision whether or not to accept the offer
is firmly entrusted to a majority of the minority shareholders. Plaintiffs
concede that the structure of this offer is indistinguishable from that
discussed in SILICONIX and other cases that have held that parent
corporations making non-coercive offers to acquire shares of the minority do
not owe a duty to pay a fair price.(7) Moreover, no claim is made that the
disclosure materials circulated by UtiliCorp in connection with its offer
are, in any way, false or misleading.
There is also no substantial claim that the sitting members of the
Aquila board of directors have violated their fiduciary duties in connection
with the proposed transaction. Each of them is an officer or employee of
UtiliCorp and, thus, suffers from real or potential conflicts of interest in
connection with the transaction.(8) For that reason, they determined to make
no recommendation on the offer. Plaintiffs do not argue that their fiduciary
duties
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(7) SEE, E.G., SILICONIX, 2001 WL 716787 at *6; SOLOMON, 672 A.2d at 39-40.
(8) Most notably, defendant Robert Green was both Chairman of the Board of
Aquila and President and Chief Operating Officer of UtiliCorp. He
participated in fixing the terms of the offer, including the exchange ratio,
in his capacity as an officer of UtiliCorp. Thus, he is plainly unable to
function independently as a director of Aquila in reviewing the exchange
offer.
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required them to do otherwise.(9) The Aquila directors also authorized
certain members of Aquila's management who have no positions with UtiliCorp,
acting with independent legal advisors, to retain Blackstone, an independent
financial advisor, to perform a financial analysis of the proposed exchange
ratio and to publish a summary of that analysis in the company's Schedule
14D-9. While plaintiffs criticize certain aspects of Blackstone's work, they
do not argue that these three directors had a fiduciary duty to do more.(10)
Instead, in their reply brief and at argument plaintiffs' counsel
suggested that it was a breach of fiduciary duty for the Aquila directors to
have failed to appoint two independent directors to the Aquila board before the
exchange offer was made. The present record does reflect a certain lack of
diligence, between the time of the IPO and November 7, 2001, in identifying
suitable candidates to serve as independent directors. Given the original
expectation that independent directors would be in place before the end of July,
that deadline could have been met through a greater concentration of effort.
Nevertheless, plaintiffs fail to explain how such a lack of diligence could
amount to a breach of fiduciary duty. After all, the Aquila directors had no
identifiable duty to appoint anyone to the board of directors. Plaintiffs
suggest only that the failure to complete the job of finding independent
directors became a breach of fiduciary duty on November 7, 2001, when UtiliCorp
determined to make
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(9) SEE SILICONIX, 2001 WL 716787 at *9 (noting that "there may exist
circumstances where there is no answer to the question of whether to accept
or reject" an offer and allowing a special committee to take a neutral
position).
(10) It should be noted that Aquila did not ask Blackstone to opine as to the
fairness of the exchange ratio, although the engagement letter contemplated
the possibility that such an opinion might be required. The defendants
support the decision not to ask for an opinion by reference to SILICONIX, in
which Vice Chancellor Noble correctly noted that to have obtained a fairness
opinion from the company's financial advisor would have been inconsistent
with the decision of the subsidiary's board of directors--based on their
review of the offer and financial analysis of it--to make no recommendation.
I note that the situation here is different in the sense that the Aquila
directors did not determine to be neutral based on a substantive review of
the terms of the offer, but simply on their own lack of independence. Thus,
it could be argued that there was no real inconsistency between taking a
hands-off approach while also furnishing the Aquila stockholders with a
fairness opinion from an independent financial advisor. Suffice it to say,
for present purposes, that plaintiffs do not argue that it was a breach of
fiduciary duty on the part of the Aquila directors to have failed to ask
Blackstone for a fairness opinion.
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the exchange offer. Preliminarily, at least, I find that this is not an adequate
basis on which to predicate a breach of fiduciary duty.
A. THE BREACH OF CONTRACT CLAIMS
To distinguish this case from the model found in SILICONIX, plaintiffs
press two contract-based claims, the first based on Aquila's certificate of
incorporation, and the second on a representation found in the prospectus for
the IPO. The theory of both claims is that the Aquila stockholders have a right
to independent board representation, the absence of which, they say, amounts to
irreparable injury because there is no one to intermediate between them and
UtiliCorp in connection with the exchange offer. Plaintiffs encounter
substantial obstacles on the merits of both claims.
The claim under the certificate of incorporation is based on language
found in Paragraphs B and F of Article VI (Board of Directors). Paragraph B is
entitled "UtiliCorp Nominees" and provides UtiliCorp the right to "designate a
majority of the nominees of the Board of Directors for election to the Board of
Directors at each annual meeting of the Corporation's stockholders" so long as
UtiliCorp maintains a majority of the company's voting power. The grant of this
power is then limited as follows:
All rights of UtiliCorp to nominate directors pursuant to this
Section B or any other provision of this Certificate of
Incorporation shall be subject to, and shall be exercised by
UtiliCorp in a manner to ensure compliance by the Corporation
with . . . the requirements of any securities exchange to
which the Corporation is then subject, including, without
limitation, any requirement that any directors of the
Corporation be "independent" . . . .
Putting the grant of power to designate directors together with the provision
that such power "shall be exercised . . . to ensure compliance" with NYSE
listing requirements,
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plaintiffs argue that UtiliCorp's failure to add two independent directors to
the Aquila board was a breach of contract.(11)
As UtiliCorp points out, however, the right defined in Paragraph B
is one to designate board nominees for election at the company's annual
meeting of stockholders. Aquila has not had an annual meeting since the IPO
and, therefore, UtiliCorp has yet to exercise that right. UtiliCorp also
argues that the language quoted above can only be construed as a limitation
on the right to nominate found in Paragraph B and, thus, cannot give rise to
a claim of breach when there has yet to be any occasion to exercise the
right.(12) This argument has considerable force and is consistent with a
plain and natural reading of the certificate.(13)
Plaintiffs respond by pointing to the language of Paragraph F.l of
Article VI, providing that: "Any vacancy occurring on the Board of Directors or
any newly created directorship may be filled by a majority of the remaining
directors or by the sole remaining director in office." They argue that this
language should be read as an additional "right of UtiliCorp to nominate
directors pursuant to . . . any other provision of the Certificate of
Incorporation" and, thus, as being subject to the limitation in Paragraph B
already discussed. The problem is, of course, that the right described in
Paragraph F is not "a right of UtiliCorp" but, instead, a right belonging to the
Aquila directors. The fact that UtiliCorp may, at this time, have the practical
ability to tell them how to exercise that right due to the
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(11) The underlying source of the obligation to name independent directors
flows from the NYSE Listed Company Manual, which states that Aquila should
have named two independent directors to an audit committee within three
months of the completion of the 1PO, or by July 23, 2001. The record shows
that, to date, the NYSE has taken no action against Aquila for its failure to
comply with this rule. Plaintiffs concede that they have no standing directly
to bring an action to enforce the NYSE rules or to seek sanctions for any
alleged violation thereof.
(12) UtiliCorp also argues, persuasively, that the quoted language acts only
as a limitation on the rights it would otherwise have and does not itself
impose any independent obligations on it. I agree that it is improper to
construe Paragraph B as imposing any duty on UtiliCorp to exercise the right
to designate nominees found in that paragraph. Instead, UtiliCorp is free to
leave the business of nominating persons to stand for election as directors
to the Aquila board itself or to any other process permitted by the statute,
the charter, or the bylaws.
(13) This principle of contract law is applicable because the certificate is
a contract between a corporation and its shareholders. SEE STAAR SURGICAL CO.
V. WAGGONER, Del. Supr., 588 A.2d 1130, 1136 (1991).
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fact that they are all officers of UtiliCorp does not change the result. Those
individuals are the ones with the right to designate directors to fill vacancies
and the duty to act as Aquila fiduciaries when they do so. It is not a right
belonging to UtiliCorp.
Plaintiffs next argue that UtiliCorp should be estopped from denying
that it promised to name independent directors to the Aquila board, based on the
following language found in the IPO Prospectus:
Our board will have three standing committees: an audit
committee, a compensation committee and a nominating
committee. The board will appoint members of the audit
committee within three months of the closing of this offering
and members of the compensation committee and nominating
committee after the closing of this offering.
. . . .
The audit committee will . . . be responsible for acting on
our behalf in connection with transactions in which UtiliCorp
has an interest adverse to us.(14)
"Promissory estoppel involves `informal promises for which there was no
bargained-for exchange but which may be enforced because of antecedent factors
that caused them to be made or because of subsequent action that they caused to
be taken in reliance.'"15 The elements of a claim for promissory estoppel, which
must be shown by clear and convincing evidence, are as follows: "(i) a promise
was made; (ii) it was the reasonable expectation of the promisor to induce
action or forbearance on the part of the promisee; (iii) the promisee reasonably
relied on the promise and took action to his detriment; and (iv) such promise
is binding because injustice can be avoided only by enforcement of the
promise."(16)
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(14) IPO Prospectus at 73-74.
(15) LORD V. SOUDER, Del. Supr., 748 A.2d 393, 404 (2000) (Lamb, V.C.,
sitting by designation, concurring) (quoting 3 Eric Holmes Mills et al.,
CORBIN ON CONTRACTS Section 8.1, at 5 (rev. ed. 1996)).
(16) ID. at 399 (majority opinion by Walsh, J.)
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UtiliCorp argues that none of these elements has been shown to exist,
and that certainly none has been shown by clear and convincing evidence. In my
view it is reasonable, at this preliminary stage of the proceeding, to construe
the statement made in the IPO Prospectus as a promise or undertaking and to
infer that it was included in the prospectus in order to induce prospective
investors to buy Aquila shares in the offering."(17)
Nevertheless, the record is quite clear that none of the named
plaintiffs read the statement or relied on it in purchasing Aquila shares. In
fact, each has stipulated that he or she bought shares in the secondary
market and read neither the IPO Prospectus nor the certificate of
incorporation. Thus, there is no showing that the third element of the claim
is satisfied. Plaintiffs urge me to presume reliance on the part of the class
but such a presumption would appear to be inconsistent with Delaware
authority.(18) In any event, I am not prepared to conclude at this
preliminary stage of the proceeding that the element of reliance can be
satisfied where each of the three named plaintiffs has stipulated to the
contrary.
I am also unpersuaded at this point that any substantial injustice
will result from a refusal to enforce the "promise" made by UtiliCorp. The
offer being made by UtiliCorp is structured in a non-coercive way and the
stockholders of Aquila appear to have adequate
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(17) Of course, a substantial issue remains whether the statement in the IPO
Prospectus included a "promise" that the audit committee would have any role
to play in the current transaction. Although I do not reach the issue, it is
unclear whether the UtiliCorp exchange offer is one in which "UtiliCorp has
an interest adverse to us." If, as seems reasonable to infer, "us" refers to
Aquila, the transaction--which is between UtiliCorp and Aquila's minority
stockholders--might not have fallen within the delegated power of the audit
committee. I am also not aware of any more exact description of the charter
of the audit committee that might provide an answer to this question.
(18) I recognize that in other contexts, courts will infer class-wide
reliance either directly, as in SPARK V. MBNA CORP., 178 F.R.D. 431 (D. Del.
1998), or by the adoption of notions of reliance on the market, SEE, E.G., IN
RE ADAMS GOLF, INC. SEC. LITIG., Civ. No. 99-371-RRM, McKelvie, J., 2001 U.S.
Dist. LEXIS 20430 (D. Del. Dec. 10, 2001).
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information and time to make an informed and reasoned decision whether or not to
tender. While the presence of a functioning audit committee of independent
directors might add some measure of protection for the Aquila stockholders, I
cannot conclude that its absence is clear and convincing evidence of an
injustice.
IV. IRREPARABLE HARM AND BALANCE OF EQUITIES
To demonstrate irreparable harm, a plaintiff must present an injury
"of such a nature that no fair and reasonable redress may be had in a court
of law" and must show that "to refuse the injunction would be a denial of
justice."(19) The alleged injury must be "imminent, unspeculative, and
genuine."(20) Even if plaintiffs had succeeded in showing a substantial
probability of success on one or more of their claims, they have failed to
establish the likelihood of irreparable harm or that the equities of the
situation favor the issuance of an injunction. I am led to these conclusions
for several reasons.
First, I am unable to accept plaintiffs' argument that the
defendants' failure to appoint independent directors amounts to irreparable
injury PER SE. Injury may be irreparable PER SE where there is shown to be a
clear violation of a legal right granted by law.(21) For the reasons already
discussed, plaintiffs have not made a showing of such a violation.
Second, the injury plaintiffs complain about and seek to redress
through the issuance of an injunction is the absence of two (out of five)
independent directors. Yet, it is entirely a matter of speculation to conclude
that a minority of independent directors--if now appointed--would do anything
materially different than has been done by Aquila's conflicted board. In the
face of the non-coercive, fully disclosed offer from UtiliCorp, it is
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(19) KOHLS V. DUTHIE, Del. Ch., 765 A.2d 1274, 1289 (2000) (internal
quotation marks omitted).
(20) H.F. AHMANSON & CO. V. GREAT WESTERN FIN. Corp., Del. Ch., C.A. No.
15577, Jacobs, V.C., mem. op. at 26 (June 30, 1997).
(21) SEE, E.G., ALLEN v. PRIME COMPUTER, INC., Del. Supr., 540 A.2d 417, 421
(1988).
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entirely possible that those directors' only positive duty would be to inform
themselves of the terms of the offer and to furnish to the Aquila
stockholders a full and complete disclosure on Schedule 14D-9.(22) It is
merely speculative to conclude that this would result in any material added
benefit to the Aquila stockholders who have already received its Schedule
14D-9 containing a description of the Blackstone financial analysis.
Third, even if those two new directors were to conclude that the
UtiliCorp offer is unfairly priced, they could do little more than
communicate their conclusion to the stockholders in the Schedule 14D-9 and
recommend that they not tender. Certainly, UtiliCorp would have no duty to
negotiate the price with them. Given these factors, it is hard to conclude
that the possible benefit of an injunction to Aquila stockholders would be so
substantial as to justify a conclusion that its absence irreparably harms the
Aquila stockholders. In the end, those stockholders would still have to
decide for themselves whether to tender or not and would still have the
collective power to reject the offer.
Finally, I am persuaded that, on balance, the issuance of an
injunction threatens more risk of harm to Aquila's stockholders than it
promises good. The possible harm is, of course, that UtiliCorp will determine
to abandon its offer and the Aquila stockholders will be deprived of the
chance to participate in this offer. While I have no way of knowing if a
majority of the shares held by Aquila's minority stockholders will be
tendered, the opportunity to decide whether or not to tender is certainly
valuable. By contrast, the possible benefits of an injunction appear to be
incremental rather than fundamental. Aquila stockholders already have access
to all of the information provided by UtiliCorp in its Form S-4 registration
statement, as well as the extensive summary of Blackstone's analysis found in
the Schedule 14D-9. Both of these disclosure documents have been sent or
given to
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(22) CF. SILICONIX, 2001 WL 716787 at *9.
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Aquila's stockholders. Neither is alleged to contain any false or misleading
material. These documents would appear to furnish Aquila's stockholders with
sufficient information upon which to make an informed judgment about the
offer. It is true that the Schedule 14D-9 does not contain a recommendation
by Aquila's directors, but the absence of such a recommendation is not
unusual in transactions of this sort,(23) and is not such an important
omission as to justify an injunction against the consummation of the
transaction. This is especially so when, as here, the publicly owned shares
are nearly all owned by sophisticated institutional investors.
CONCLUSION
For the reasons set forth above, plaintiffs' motion for preliminary
injunction is DENIED. IT IS SO ORDERED.
/s/ STEPHEN P. LAMB
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Vice Chancellor
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(23) ID.
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