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Miramar Firefighters Pension Fund v. AboveNet, Inc.

Court of Chancery of Delaware

July 31, 2013

MIRAMAR FIREFIGHTERS PENSION FUND, On Behalf of Itself and All Others Similarly Situated, Plaintiff,
v.
ABOVENET, INC., JEFFREY BRODSKY, MICHAEL J. EMBLER, BILL LAPERCH, RICHARD POSTMA, RICHARD SHORTEN, JR., STUART SUBOTNICK, ZAYO GROUP, LLC, and VOILA SUB, INC., Defendants.

Date: Submitted: April 16, 2013

Peter B. Andrews, Esquire of Faruqi & Faruqi, LLP, Wilmington, Delaware, Juan E. Monteverde, Esquire of Faruqi & Faruqi, LLP, New York, New York, and Jacob A. Goldberg, Esquire of Jenkintown, Pennsylvania, Attorneys for Plaintiff.

Gregory P. Williams, Esquire, Raymond J. DiCamillo, Esquire, and Kevin M. Gallagher, Esquire of Richards, Layton & Finger, P.A., Wilmington, Delaware, Attorneys for Defendants; Adam Offenhartz, Esquire, Nancy Hart, Esquire, and Lindsey Schmidt, Esquire of Gibson Dunn & Crutcher LLP, New York, New York, Attorneys for Defendants Zayo Group, LLC and Voila Sub, Inc.; and Tariq Mundiya, Esquire and Jeffrey B. Korn, Esquire of Willkie Farr & Gallagher LLP, New York, New York, Attorneys for Defendants AboveNet, Inc., William LaPerch, Jeffrey Brodsky, Michael J. Embler, Richard Postma, Richard Shorten, Jr., and Stuart Subotnick.

MEMORANDUM OPINION

NOBLE, Vice Chancellor

Plaintiff Miramar Firefighters Pension Fund ("Miramar"), a former stockholder of Defendant AboveNet, Inc. ("AboveNet" or the "Company"), alleges that the former directors of AboveNet (the "AboveNet Directors" or the "Board"), breached their fiduciary duties in connection with the acquisition of the Company (the "Merger") by Defendant Zayo Group, LLC and its related entity (collectively, "Zayo").[1] Miramar further alleges that Zayo aided and abetted the AboveNet Directors' breach of their fiduciary duties. The Defendants have moved to dismiss the Complaint.[2] Because the Complaint fails to state a reasonably conceivable claim, the Defendants' motion is granted.

I. BACKGROUND

A. Parties

Miramar brings this class action on behalf of the former public stockholders of AboveNet. Through its private optical network, AboveNet provided high bandwidth connectivity solutions and IP services in the United States and Europe.[3]Before the Merger, Defendant Bill LaPerch ("LaPerch") was the President and Chief Executive Officer ("CEO") of the Company and a member of the Board.[4]The remaining AboveNet Directors were not officers of the Company and had served on the Board since at least 2003.[5] Zayo is a Delaware limited liability company that provides, among other things, "high bandwidth infrastructure and carrier neutral colocation."[6]

B. The Merger

On March 19, 2012, AboveNet announced that it would be acquired by Zayo for approximately $2.2 billion in cash or $84 per share (the "Merger Agreement"), a 13 percent premium over AboveNet's March 16, 2012, stock price and a 21 percent premium over its average closing stock price for the 60 days preceding the announcement of the Merger. The Merger closed in June 2011 after 99.7 percent of the shares voted were cast in favor of the transaction (82.5 percent of the total outstanding stock).

C. The Scheme to Take AboveNet Private

As detailed in the Complaint, Miramar's theory is that LaPerch, by January 2011, had concocted a plan to sell the Company to a private equity buyer so that he could retain his role as CEO and roll over his equity into the private venture. J.P. Morgan, allegedly hired to go along with LaPerch's plan, began identifying potential suitors and the Board undertook a price discovery process. Through spring 2011, LaPerch "repeatedly prevailed upon the Board to exclude strategic acquirers from any involvement in the price discovery process . . . ."[7]Simultaneously, LaPerch worked with J.P. Morgan allegedly to manipulate the Company's financial projections in order to make it more attractive to a private equity buyer.[8] For example, J.P. Morgan reduced the Company's projected revenue growth rate of 12.5 percent in 2016 to a 3 percent projected revenue growth rate in 2020.[9]

However, in April 2011, word leaked about AboveNet's "price discovery process" and strategic acquirers began to express interest. One strategic acquirer submitted an indication of interest of $85 per share. While LaPerch and the Board were "forced to create the appearance of opening the process to some strategics[, ]" they nonetheless "refused to open the process to Zayo out of alleged concern for Zayo's ability to finance a transaction."[10] By June 2011, LaPerch allegedly convinced the Board to shut down the sale process for fear that strategic buyers would be willing to pay more for AboveNet than financial sponsors.[11]

But in January 2012, LaPerch "rekindled" his plan to take the Company private by re-opening negotiations with private equity buyers and causing J.P. Morgan to lower again the Company's financial projections. By February, AboveNet entered into a letter of intent and an exclusivity period with a consortium of private equity buyers "in an effort to prevent any strategic acquirers from disrupting [LaPerch's] plan to take the Company private."[12] In an attempt to justify and to cover up its exclusion of strategic buyers, the Board hired Moelis & Co. ("Moelis") to run a post-Merger Agreement go-shop. Miramar criticizes the Board's hiring of Moelis because it had never conducted a go-shop before.[13] As the Board closed in on a deal with a private equity group at $78 per share, David Caruso, the CEO of Zayo, contacted LaPerch and expressed an interest in acquiring AboveNet for $80 per share.

According to Miramar, LaPerch and the Board grudgingly allowed Zayo access to the due diligence data room in exchange for a confidentiality agreement, which included a standstill provision.[14] The Board then allegedly tried to derail Zayo's interest by refusing to allow J.P. Morgan to offer staple financing to Zayo, even though the Board ...


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