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In re Novell, Inc. Shareholder Litigation

Court of Chancery of Delaware

November 25, 2014

IN RE NOVELL, INC. SHAREHOLDER LITIGATION

Date Submitted: June 5, 2014

Stuart M. Grant, Esquire, Cynthia A. Calder, Esquire, and Mary S. Thomas, Esquire of Grant & Eisenhofer P.A., Wilmington, Delaware; James Banko, Esquire of Faruqi & Faruqi, LLP, Wilmington, Delaware; and Mark Lebovitch, Esquire and Amy Miller, Esquire of Bernstein Litowitz Berger & Grossmann LLP, New York, New York, Attorneys for Plaintiffs.

Edward P. Welch, Esquire, Edward B. Micheletti, Esquire, and Cliff C. Gardner, Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware; and James R. Carroll, Esquire and Michael S. Hines, Esquire of Skadden, Arps, Slate, Meagher & Flom LLP, Boston, Massachusetts, Attorneys for Defendants Albert Aiello, Jr., Fred Corrado, Richard L. Crandall, Gary G. Greenfield, Judith Hamilton, Ronald W. Hovsepian, Patrick S. Jones, Richard L. Nolan, and John W. Poduska, Sr.

MEMORANDUM OPINION

NOBLE, Vice Chancellor

Plaintiffs, former shareholders of a corporation that completed a merger and a patent sale in April 2011, allege that director Defendants acted in bad faith by treating bidders differently for reasons other than pursuit of the best interests of the corporation and its stockholders. Defendants have moved for summary judgment on the bad faith claims, contending that there is no genuine issue of material fact regarding the reasonableness of their sales process or their motives. For the reasons that follow, Defendants' motion for summary judgment is granted.

I. BACKGROUND[1]

A. The Parties

Plaintiffs Oklahoma Firefighters Pension and Retirement System, Louisiana Municipal Police Employees' Retirement System, Operating Engineers Construction Industry and Miscellaneous Pension Fund, and Robert Norman (collectively, the "Plaintiffs"), former shareholders of Novell, Inc. ("Novell"), brought this class action against the members of Novell's board of directors (collectively, the "Board" or the "Defendants") involved in the transaction at issue in this litigation (the "Merger").[2] The Complaint challenged the independence of two of the nine directors, Ronald W. Hovsepian ("Hovsepian") and Gary G. Greenfield ("Greenfield").[3] Hovsepian was Novell's President and Chief Executive Officer from 2006 until the Merger closed.[4] Greenfield had ties to key, indirect investors in Attachmate Corporation ("Attachmate"), the acquiror.[5] On the motion to dismiss, the Court dismissed allegations related to Hovsepian[6] but left open the possibility that the Board had acted in bad faith by allowing Greenfield "to influence impermissibly the [sales] process."[7]

Before the Merger, Novell was a Delaware corporation that "develop[ed], [sold] and install[ed] enterprise-quality software that [was] positioned in the operating systems and infrastructure software layers of the information technology industry."[8] Plaintiffs held Novell stock until Novell became a wholly owned subsidiary of Attachmate through the Merger.[9] Attachmate, during the acquisition process, was a Washington corporation that "enable[d] IT organizations to extend mission critical services."[10] Attachmate's "principal stockholders" were investment funds affiliated with Francisco Partners, LP ("Francisco Partners"), Golden Gate Private Equity, Inc. ("Golden Gate"), and Thoma Bravo, LLC.[11]B. Solicitation and Early Bids

In late 2009, Symphony Technology Group ("Symphony") became interested in acquiring Novell.[12] Symphony spoke with Novell's former employees, customers, and partners, as well as a key shareholder, [13] and the head of Symphony's investment team, Bill Chisholm ("Chisholm"), asked Greenfield to introduce him to Hovsepian in February 2010.[14] Chisholm attempted to set up a meeting with Hovsepian, during which he planned to express Symphony's interest in Novell.[15] However, on March 2, 2010, Novell received an unsolicited proposal from Elliott Associates LP and associated parties (collectively, "Elliott") to acquire Novell for $5.75 per share in cash.[16] Elliott, a private investment fund, had acquired a 7.1% stake in Novell's common stock and an additional 1.4% stake through derivative agreements by that time. In a March 20 press release, issued after consultation with J.P. Morgan, its financial advisor, and outside special counsel, the Board rejected the proposal as inadequate.[17] The press release also announced that Novell was exploring strategic alternatives to enhance stockholder value. Yet while Symphony had met with J.P. Morgan on March 18 and expressed interest in acquiring Novell, [18] it was only contacted as a potential bidder on March 24.[19] From March to August, J.P. Morgan contacted approximately fifty-two potential buyers, both strategic and financial, for Novell.[20]

Novell began to send out draft non-disclosure agreements ("NDA") through J.P. Morgan in late March.[21] Attachmate received a draft NDA on March 30, [22] and Symphony received a draft NDA on April 13.[23] As of an April 2010 update from J.P. Morgan to the Board, Symphony was the only bidder not to have received a draft NDA.[24] Around May 3, before Symphony had executed its NDA, the Board added provisions requiring Symphony to disclose communications with former Novell employees and restricting future communication.[25] The Board required such commitment through the NDA "from that day on" due to concerns about disclosure of confidential information by "unfriendly" parties, "particularly ex-executives."[26] On April 20, J.P. Morgan began sending NDA signatories a confidential information supplement and a process letter asking for preliminary proposals by May 19.[27]

Early in the sales process, the Board decided that its best chance at closing a favorable deal was through a sale of the entire company to a strategic buyer.[28]Accordingly, the Board refused Symphony's request to partner with at least one strategic bidder due to concerns about limiting competition.[29] On the other hand, the Board allowed other financial bidders to partner with "primary" strategic bidders[30] and allowed Attachmate to partner with Francisco Partners and Golden Gate.[31] While the Board rejected Symphony's request to work with Elliott, [32] the Board later allowed Attachmate to discuss financing with Elliott.[33] Elliott did not execute an NDA until shortly after Attachmate asked to communicate with Elliott.[34]

As the potential buyers prepared their bids, a number encountered delays in Novell's responses to their due diligence requests.[35] Nonetheless, the initial proposals ranged from $5.50 to $7.50 per share, with Attachmate offering between $6.50 and $7.25 per share.[36] On August 11, the Board asked Attachmate and Symphony to submit their "best and final offer" by August 16 for (i) all of Novell ("WholeCo") and (ii) Novell excluding its open platform solutions business ("OPS, " and "WholeCo" without OPS, "RemainCo").[37] Attachmate offered $5.10 per share for ...


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