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Vento v. Curry

Court of Chancery of Delaware

March 22, 2017

Richard Vento
v.
Robert J. Curry, et al.

          Date Submitted: March 21, 2017

          Peter B. Andrews, Esquire Craig J. Springer, Esquire Andrews & Springer LLC.

          S. Mark Hurd, Esquire Coleen W. Hill, Esquire Morris, Nichols, Arsht & Tunnell LLP.

         Dear Counsel:

         This letter decision resolves plaintiff's motion to preliminarily enjoin a vote of the stockholders of Consolidated Communications Holdings, Inc. ("Consolidated") scheduled for March 28, 2017, until certain information concerning the financial interests of Consolidated's financial advisor in the proposed transaction is fully disclosed. For the reasons explained below, the motion is granted.

         I. Background

         This action arises out of a proposed transaction whereby Consolidated intends to acquire FairPoint Communications, Inc. ("FairPoint") in a stock-for- stock merger pursuant to a merger agreement they entered into on December 3, 2016. The transaction is expected to close in mid-2017.[1]

         Morgan Stanley & Co. LLC ("Morgan Stanley") served as Consolidated's lead financial advisor and provided the only fairness opinion Consolidated received in connection with the transaction. An affiliate of Morgan Stanley, Morgan Stanley Senior Funding, Inc. ("MSSF"), committed to provide part of $935 million in debt financing for the merger.

         Under the merger agreement, Consolidated is required to issue approximately 24.2 million shares of Consolidated common stock to FairPoint stockholders, who would hold approximately 28.7% of the issued and outstanding common stock of the combined company if the merger is approved. As a NASDAQ listed company, Consolidated is required by NASDAQ listing rules to secure stockholder approval before issuing 20% or more of its outstanding common stock. Therefore, the merger can be completed only if Consolidated stockholders vote to approve the proposed share issuance.

         On January 26, 2017, Consolidated filed a Form S-4 Registration Statement with the Securities and Exchange Commission, which it amended on February 24, 2017 (the "Amended Registration Statement"). The Amended Registration Statement announced that a special meeting of Consolidated's stockholders would be held on March 28, 2017, to consider approving the proposed share issuance.

         On March 3, 2017, plaintiff Richard Vento, a Consolidated stockholder, filed the complaint in this action against the current members of the Consolidated board of directors alleging a single claim for breach of fiduciary duties in connection with the merger. Specifically, plaintiff alleges that defendants breached their fiduciary duties by failing to disclose certain information relating to Morgan Stanley's conflicts of interest with respect to the proposed transaction.

         To his credit, plaintiff seeks relief to correct the alleged disclosure deficiencies in advance of the pending stockholder vote, which is the appropriate time to do so if a stockholder representative truly believes the disclosure claims have merit and truly wishes to obtain meaningful relief for the benefit of the putative class of stockholders he represents.[2] That said, plaintiff waited an inordinate amount of time, until March 14, 2017, eighteen days after the stockholder meeting was scheduled, to file his motion for a preliminary injunction. Because the issue presented on this motion is narrow and defendants thus cannot legitimately claim to have been prejudiced by the delay, the motion will not be barred by laches. The reality, however, is that the Court has been pressed into dealing with this matter on an unnecessarily compressed timeframe.

         II. Analysis

         To obtain a preliminary injunction, plaintiff must demonstrate: "(1) a reasonable probability of success on the merits; (2) irreparable harm if the action is not enjoined; and (3) that the need for protection outweighs any harm that can reasonably be ...


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