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In re Bioclinica, Inc. Shareholder Litigation

Court of Chancery of Delaware

October 16, 2013

IN RE BIOCLINICA, INC. SHAREHOLDER LITIGATION

Submitted: July 25, 2013

R. Bruce McNew, of Taylor & McNew LLP, and Seth D. Rigrodsky, Brian D. Long and Gina M. Serra, of Rigrodsky & Long, P.A.; Of Counsel: Lionel Z. Glancy, Michael Golberg and Louis Boyarsky, of Glancy Binkow & Goldberg LLP, and Randall J. Baron and David T. Wissbroecker, of Robbins Geller Rudman & Dowd LLP, and Carl. L. Strine and Joshua H. Saltzman, of Wolf Popper LLP, Attorneys for Plaintiffs.

Gregory V. Varallo, Rudolf Koch, Robert L. Burns and Christopher H. Lyons, of Richards, Layton & Finger, P.A.; Of Counsel: Marc J. Sonnenfeld, Elizabeth Hoop Fay and Karen Pieslak Pohlmann, of Morgan, Lewis & Bockius LLP, Attorneys for Defendants BioClinica, Inc., David E. Nowicki, Mark L. Weinstein, Jeffrey H. Berg, Martin M. Coyne, E. Martin Davidoff, Marcella LoCastro, Adeoye Y. Olukotun, Wallace P. Parker, Jr. and John P. Repko.

Robert S. Saunders, Ronald N. Brown, and Arthur R. Bookout, of Skadden, Arps, Slate, Meagher & Flom, Attorneys for Defendants JLL Partners, Inc., BioCore Holdings, Inc. and BC Acquisition Corp.

MEMORANDUM OPINION

GLASSCOCK, Vice Chancellor

Where a complaint seeking to enjoin a merger on grounds of breach of duty by the company's directors is insufficient to support a motion to expedite, the chances of the same allegations surviving a motion to dismiss are vanishingly small.[1] Those chances are smaller still where the motion to dismiss comes after the merger has closed, the duty of care claims have fallen away with the request for injunctive relief, only damages are sought, and the allegations are necessarily limited to duty of loyalty claims.[2] I am faced with such a motion here. Although the Plaintiffs amended the Complaint after I denied their Motion to Expedite, I find that the new allegations are mostly simple revisions, and in any event are no more persuasive than the old.[3]

The Plaintiffs, former stockholders of BioClinica, Inc. ("BioClinica"), brought this action seeking to enjoin the acquisition of BioClinica by JLL Partners, Inc., BioCore Holdings, Inc. and BC Acquisition Corp. (collectively, "JLL"). On February 25, 2013, I denied the Plaintiffs' Motion to Expedite this litigation, finding that the Plaintiffs had failed to state a colorable claim. That decision foreclosed the Plaintiffs' attempts to enjoin the acquisition, and the transaction closed on March 13, 2013. The Plaintiffs amended their Complaint on April 22, 2013, and the Defendants have since moved to dismiss. For the reasons I explain below, I find that the Plaintiffs have failed to state a claim upon which relief can be granted, even accepting the allegations as true and drawing all reasonable inferences in favor of the Plaintiffs. Therefore, this action is dismissed.

I. BACKGROUND[4]

BioClinica is a clinical research company that provides assistance to pharmaceutical, biotechnology and medical-device companies engaged in conducting clinical studies.[5] Like many companies, BioClinica was hit hard by the economic downturn in 2008 and 2009.[6] By 2012, BioClinica's revenues and income were growing again.[7] In May 2012, the BioClinica board of directors (the "Board") determined that it would explore a sale of the company.[8] The Board established a committee of independent directors (the "Committee") to evaluate and negotiate any potential transactions, and engaged the services of EP Securities LLC ("Excel") to act as its financial advisor.[9] According to the Complaint, the Board instructed Excel to pursue private equity bidders instead of strategic bidders "to avoid disclosing confidential information to BioClinica's competitors . . . ."[10]Excel contacted seventeen potential private equity bidders, including JLL.[11]However, JLL declined to make a bid for BioClinica at that time.[12] In June 2012, several private equity bidders entered into non-disclosure agreements with BioClinica and met with BioClinica's management team and Excel.[13] In August 2012, Excel informed the Committee that three private equity bidders were interested in exploring an acquisition of BioClinica.[14] At that point, the Committee instructed Excel to solicit potential strategic acquirers.[15] Excel reached out to four strategic companies that it believed might be interested in acquiring BioClinica.[16]

Two strategic acquirers, Strategic Acquirer A and Strategic Acquirer B, expressed interest in a transaction with BioClinica and executed Non-Disclosure Agreements (the "NDAs").[17] In October 2012, Strategic Acquirer A informed Excel that it would not pursue a transaction.[18] On October 17, 2012, Strategic Acquirer B expressed an interest in acquiring BioClinica at a price ranging from $6.85 to $7.26 per share.[19] Around the same time, JLL reentered the sales process, executed an NDA, and met with Excel to discuss a potential purchase of BioClinica.[20]

On November 14, 2012, Excel reported that, although management at Strategic Acquirer B was "serious" about acquiring BioClinica, its board had declined to authorize the submission of a final bid.[21] On the same day, JLL expressed an interest in acquiring BioClinica at a price between $7.00 and $7.25 per share, contingent on exclusivity and due diligence.[22] After reviewing its fiduciary duties and considering that Excel had solicited twenty-one bidders yet only JLL remained seriously interested, the Committee decided to grant exclusivity to JLL.[23] At this point in the sales process, Excel had been seeking bidders for six months, and the only credible bidders were JLL and Strategic Acquirer B.[24] The request for exclusivity was granted "'so long as the final offer from JLL was no lower than the high end of the range' i.e. $7.25 per share."[25] In early January 2013, JLL requested an extension of its exclusivity period and disclosed to BioClinica that it was simultaneously pursuing an acquisition of CoreLab Partners, Inc. ("CoreLab"). On the same day, although Excel had been attempting to convince JLL to raise its offer price above $7.25 per share, JLL revealed that it was "considering revising its offer to less than $7.25 per share" as a result of "concerns regarding BioClinica's projected capital expenditures in coming years."[26] JLL sought an extension of the exclusivity period, to which the Committee agreed.[27]

On January 23, 2013, JLL confirmed that it would maintain its offer to acquire BioClinica at a price of $7.25 per share in an all-cash, two-step tender offer.[28] This price values BioClinica's equity at approximately $123 million and represents a premium of 23.2% over BioClinica's average closing price for the previous 90 days and a premium of 28.7% over the average price for the previous 52-week period.[29] Upon receiving this offer, the Committee agreed to recommend the transaction to the Board.[30] From January 25 through January 29, 2013, the Board met with Excel, company management, and its legal advisors multiple times to review the fairness of the transaction. At these meetings, Excel orally opined that the merger consideration was fair to the stockholders, and a written version of its fairness opinion was produced on January 29, 2013.[31]

The Merger Agreement was finalized on January 29, 2013, and the Board unanimously voted to approve the transaction.[32] On January 30, 2013, BioClinica issued a joint press release with JLL and BioCore, announcing the tender offer for BioClinica.[33] JLL purchased both BioCore and BioClinica, seeking to merge the two companies.[34] Upon the merger of the two companies, BioClinica's CEO and President, Mark L. Weinstein, was expected to lead the combined company.[35]

The Merger Agreement contained several deal-protection devices that the Plaintiffs challenge as being preclusive of other offers. In particular, the Merger Agreement contained a no-solicitation provision; a $6.5 million termination fee that included $2 million in expense reimbursement; information rights; and a top-up option.[36] Additionally, JLL was relieved of the effect of BioClinica's poison pill, which was left in effect with respect to any other stockholder.[37] The Plaintiffs allege that these deal-protection devices dissuaded Strategic Acquirer B from making an offer for the company.[38]

According to the Plaintiffs, at some time during the sales process, the Board provided JLL with revised capital expenditure estimates for 2012 and 2013.[39]Previously, management had predicted that 2012 capital expenditures would amount to $9.5 million; the actual amount expended was $8.9 million.[40] After the 2012 results were released, management projected capital expenditures to reach $11.9 million in 2013, which was revised upward from an earlier estimate of $6-8 million.[41] The Plaintiffs allege that the capital expenditure estimates were purposefully inflated in an attempt to depress the implied values for BioClinica in the fairness opinion because it was "difficult for Excel to render an opinion of fairness."[42]

II. STANDARD OF REVIEW

Under Rule 12(b)(6), this Court will not dismiss a complaint if there is a "reasonably conceivable" set of circumstances under which the plaintiff could prevail.[43] In determining whether to dismiss a complaint, the Court must accept all well-pleaded facts as true and draw all reasonable inferences in favor of the non- moving party.[44] "Although the standard is a minimal one, the Court will not credit ...


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