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ACP Master, Ltd. v. Sprint Corp.

Court of Chancery of Delaware

July 21, 2017

ACP MASTER, LTD., et al., Plaintiffs,
v.
SPRINT CORPORATION, et al. Defendants. ACP MASTER, LTD., et al., Petitioners,
v.
CLEARWIRE CORPORATION, Respondent.

          Date Submitted: April 25, 2017

          Stephen E. Jenkins, Marie M. Degnan, ASHBY & GEDDES, P.A., Wilmington, Delaware; Lawrence S. Robbins, Kathryn S. Zecca, Ariel N. Lavinbuk, William J. Trunk, Joshua S. Bolian, Shai D. Bronshtein, Peter B. Siegal, ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER, LLP, Washington, DC, Counsel for Plaintiffs ACP Master, Ltd., Aurelius Capital Master, Ltd., and Aurelius Opportunities Fund II, LLC.

          Robert S. Saunders, Jennifer C. Voss, Ronald N. Brown, III, Arthur R. Bookout, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware, Counsel for Defendants Sprint Corporation, Sprint Communications, Inc., and Respondent Clearwire Corporation.

          Donald J. Wolfe, Jr., Matthew E. Fischer, Christopher N. Kelly, POTTER ANDERSON & CORROON LLP, Wilmington, Delaware; Erik J. Olson, MORRISON & FOERSTER LLP, Palo Alto, California; James P. Bennett, MORRISON & FOERSTER LLP, San Francisco, California; James E. Hough, MORRISON & FOERSTER LLP, Tokyo, Japan; James J. Beha II, MORRISON & FOERSTER LLP, New York, New York, Counsel for Defendants Starburst I, Inc., and Softbank Corp.

          MEMORANDUM OPINION

          LASTER, Vice Chancellor.

         In July 2013, Clearwire Corporation ("Clearwire" or the "Company") and Sprint Nextel Corporation ("Sprint") completed a merger in which Sprint paid $5.00 per share to acquire the 49.8% of Clearwire's equity that Sprint did not already own (the "Clearwire-Sprint Merger"). Sprint's acquisition of Clearwire was part of a broader effort by Softbank Corp. ("Softbank"), the largest telecommunications company in Japan, to enter the United States cellular telephone market. Contemporaneously with the closing of the Clearwire-Sprint Merger, Softbank acquired majority control of Sprint (the "Sprint-Softbank Transaction").

         Entities associated with Aurelius Capital Management, LP (collectively, "Aurelius") held shares of Clearwire common stock when the Clearwire-Sprint Merger closed. Aurelius filed a plenary lawsuit which contended that the merger resulted from breaches of fiduciary duty by Sprint, aided and abetted by Softbank. Aurelius also filed a statutory appraisal proceeding. The cases were consolidated and tried.

         For purposes of the plenary action, assuming that entire fairness is the governing standard of review, Sprint proved at trial that the Clearwire-Sprint Merger was entirely fair. Judgment is entered in Sprint's favor on the claim for breach of fiduciary duty and in Softbank's favor on the claim for aiding and abetting.

         For purposes of the appraisal proceeding, Sprint proved that the fair value of the Company's common stock at the effective time of the Clearwire-Sprint Merger was $2.13 per share. Aurelius did not prove its more aggressive valuation contentions. Judgment in the appraisal proceeding is entered in favor of Aurelius for that amount, plus interest at the legal rate, compounded quarterly.

         I. FACTUAL BACKGROUND

         Trial lasted ten days. The parties introduced over 2, 500 exhibits and lodged twenty-nine depositions. Eleven fact witnesses and seven experts testified live. The laudably thorough pre-trial order contained 547 paragraphs. The pre-trial and post-trial briefing totaled 766 pages. The following facts were proven by a preponderance of the evidence.

         A. Clearwire

         Clearwire was a small telecommunications company that had assembled a large block of 2.5 GHz spectrum. Its major stockholder was Eagle River Holdings, LLC, an affiliate of Craig McCaw, a cellular telephone pioneer.

         Sprint had assembled another large block of 2.5 GHz spectrum. In 2008, as part of a complex, multi-party recapitalization, Sprint contributed its block to Clearwire and received a 51% ownership stake in the Company. Comcast, Intel, Time Warner Cable, BHN Spectrum Investments, and Google (collectively, the "Strategic Investors") contributed cash to Clearwire and received, collectively, a 22% ownership stake. Eagle River retained a 5% ownership stake. The remaining 22% was publicly traded.

         As part of the recapitalization, Clearwire, Sprint, Eagle River, and the Strategic Investors entered into an Equityholders' Agreement.[1] It called for the Clearwire board of directors (the "Clearwire Board") to have thirteen members. Sprint could appoint seven directors, but one had to be independent of Sprint. Eagle River could appoint one director. The Strategic Investors collectively could appoint four directors. Clearwire's Nominating Committee appointed the final director.[2] The Equityholders' Agreement required that any merger between Sprint and Clearwire prior to November 28, 2013 receive the approval of a majority of the shares unaffiliated with Sprint.[3]

         With Sprint's 2.5 GHz holdings added to its own, Clearwire became the largest private holder of wireless spectrum in the United States. Clearwire used the cash it received from the Strategic Investors to build the world's first fourth generation (4G) mobile network. The plan was for Sprint and the Strategic Investors to buy capacity on Clearwire's network at wholesale rates, then resell or use it themselves. Sprint and Clearwire quickly concluded a capacity agreement (the "Wholesale Agreement"). The other Strategic Investors never did.

         With Sprint as its only customer, Clearwire struggled to achieve consistent profitability. Clearwire's business prospects deteriorated further when the 4G standard Clearwire had chosen-WiMAX-lost out in the marketplace to a competing standard- Long-Term Evolution ("LTE").

         In fall 2010, the Clearwire Board created a Strategic Committee charged with exploring alternatives for Clearwire. Its members were John Stanton, Theodore Schell, and Dennis Hersch. At the time, all were independent, outside directors.[4] They considered a variety of alternatives, including issuing debt, selling spectrum, and selling the Company as a whole.

         In 2011, Stanton took the helm as Clearwire's Chairman and interim CEO. The Company's situation remained poor. Clearwire's auditors had added a going-concern qualification to its financial statements. In June 2011, Sprint gave back a portion of its Clearwire shares to lower its ownership to 49.8%, thereby ensuring that if Clearwire defaulted on its debt, it would not trigger a cross-default for Sprint. Clearwire's only path to survival required building an LTE network, but Clearwire lacked the necessary capital, and it was already burdened by debt from building its WiMAX network.

         B. Clearwire Turns To Sprint.

         In summer 2011, Clearwire approached Sprint about switching its network from WiMAX to LTE. Clearwire mentioned a possible merger, but Sprint did not take up the invitation. The parties instead focused on renegotiating the Wholesale Agreement. In a version of buyer financing, Clearwire wanted Sprint to advance the payments it would make to purchase capacity on a fully built-out LTE network so that Clearwire could use those funds to construct the network. Clearwire also wanted Sprint to make minimum-purchase commitments. Sprint wanted Clearwire to lower its rates. The negotiations were contentious and dragged on into the fall.

         In November 2011, after many bumps in the road, Sprint and Clearwire reached agreement on an amendment to the Wholesale Agreement. Sprint agreed to pay Clearwire $926 million for unlimited WiMAX services during 2012 and 2013 plus fees ranging from $5 to $6 per gigabyte for all other data sent over Clearwire's network. Sprint also agreed to help fund the build-out of an LTE network by making up to $350 million in prepayments for data capacity. The prepayments were conditioned on Clearwire having 5, 000 LTE sites in service by the end of 2013, and 8, 000 LTE sites in service by the end of 2014. The amendment gave Sprint a right of first refusal on any sale of Clearwire's "core spectrum."[5]

         After Clearwire and Sprint amended the Wholesale Agreement, Clearwire's stock rebounded to $2.50 per share. Clearwire was able to raise $715.5 million through an equity offering. Clearwire also secured $295 million in debt financing.

         But the good news was short-lived. In December 2011, three of the Strategic Investors (Comcast, Time Warner, and BHN) announced an agreement with Verizon that eliminated their need to buy capacity from Clearwire. A few months later, Google sold all of its Clearwire equity for $2.26 per share. Clearwire's efforts to find new customers continued to go nowhere. In the first half of 2012, Clearwire explored a variety of potential transactions with AT&T, T-Mobile, and MetroPCS. None of them bore fruit.[6]

         At a meeting of the Clearwire Board on July 24, 2012, management told the Board that Clearwire had "sufficient cash to get through the first half of 2013" but would either need to slow the LTE network build or obtain additional financing to survive beyond that.[7]Management was not optimistic about other alternatives, stating: "We believe we have talked to every conceivable party with which to partner seriously in the last year, " but without achieving any success.[8]

         C. The Sprint-Softbank Transaction

         Softbank's founder, chairman and CEO, Masayoshi Son, wanted to enter the U.S. cellular telephone market. In 2012, four players dominated that market: AT&T, Verizon, Sprint, and T-Mobile. AT&T and Verizon were the largest. Son wanted to acquire Sprint and T-Mobile, merge them into one company, and compete with AT&T and Verizon.

         Son planned for the combined company to use Clearwire's 2.5 GHz spectrum. Softbank had successfully built a network in Japan using 2.5 GHz spectrum, and Son believed Softbank could do the same in the United States. Softbank singled out Clearwire's spectrum as "Key for Our Success in US."[9] Son planned for Sprint to acquire Clearwire so that Sprint could use the spectrum fully.[10]

         In July 2012, Softbank began parallel negotiations with Sprint and T-Mobile. Sprint was receptive; T-Mobile was not. Although the idea of a three-party merger was put on hold, Son did not give up. He decided that Softbank would buy Sprint first.

         In September 2012, Softbank and Sprint reached agreement on the Sprint-Softbank Transaction. Softbank would acquire a 70% stake in Sprint and provide Sprint with approximately $8 billion in capital. The plan contemplated Sprint using some of the capital to take Clearwire private. Softbank anticipated that Sprint would pay $2.00 per share to acquire the minority stake in Clearwire.[11]

         To finance the Sprint-Softbank Transaction, Softbank needed to borrow approximately $18 billion. Softbank's lending syndicate conditioned the loan on Sprint having the right to appoint a majority of the members of the Clearwire Board.[12] The Equityholders' Agreement made this complicated, because it required that one of Sprint's designees be independent of Sprint. For complex reasons that are beyond the scope of this decision, Sprint concluded that the solution lay in buying the Clearwire shares owned by Eagle River or one of the Strategic Investors.

         D. Sprint Approaches Clearwire and Eagle River.

         Sprint decided to try to reach agreement with Clearwire and with either Eagle River or one of the Strategic Investors before news of the Sprint-Softbank Transaction leaked. On October 5, 2012, Keith Cowan, Sprint's President of Strategic Planning, contacted Stanton and told him that Sprint "would consider making [an] offer for all [Clearwire] shares at [a] low price."[13] Without explaining why, Cowan told Stanton that the transaction was "urgent and needs to be done in the next 8-10 days."[14] Cowan asked Stanton to get the Strategic Investors and Eagle River to waive their right under the Equityholders' Agreement to have thirty days' advance notice before Sprint began negotiating a merger with Clearwire.

         On October 8, 2012, Stanton met with Dan Hesse, Sprint's CEO, who "expresse[d] a strong desire" to buy Clearwire.[15] Like Cowan, Hesse emphasized that the matter was "urgent and needs to be done in the next two weeks, " without telling Stanton why.[16] Stanton told Hesse that he thought the Clearwire Board would support a merger at $2.00 per share. At the time, Clearwire's stock was trading around $1.30 per share.

         During the same period, members of Sprint management reached out to Eagle River and the Strategic Investors about buying their shares. The Sprint representatives did not disclose Softbank's interest in Sprint or its consequences for Clearwire.[17]

         E. The Sprint-Softbank Transaction Leaks.

         On October 11, 2012, the news of the Sprint-Softbank Transaction appeared in the press.[18] Analysts speculated that Clearwire was an important part of Son's vision for Sprint. Clearwire's stock rose over 70% on October 11, closing at $2.22 per share.

         Stanton called Hesse after the news broke. Given Clearwire's stock price, a deal at $2.00 no longer made sense. Stanton told Hesse that Sprint should make a "fair offer."[19]Hesse told Stanton that Sprint planned to buy out one of the Strategic Investors. Stanton reported the call to the Strategic Committee.[20] He expressed concern about Sprint buying out a Strategic Investor because it would let Sprint control the Clearwire Board: "[I]f Sprint appoints their insiders to our board . . . they will incrementally erode our ability to effectively serve our non-Sprint shareholders . . . ."[21]

         The leak of the Sprint-Softbank Transaction caused Eagle River to realize that it had considerable bargaining leverage against Sprint. Exploiting its leverage, Eagle River negotiated a sale of its block to Sprint at $2.97 per share. Under the Equityholders' Agreement, the other Strategic Investors had a right of first offer for the shares. None of them exercised their right.

         F. Stanton Tries To Elicit An Offer From Sprint.

         Sprint and Softbank tried to respond to the leak about their transaction by pretending that they did not want to acquire Clearwire immediately. On October 13, 2012, Hesse and Cowan each spoke with Stanton and said that Sprint and Softbank had no plans to buy out Clearwire's minority stockholders.[22] Stanton asked to speak with a representative of Softbank, and Sprint arranged a call with Ronald Fisher, Softbank's Vice Chairman and one of Son's key deputies. In preparation for the call, Cowan advised Fisher to avoid tipping their hand:

[Stanton] will want to engage you in direct discussions to buy the Company as quickly as possible after the announcement, or see whether you will support [Sprint] in engaging with them asap. Instead, I suggest that you indicate that your inclination is to take baby steps while your transaction with us is pending . . . while you are also willing to support some "lifeline" (i.e. dilutive) equity investments, and then be ready to consider a larger transaction (or not) once our deal closes. His reaction to that approach will tell you a lot, and potentially set a much better tone for any acquisition discussions.[23]

         Stanton and Fisher spoke on October 15, 2012. Fisher stuck to the party line and told Stanton that Softbank and Sprint had no immediate plans to acquire Clearwire, although they did want to appoint additional representatives to the Clearwire Board. Stanton asked if he could meet with Son, and Fisher agreed.[24]

         Stanton continued to think that a near-term deal with Sprint was in the best interests of Clearwire and its minority stockholders, so he tried to persuade Sprint and Softbank to make an offer. On October 22, 2012, he spoke with Fisher again.[25] Stanton told Fisher that the status quo was untenable and Clearwire would run out of money in less than a year. Stanton argued that renegotiating the Wholesale Agreement was a temporary fix. He told Fisher that a merger between Sprint and Clearwire was the only permanent solution.

         Clearwire also tried to raise capital by selling spectrum. In October 2012, Clearwire exchanged proposals with DISH. DISH wanted to enter into the cellular wireless market and had recently purchased a large quantity of spectrum from several bankrupt wireless operators. DISH was in the process of obtaining approval from the FCC to deploy this spectrum, but it lacked a network of its own. DISH thus represented both a potential purchaser of Clearwire's spectrum and a potential strategic partner.

         Clearwire also engaged in discussions with Qualcomm. When Hesse and Son got wind of Clearwire's discussions, they called various Qualcomm executives and told them that Sprint would have to approve any sale of Clearwire's spectrum. Stanton believed that Sprint and Softbank's calls "damaged [Clearwire's] credibility with Qualcomm and made it more difficult for us to do a transaction with them."[26] Stanton reported the incident to the Clearwire Board and expressed concern that "Sprint appears to be attempting to cut us off from our alternatives."[27]

         G. The November 2 Meeting

         On November 2, 2012, Stanton met with Son, Fisher, and Hesse in Palo Alto. Stanton made a detailed presentation designed to convince Son to acquire Clearwire.[28] He extolled the comparative advantages of a merger, estimating that it would yield $3 billion in synergies. He also attempted to put pressure on Sprint and Softbank by saying that Clearwire would have to sell its spectrum to raise capital without a merger. Rather than proposing a price, Stanton presented a range of values that ran from $2.11 per share (Clearwire's current market price) to $9.00 per share (a valuation implied from spectrum values ranging from $.17/MHz-pop to $.39/MHz-pop).[29]

         Stanton recounted the price discussions in an e-mail he sent to the Strategic Committee on November 4.

We then talked price. I asserted that Sprint had set a minimum price with their $2.97 per share agreement with Eagle River and said that regardless how that pricing came about, that our shareholders (particularly the [Strategic Investors]) would not accept a lower price than Eagle River. Dan [Hesse] pushed back hard arguing that the undisturbed Clearwire price was $1.30 and that we should take a reasonable premium over that price . . . I also noted that our stock was already over $2.00 and that they had to pay a premium over that price. I responded that that current price reflects a market perception that there had previously been a significant risk of bankruptcy and that the Sprint-Softbank deal had effectively eliminated that risk and thus a much higher price was now expected . . . I also . . . pointed out that $2.97 was about 20₵ per MHZ pop which was reasonable based on other recent transactions. During this conversation they asked if Comcast and Intel would accept the $2.97 price to which I responded that I did not know, but that I was relatively certain they would not accept a lower price.[30]

         Fisher and Son recalled the meeting differently. Fisher remembered Stanton saying, "At $2.97, I can deliver the shareholders. At $2.96, I cannot."[31] Son remembered the same statement, which he interpreted as a commitment to do a deal at $2.97 per share. Within hours of the November 2 meeting, a Sprint executive e-mailed his team: "Full speed ahead. Likely 2.97 per share. Start thinking about . . . modeling what the acquisition would look like."[32]

         On November 5, 2012, the members of Clearwire's Strategic Committee and its Audit Committee held a combined meeting. The directors agreed on the need to establish a new independent committee to oversee negotiations with Sprint. They also agreed that Clearwire would need interim financing from Sprint as part of any deal to address its short-term liquidity needs.[33]

         H. Softbank Lines Up Intel.

         Son wanted Sprint to acquire Clearwire before the Sprint-Softbank Transaction closed.[34] To move quickly, Sprint needed to convince the remaining Strategic Investors to waive their notice rights under the Equityholders' Agreement.

         Intel was a Strategic Investor and the largest Clearwire stockholder after Sprint, with 12.9% of the non-Sprint shares. Sprint had antagonized Intel by attempting to buy its shares without disclosing its discussions with Softbank. Since then, Intel had refused to waive its notice rights.[35]

         On November 7, 2012, Son called Paul Otellini, the CEO of Intel. Otellini recounted the meeting in an e-mail he sent to his deputies the following day:

The heart of [Son's] request is our [C]learwire stock. He has been convinced by Dan [Hesse] and John [Stanton] that [Clearwire] will run out of money soon and needs to be recapitalized and they want to buy back the stock of the [S]trategic [I]nvestors before the [S]print deal closes 6 months from now.
I told him we have no strategic reason to hold the stock, but that our selling it needs to be tied to a broader business arrangement with Softbank companies. We talked specifically about android handsets built for his networks in Japan, Indonesia . . . and Sprint. He needs 40M handsets a year to feed these carriers. He would like a strategic relationship with us to supply them along with tablets. He is interested in android at this time, but is very intrigued by the business [opportunity] that Taizen [i.e. an operating system used by Intel] represents.[36]

         The quid pro quo was simple and straightforward: Intel would support the Clearwire-Sprint Merger in return for a broader business arrangement with Softbank.

         The next day, November 8, 2012, Son met with other Intel executives and agreed that Softbank would launch an Intel-based phone in three major countries in 2013.[37] On November 9, Otellini's deputy, Arvind Sodhani, told Fisher that Intel was prepared to support Sprint's acquisition of Clearwire and was looking forward to working with Softbank on "strategic opportunities."[38] On November 12, Sodhani advised Fisher that Intel had waived its notice rights. Sodhani told Fisher that Intel was very excited about "the strategic project that had been discussed with [Son]" and that "[t]o show their support for this new relationship, Intel would like to invest any proceeds" from the Clearwire-Sprint Merger in Softbank stock.[39]

         I. Negotiations Begin.

         On November 9, 2012, Hesse told Stanton that Sprint was working on an offer to acquire Clearwire's minority shares. Fisher called Stanton later that day to express Softbank's support.[40]

         On November 13, 2012, the Clearwire Board formed a committee to negotiate with Sprint (the "Special Committee"). Its members were Hersch and Schell, who had served on the Strategic Committee, and Kathleen Rae, another outside director. None had any ties to Sprint. The Clearwire Board resolved that it would not authorize or approve a transaction with Sprint without the Special Committee's affirmative recommendation. The Special Committee expected the negotiations to be straightforward. As Schell put it at the time, "[T]here isn't going to be a process of soliciting other buyers; it's not a competitive deal . . . its [sic] a price negotiation and we kind of even know where we are going to wind up on it."[41]

         The Special Committee decided to have Stanton lead the negotiations with Sprint because he was a "legendary figure in the telecommunications world" who "would have enormous credibility and impact in negotiating with Sprint and Softbank."[42] Stanton thought he could generate a competitive dynamic with Sprint by finding buyers for Clearwire's spectrum.[43] On November 14, 2012, Clearwire sent DISH a non-binding term sheet for a spectrum sale. DISH told Clearwire that it needed to receive FCC approval of a pending application for its satellite spectrum before it could engage.[44]

         On November 21, 2013, Sprint sent Clearwire its initial offer of $2.60 per share. The price represented a 22% premium over Clearwire's closing price of $2.12 per share on the prior day. As part of the deal, Sprint proposed to provide Clearwire with up to $600 million in debt financing, convertible into Clearwire stock at $1.25 per share.

         On December 3, 2013, the Special Committee met to consider Sprint's proposal and discuss alternatives. One option was a spectrum sale, but although that alternative would provide some immediate liquidity, "it would not solve [Clearwire's] longer-term liquidity needs . . . ."[45] Another option was bankruptcy, but the Special Committee thought that "it was difficult to expect greater equity value in a restructuring transaction than Sprint's initial $2.60 per share proposal."[46] The Special Committee decided to counter at $3.15 per share. The Special Committee also asked for $800 million in interim financing and an exchange rate of $2.20 per share.[47]

         J. The Accelerated Build

         Also on December 3, 2012, Sprint representatives informed Stanton that Softbank wanted to dramatically expand Clearwire's LTE network build beyond what was contemplated by the Wholesale Agreement (the "Accelerated Build"). Clearwire's current plan had anticipated 5, 000 new sites by the end of 2013; Softbank wanted Clearwire to build 12, 500 sites.[48] Sprint and Softbank offered to finance the incremental sites and "to increase their revenue commitment to [Clearwire] to cover the continuing costs of long term operation of those sites in the event the deal did not close, for any reason."[49]

         The Accelerated Build represented a huge undertaking for Sprint.[50] On December 4, 2012, Stanton told Hesse that Clearwire was "more than happy to discuss" the Accelerated Build but that the parties needed "to get on the same page."[51] Stanton noted that although the Sprint representatives had mentioned building 7, 500 additional sites, Sprint's formal proposal contemplated building as many as 11, 000 additional sites, for a total of 16, 000 new sites in 2013.[52] Stanton proposed that Clearwire and Sprint first finish negotiating the Clearwire-Sprint Merger.

         On December 6, 2012, Sprint raised its offer for Clearwire to $2.80 per share. Sprint agreed to increase the amount of interim debt financing to $800 million but would only increase the conversion price to $1.50 per share.[53] On the same day, DISH offered to buy approximately 11.4 billion MHz-pops of spectrum from Clearwire for approximately $2.2 billion, with an option to purchase or lease additional spectrum.[54]

         On December 7, 2012, the Special Committee directed Stanton to continue negotiating with Sprint and to reiterate Clearwire's demand for $3.15 per share.[55] Two days later, Sprint increased its offer to $2.90 per share. The Special Committee again stood firm at $3.15 per share.[56]

         On December 11, 2012, Sprint completed its purchase of shares from Eagle River for $2.97 per share. After the purchase, Sprint controlled 50.4% of Clearwire's voting power.[57]

         K. Son Draws a Line in the Sand.

         When Son learned that the Special Committee was continuing to demand $3.15 per share, he was furious.[58] Son believed that Stanton "had made a commitment to [him] in California to do this deal at $2.97."[59] Fisher relayed Son's reaction to Stanton, who informed the Special Committee that Softbank "would approve an offer at $2.97 per share and would not offer a higher price 'as a matter of principle.'"[60]

         Rather than immediately accepting Son's price, Clearwire continued to explore the alternative of selling spectrum.[61] After DISH refused to increase its offer, Clearwire reached out to other parties, including Google. Google said it wasn't interested in a transaction.[62] Google actually was interested, but Google had contacted Sprint previously about Clearwire's spectrum, and Sprint convinced Google to wait until after Sprint and Softbank acquired Clearwire.[63]

         On December 16, 2012, the members of Clearwire's Special Committee and its Audit Committee held a joint meeting.[64] The committees received a fairness opinion from Centerview, the Special Committee's financial advisor. Centerview compared the $2.97 per share price to numerous metrics for valuing Clearwire. These metrics included a discounted cash flow ("DCF") analysis of two sets of revenue projections prepared by Clearwire's management in the ordinary course of business. The first set of projections were the Single Customer Case, which assumed that Sprint would remain Clearwire's only major wholesale customer. The second set of projections were the Multi Customer Case, which assumed that Clearwire would obtain additional wholesale customers and therefore additional revenue.

         Sprint also prepared internal projections of its wholesale payments to Clearwire. Sprint did not provide its own projections to the Special Committee during the negotiations of the Clearwire-Sprint Merger. Consequently, Centerview did not consider Sprint's internal projections in its fairness opinion.

         Centerview's DCF analysis under the Multi Customer Case indicated that Clearwire's value exceeded Sprint's $2.97 per share offer. The Special Committee recognized, however, that the Multi Customer Case was not a viable plan because Clearwire "still didn't have any prospect of having a second customer."[65] The Special Committee and Centerview both regarded the Single Customer Case as Clearwire's operative reality. Centerview's DCF analysis under the Single Customer Case indicated that Clearwire's value was no greater than $0.75 per share. Centerview therefore concluded that Sprint's offer was fair to Clearwire's minority stockholders.

         Supported by Centerview's fairness opinion, the Special Committee resolved that $2.97 per share was a fair price for Clearwire and recommended that the Clearwire Board approve the Clearwire-Sprint Merger. Immediately following the joint meeting, the Clearwire Board met and adopted the Special Committee's recommendation.

         On December 17, 2012, Clearwire and Sprint signed a merger agreement. As required by the Equityholders' Agreement, the Clearwire-Sprint Merger was conditioned on approval of a vote of a majority of the non-Sprint shares.

         In a related agreement, Sprint agreed to provide Clearwire with up to $800 million in interim financing (the "Note Purchase Agreement"). Clearwire could draw on the financing in ten monthly installments of $80 million. The resulting notes had a 1% coupon and could be converted into Clearwire shares at $1.50 per share.

         Intel and the other Strategic Investors entered into a Voting and Support Agreement with Sprint and an accompanying Right of First Offer Agreement. In the Voting and Support Agreement, the Strategic Investors committed to vote for the Clearwire-Sprint Merger. In the Right of First Offer Agreement, Sprint committed to buy, and the Strategic Investors to sell their shares at the price offered in the merger agreement if the merger did not close.[66]

         L. Reactions To The Merger

         Clearwire's investors reacted negatively to the Clearwire-Sprint Merger. Investors told Clearwire that the price of $2.97 per share was inadequate. They also objected to the Note Purchase Agreement as "dilutive and coercive."[67] On December 21, 2012, Hesse reported to Son and Fisher that "[t]he activism of the dissident [Clearwire] shareholders is apparently picking up, not only buying shares but reaching out to other [Clearwire] equity holders to vote against the transaction."[68]

         DISH's reaction to the Clearwire-Sprint Merger was more consequential. On December 28, 2012, DISH proposed to tender for up to 100% of Clearwire's outstanding common stock at $3.30 per share. DISH also offered to provide Clearwire with interim financing in lieu of the Note Purchase Agreement. DISH conditioned its offer on receiving the right to appoint directors to the Clearwire Board and other governance rights, including the right to veto "material transactions with related parties (including Sprint) unless these transactions were approved by [a committee of independent directors]."[69] Alternatively, DISH proposed to buy 11.4 billion MHz-pops of Clearwire's spectrum for $2.18 billion.

         DISH's intervention at $3.30 per share changed the negotiating landscape. The Special Committee instructed Stanton to engage with DISH.[70] DISH's appearance also energized stockholder opposition to the merger.

         M. Negotiations With DISH End.

         DISH's demands for governance rights ran contrary to the terms of the Equityholders' Agreement. Throughout January and February 2013, the Special Committee analyzed how DISH could make an actionable proposal. The Special Committee believed that "[t]he key to leveraging" Softbank and Sprint was "to figure out what we can deliver to [DISH] in terms of governance, etc."[71] To signal the sincerity of their effort, the Special Committee caused Clearwire to decline the January and February draws under the Note Purchase Agreement.[72]

         By February 2013, however, the Special Committee had come to doubt its ability to navigate around Sprint's contractual rights. On February 26, the Special Committee decided that Clearwire would accept the March draw under the Note Purchase Agreement.[73] DISH expressed its strong disapproval and terminated discussions.[74]

         With DISH out of the picture, Clearwire scheduled the stockholder vote on the merger for May 21, 2013. Clearwire subsequently accepted the April draw under the Note Purchase Agreement."[75]

         N. Two New Developments

         In April 2013, the Special Committee confronted two new developments. The first was an alternative source of interim financing. Aurelius, the plaintiff in this case, and Crest, another large stockholder that had already sued Sprint and Clearwire's directors for breaching their fiduciary duties in connection with the Clearwire-Sprint Merger, offered Clearwire $320 million in debt financing, convertible into Clearwire equity at $2.00 per share.[76] The conversion price was superior to the Note Purchase Agreement, so the Special Committee asked Sprint to waive its blocking rights and permit Clearwire to access the financing. Sprint refused.[77]

         The second development was an offer from Verizon to buy spectrum leases held by Clearwire for the twenty-five largest markets in the United States, covering approximately 5 billion MHz-pops. Verizon's proposal valued Clearwire's spectrum between $.22 and $.30 per MHz-pop.[78] The Special Committee directed management to engage with Verizon, but doubted that a spectrum sale "could resolve the fundamental liquidity issues [Clearwire] faced . . . ."[79] In addition, Sprint had the right under the Wholesale Agreement to veto any sale of Clearwire's core spectrum, making the transaction non-viable unless Sprint consented.

         O. DISH Re-Engages.

         After dropping off the map for more than a month, DISH reemerged in April 2013 with a surprising new tactic. On April 15, 2013, DISH submitted an unsolicited proposal to Sprint's board of directors for a merger between DISH and Sprint.[80] DISH thought that its merger proposal would encourage Clearwire's stockholders to vote down the Clearwire-Sprint Merger, and that Clearwire would then file for bankruptcy. Because DISH had accumulated a large stake in Clearwire's debt, it could then acquire Clearwire's spectrum cheaply through a bankruptcy auction.

         Stanton tried to use DISH's involvement to extract a price increase. On April 16, 2013, Stanton explained to Fisher and Hesse that DISH "now holds a blocking position in several classes of [Clearwire's] debt securities" and that if Clearwire's stockholders "vote no on our transaction . . . Dish has the strongest position to buy the assets of the company."[81] Stanton also reported that stockholders remained opposed to the merger.[82]Stanton exhorted Fisher and Hesse "to increase your price soon."[83] But Sprint and Softbank continued to resist a price increase.[84]

         P. Clearwire and Sprint Solicit Stockholder Support.

         On April 23, 2013, Clearwire and Sprint filed a joint definitive proxy statement in support of the Clearwire-Sprint Merger.[85] In the section explaining its recommendation in favor of the merger, the Special Committee told stockholders that $2.97 per share was a fair price and that the merger was "more favorable to our unaffiliated stockholders when compared with other strategic alternatives . . . ."[86] Sprint similarly recommended the merger as "substantively and procedurally fair to [Clearwire's] unaffiliated stockholders . . . ."[87] Sprint justified this claim by pointing to "the fact that Comcast, [BHN] and Intel, who collectively own approximately 13% of the Company's voting shares . . . have agreed to vote their shares in favor of the Merger Agreement . . . ."[88]

         On May 3, 2013, four large Clearwire stockholders-Mount Kellett, Glenview Capital, Highside Capital, and Chesapeake Partners-formed a group to oppose the merger.[89] They collectively held a significant percentage of Clearwire's unaffiliated shares.[90] The parties called them the "Gang of Four."

         On May 5, 2013, the Finance Committee of Sprint's board of directors held a meeting. Michael Schwartz, Sprint's head of corporate development, "proposed that the Committee consider either increasing the consideration offered to Clearwire's shareholders . . . or arrange for financing to help prevent a Clearwire bankruptcy in the event of a 'no' vote."[91] Schwartz reasoned as follows:

• "Without a Clearwire acquisition, Sprint will have to pay for both (1) capacity on the Clearwire network (current agreement is $5-6 per GB) plus (2) what could be significant fees to secure access to deploy 2.5 GHz spectrum [on] the Sprint network. Such payments could exceed the build out and operating costs that would be incurred if transaction closes."
• "Sprint plans to rapidly deploy 2.5 GHz LTE."
• "Clearwire could take certain actions that would most likely result in significant delays to network development."
• "[S]print may transfer value to other shareholders through wholesale payments (~33% of every $1 based on no-vote ownership) plus spectrum lease payments."
• "Clearwire may become more valuable as Sprint traffic and payments increase."[92]

         Schwartz told the Finance Committee that Clearwire would require additional funding if the Clearwire-Sprint Merger was rejected or delayed. He proposed that Sprint issue $1 billion in convertible debt at an exchange price of $2.00 per share.[93]

         After Schwartz's presentation, the Finance Committee "recommended that management increase the consideration offered to Clearwire shareholders to $3.50 per share, subject to Softbank's consent . . . ." The Finance Committee also resolved to "continue to work on the financing plan" as a fallback.[94]

         Q. Son's Roadshow Backfires.

         While Sprint was trying to marshal stockholder support for the Clearwire-Sprint Merger, Softbank was trying to marshal stockholder support for the Sprint-Softbank Transaction. On May 8-10, 2013, Son and Fisher met with a series of large Sprint stockholders. Many of the investors also held large positions in Clearwire.

         In an effort to convince the investors to support the Sprint-Softbank Transaction, Son spoke of his vision for Sprint and its ability to use Clearwire's spectrum. He described Clearwire as "The Treasure" and explained that his "path to achieving his 300-year vision leads to [Clearwire].[95] He also contradicted arguments that Clearwire and Sprint had been making in favor of their deal. For example, he told the investors that new technology "would allow [Softbank] to build out 2.5 spectrum at significantly lower capex, " which undermined Clearwire and Sprint's arguments that the 2.5 GHz spectrum was not as valuable as other bands.[96] He told investors that Clearwire was "essential to his strategy and as a result, they would not [Clearwire] go bankrupt, "[97] which undercut Cleawire and Sprint's arguments about Clearwire's financial viability. He also told the investors that if the Clearwire-Sprint Merger failed, "any subsequent deal to acquire the [Clearwire] minority stake would be structured so they wouldn't require a majority of the minority and shareholders could pursue appraisal rights if they didn't agree with the takeout price."[98]

         Son's candor doomed the stockholder vote on the Clearwire-Sprint Merger. On May 15, 2013, Stanton told Hesse and Fisher that the "vote will fail."[99] Stanton urged Sprint and Softbank to increase their price. He told Hesse and Fisher that, if the merger was voted down, the Clearwire Board was considering defaulting on a $250 million interest payment due on June 1.

         R. Sprint Increases Its Offer.

         Faced with a certain no-vote, Softbank relented and agreed to a price increase. On May 20, 2013, Sprint increased its offer to $3.40 per share, telling Clearwire that it was its "best and final offer."[100] On May 21, Clearwire convened its meeting of stockholders and immediately adjourned the vote until May 31.[101]

         But the bump was not enough for Clearwire's dissident stockholders, many of whom had heard Son's presentations about the value of Clearwire. Citing Son's comments, they told Stanton that they believed Clearwire's value to be still higher.[102] In an e-mail, Stanton told Hesse and Fisher that one large stockholder was "on the fence at 2.97" before Son's roadshow, but now believed that "Clearwire was worth $4-5."[103] Exasperated, Hesse replied to Fisher: "omg."[104]

         At Stanton's behest, Fisher agreed to "keep [Son] away from shareholders" until after the stockholder vote.[105] From that point on, Fisher took the lead for Softbank in speaking with Clearwire stockholders. Together, Sprint and Softbank adopted a carrot-and-stick approach: emphasize the financial benefits of the Clearwire-Sprint Merger, while also threaten to take control of the Clearwire Board and dilute the minority stockholders if they voted down the merger. Sprint's talking points for investor calls highlight the latter dimension of the strategy.

While we have no specific board approved plan in the event of a no vote, we would likely do a mix of the following:
1. Provide convertible/exchangeable capital at conversion/exchange prices significantly below the original $2.97/offer. We would expect to offer the public pro-rata participation in these down rounds.
2. We would expect this process to be executed repeatedly over time.
3.We would expect to designate our rights with respect to board governance (designate 7 Sprint representatives).
4. We would expect to buy the [Strategic Investors'] shares (this would raise Sprint's ownership to 68%).
5. Once the standstill [in the Equityholders' Agreement] expires in November, we may, from time to time, make open market purchases or provide tender offers in order to provide liquidity in market.[106]

         Fisher and Stanton successfully persuaded a few large stockholders to support the Clearwire-Sprint Merger at $3.40 per share. Nonetheless, it appeared that Clearwire's stockholders would still vote down the merger.[107]

         S. DISH Tops Again.

         For a third time, DISH shook up the deal landscape. On May 29, 2013, DISH offered to purchase up to 100% of Clearwire's shares for $4.40 per share.[108] DISH conditioned its offer on receiving the same governance protections it had asked for in January, but DISH did not condition its offer "on the absence or failure of" any challenge by Sprint to DISH's requested governance rights.[109] DISH also offered interim financing of up to $80 million per month exchangeable at $2.50 per share.

         During a meeting on May 30, 2013, the Special Committee resolved to (i) adjourn the stockholder meeting until at least June 13, (ii) make the June 1 interest payment on Clearwire's debt, and (iii) decline the $80 million June draw under the Note Purchase Agreement.[110]

         Sprint's board of directors also met on May 30, 2013. Management gave a presentation that outlined the components of Sprint's plans in the event of a no vote:

• "Execute plan to name new Sprint Directors (7 of 13)."
• "To avoid potential cross-default risk, Sprint plans to reduce voting interest below 50%, similar to what has been done in the past."
• "[P]rovide Clearwire with $320 million of financing to insure Clearwire makes [its] June 1 interest payment."
• "Financing will be required for Clearwire to continue operating in 2013, make the December interest payment, and continue operations into 2014 (approximately $1B)."
• "MVNO Agreement - Sprint's existing agreement to purchase 4G capacity from Clearwire is perpetual; 2014 and beyond pricing is $6 per GB declining to $5 per GB based on volume; 2014 4G payments estimated to be approximately ~$500M, subject to Clearwire build-out and Sprint customer usage."
• "Spectrum Use Agreement - to execute our current strategy, we will need to negotiate an agreement to buy, lease, or deploy on Clearwire spectrum."[111]

         Management elaborated on Sprint's options with a decision tree. Sprint's "mid-to-long term plan" in the decision tree flowed to two options: "Restructuring" and "Status Quo." The following items were listed under "Status Quo:"

• "Exercise all rights (e.g. change board)."
• "Ongoing financing of ~$1B for first year."
• "Consider offering to re-finance Clearwire's [$2.9 billion] callable debt . . . which is secured by spectrum."
• "Negotiate an agreement to gain access to 2.5 GHz on Sprint sites."
• "Attempt to renegotiate MVNO rates."
• "Consider increasing ownership stake post Standstill (Nov[ember] 2013)."
• "Concerns regarding viability of Clearwire as a standalone entity without additional wholesale customers or financing."[112]

         On June 5, 2013, the Special Committee and the Clearwire Board changed their recommendation on the Clearwire-Sprint Merger.[113] Hersch told Stanton that the move "maximize[s] our leverage with Sprint . . . and improve[s] our chances of getting a bump."[114]

         T. Sprint And Softbank Consider Whether To Bump Again.

         DISH's tender offer exposed a fault line between Softbank and Sprint. Sprint wanted to top DISH's offer. Softbank did not. Topping DISH's offer would increase the total price for Clearwire by at least $1 billion, which Softbank felt was "a big number for a company that . . . was burning cash and had high leverage."[115] Softbank had often left a public float in companies where it acquired control (including in its then-pending Sprint-Softbank Transaction), and Son was comfortable with Sprint doing the same with Clearwire.[116]

         Faced with a likely no-vote, Sprint took a hard look at its ability to achieve Son's vision if Sprint did not own Clearwire. Led by Schwartz, employees from Sprint's finance, network, and corporate development groups spent two weeks analyzing possible scenarios. They summarized their work in a PowerPoint presentation titled "Clearwire Alternatives, " which Hesse requested to help convince Fisher and Son to top DISH's bid.[117] The presentation discussed four options.

         The first option was to increase the merger consideration and acquire Clearwire. The presentation outlined the cost of topping DISH's bid at various price points.

         The second option was to not acquire Clearwire but still use Clearwire's spectrum as if Sprint owned Clearwire. This scenario was called the "Full Build." Schwartz described its creation as a "mechanical exercise"[118] in which he assumed (i) consummation of the Sprint-Softbank Transaction, (ii) consummation of the Clearwire-Sprint Merger, and (iii) rapid deployment of 2.5 GHz LTE spectrum on 38, 000 sites, which was what Softbank planned to do if the Clearwire-Sprint Merger succeeded. Schwartz then backed out merger- related costs and made various assumptions about the terms on which Sprint would use Clearwire's spectrum as a wholesale purchaser.

         The third option was to not acquire Clearwire and only build out Clearwire's spectrum to the extent envisioned by the Wholesale Agreement. This was called the "Limited Build." It assumed: (i) Sprint's "current sub[scriber] forecast, " (ii) Sprint's "current [forecasted] tonnage growth", (iii) Sprint's "current spectrum holdings, " and (iv) Clearwire's construction of 5300 LTE sites by the end of 2013.[119] Sprint also modeled a variation of the Limited Build where Clearwire constructed 8000 LTE sites.

         The fourth option was to find other spectrum that Sprint might use to satisfy network demands. None of the alternatives were viable. Son described them as either "stupid, " "too expensive, " or "wouldn't work."[120]

         To my eye, the Clearwire Alternatives presentation seems designed to lead a reader to the conclusion that the only rational path was to increase the merger price, which was what Sprint wanted. Son had his chief technology officer analyze the presentation.[121] He told Son that the Full Build was "difficult to understand since a detailed calculation is not available . . ., but [my] feeling is, 'really?'"[122] He agreed that the Limited Build was feasible, but cautioned that it provided at best a "temporary solution."[123]

         Sprint's board of directors was scheduled to meet on June 17, 2013. To prepare for the meeting, Schwartz and the corporate development team created detailed financial models for Sprint under the Full Build and the Limited Build.[124] They also created a full set of projections for Clearwire's standalone business under the Full Build (the "Full Build Projections").[125] Clearwire's revenue under the Full Build Projections far exceeded its revenue under any other set of projections. The Full Build Projections forecasted that Sprint would pay Clearwire $20.9 billion in wholesale payments from 2013 to 2018, compared to $4.7 billion under the Single Customer Case prepared by Clearwire's management.

         Schwartz's team also modeled Sprint's financial profile under the Limited Build. Contrary to Schwartz's expectations, their model indicated that the Limited Build was financially superior to the Full Build. The projected loss of subscribers under the Limited Build was "more than offset by the savings from the much lower 2.5 tonnage and resulting payment to [Clearwire]."[126] Both the Full Build and the Limited Build, however, were "materially worse than the scenarios where the [Clearwire] deal closes."[127] Sprint's best option was to increase its offer for Clearwire.

          U.Sprint Decides to Increase Its Offer Again.

         On June 17, 2013, Sprint's board of directors met as scheduled. Schwartz attended the meeting and gave a presentation to the board. A slide titled "Rationale for Updated Approach" listed several justifications for increasing the merger consideration:

• "Sprint's preference is to acquire 100% of Clearwire, but with a fall back position if that was not possible, Sprint could reasonably expect to enter into a commercial agreement that would provide access to 2.5 GHz. There was also a possible path to acquiring Clearwire at a later date at a reasonable price."
• "Dish tender creates a significant risk to this plan. If Dish obtains its desired stake and some or all of its desired governance rights, Sprint may not be able to (1) enter into a commercially reasonable agreement with Clearwire to access 2.5GHz, and (2) acquire the remaining stake in Clearwire at a reasonable price."
• "There has been no change to the intrinsic value of Clearwire . . . All estimates of Clearwire [sic] value using traditional DCF methodologies, including Clearwire's Single Customer Case (Clearwire has stated that its Multi Customer Case does not appear viable) provide values well below Sprint's initial offer to Clearwire."
• "Given Sprint's current network deployment plan, a successful Dish tender could create substantial 'hold up' value. Dish's potential ability to block Sprint's current plans could create a negative impact on Sprint that exceeds Clearwire's value, while also destroying value for Sprint."[128]

         Schwartz did not present the financial models he developed. Sprint's board agreed to authorize an increase in the merger consideration to $5.00 per share without seeing the Full Build Projections.

         V. The Final Merger Consideration

         Also on June 17, 2013, Sprint sued DISH and Clearwire in this court, alleging that DISH's tender offer violated Sprint's contractual rights under the Equityholders' Agreement and Delaware law. On June 18, DISH rescinded its proposed merger with Sprint and announced that it would instead "focus [its] efforts and resources on completing the Clearwire tender offer."[129]

         On June 19, 2013, Fisher spoke with representatives of the Gang of Four. They agreed to support the Clearwire-Sprint Merger at $5.00 per share.[130] Fisher relayed the news to Son, telling him: "This is a higher price than what I would have liked but we eventually agreed to settle on this as a price that neither of us are happy with, but gets the deal done." Fisher added that he and Sprint "have also spoked to Intel and Comcast and have their support . . . Together with the shareholders that have already voted in favor, this should get us to over 50%.[131]

         On June 19, 2013, Sprint provided Clearwire with a revised merger agreement that increased the merger consideration to $5.00 per share. In return, Sprint required that Clearwire "terminate all discussions with [DISH]" and issue a press release stating that the Special Committee and the Board had reinstated their recommendation in favor of the Clearwire-Sprint Merger and against the DISH tender offer.[132]

         On June 19, 2013, the Special Committee considered the revised merger agreement. The Special Committee members acknowledged that the revised merger agreement would preclude further negotiations with DISH but concluded that "the benefits of locking in the $5.00 per share proposal from Sprint . . . outweighed the possibility that DISH might increase its offer . . . ."[133] The Special Committee also noted that Sprint's lawsuit against DISH "gives rise to greater uncertainty regarding the closing of the DISH Offer."[134]

         On June 20, 2013, the Special Committee voted unanimously to recommend Sprint's offer to the Board. The Board adopted the Special Committee's recommendation later that day.[135] Sprint and Clearwire subsequently entered into an amended merger agreement that increased the merger consideration to $5.00 per share.

         During a special meeting of stockholders held July 8, 2013, the holders of approximately 82% of Clearwire's unaffiliated shares voted in favor of the Clearwire-Sprint Merger. On July 9, the Clearwire-Sprint Merger closed. On July 10, the Sprint-Softbank Transaction closed.

         II. THE BREACH OF FIDUCIARY DUTY CLAIM

         Aurelius sought to prove that the Clearwire-Sprint Merger resulted from breaches of fiduciary duty by Sprint, aided and abetted by Softbank. Aurelius also pursued a statutory appraisal of its shares. The Delaware Supreme Court has instructed that when a litigant asserts both types of claims, the Court of Chancery should address the breach of fiduciary duty claims first, because a finding of liability and the resultant remedy could moot the appraisal proceeding.[136]

         A. The Standard Of Review

         To determine whether a corporate fiduciary has breached its duties, a court examines the fiduciary's conduct through the lens of a standard of review.[137] "When a transaction involving self-dealing by a controlling shareholder is challenged, the applicable standard of judicial review is entire fairness, with the defendants having the burden of persuasion."[138]

         In an effort to avoid fiduciary review entirely, Sprint argues that it was not a controlling stockholder and therefore did not owe fiduciary duties to Clearwire and its minority stockholders. Sprint owned a majority of Clearwire's equity, which traditionally sufficed to confer controlling stockholder status and concomitant fiduciary duties.[139]Sprint, however, disputes this proposition and asserts that even a majority stockholder must exercise actual or effective control over the corporation's board of directors before it can be deemed a controller and a fiduciary. Building on this premise, Sprint argues that the governance provisions in the Equityholders' Agreement prevented Sprint from exercising effective control over Clearwire and prevented Sprint from owing fiduciary duties. Given the outcome of the case, I need not reach this argument. Assuming that Sprint was Clearwire's controlling stockholder, Sprint did not breach its fiduciary duties.

         In an effort to ameliorate the burden it would bear under the entire fairness standard, Sprint argues that either the involvement of the Special Committee or the requirement of a majority-of-the-minority vote resulted in Aurelius bearing the burden at trial to prove that the Clearwire-Sprint Merger was unfair. The Delaware Supreme Court has held that when entire fairness applies, the defendant fiduciaries bear the burden of proving fairness unless they seek and obtain a pretrial determination that the burden should be allocated differently.[140] In this case, the defendants moved for summary judgment on this issue, but the record did not permit a pretrial determination that the defendants were entitled to a burden shift.[141] The burden of proof therefore remained with Sprint "throughout the trial to demonstrate the entire fairness of the interested transaction."[142]

         In an effort to limit the extent of the conduct that is subject to review under the entire fairness test, Sprint argues that its actions should be evaluated separately and in isolation from Softbank's, such that none of Softbank's activities can attributed to Sprint. Contrary to Sprint's position, there are a range of fact-specific circumstances in which the conduct of one actor can be attributed to another for purposes of imposing liability.[143] This decision does not require detailed analysis on this point because even if all of Softbank's conduct is attributed to Sprint and viewed in the aggregate, Sprint did not breach its fiduciary duties.

         B. Evaluating Fairness

         As noted, when a stockholder plaintiff challenges a transaction between a corporation and its controlling stockholder, the governing standard of review is entire fairness. "Fairness does not depend on the parties' subjective beliefs."[144] Once entire fairness applies, the defendants must establish "to the court's satisfaction that the transaction was the product of both fair dealing and fair price."[145]

         "The concept of fairness has two basic aspects: fair dealing and fair price."[146]Although the two aspects may be examined in turn, they are not separate elements of a two-part test. "[T]he test for fairness is not a bifurcated one as between fair dealing and price. All aspects of the issue must be examined as a whole since the question is one of entire fairness."[147]

         The fair dealing aspect of the unitary entire fairness standard "embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and the stockholders were obtained."[148] As with the overarching issue of fairness, the various dimensions of fair dealing can elide, such that a particular instance of unfair dealing undermines multiple aspects of the process. This is often the case when a controller engages in an act of unfair dealing that it subsequently fails to disclose. In those situations, the act both provides evidence of unfairness in its own right and gives rise to an additional instance of unfairness in the form of a disclosure violation.[149]

         The fair price aspect of the entire fairness test "relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock."[150] The economic inquiry called for by the fair price aspect is the same as the fair value standard under the appraisal statute.[151] The two standards differ, however, in that the appraisal statute requires that the court determine a point estimate for fair value measured in dollars and cents.[152] The fair price aspect of the entire fairness test, by contrast, is not in itself a remedial calculation. The entire fairness test is a standard of review that is applied to identify a fiduciary breach.[153] "For purposes of determining fairness, as opposed to crafting a remedy, the court's task is not to pick a single number, but to determine whether the transaction price falls within a range of fairness."[154]

         When evaluating the question of fiduciary breach, the court considers whether "a reasonable seller, under all of the circumstances, would regard [the transaction] as within a range of fair value; one that such a seller could reasonably accept."[155] This standard recognizes the reality that "[t]he value of a corporation is not a point on a line, but a range of reasonable values. . . ."[156] Applying this standard, a court could conclude that a price fell within a range of fairness that would not support fiduciary liability, and yet the point calculation demanded by the appraisal statute could yield an award in excess of the merger price.[157]

         Consistent with the unitary nature of the entire fairness test, the fair process and fair price aspects interact. The range of fairness has most salience when the controller has established a process that simulates arm's-length bargaining, supported by appropriate procedural protections.[158] A strong record of fair dealing can influence the fair price inquiry and lead to a conclusion that the price was fair. But the range of fairness is not a safe-harbor that permits controllers to extract barely fair transactions. Factors such as coercion, the misuse of confidential information, secret conflicts, or fraud could lead a court to hold that a transaction that fell within the range of fairness was nevertheless unfair compared to what faithful fiduciaries could have achieved. Under those circumstances, the appropriate remedy can be a "fairer" price[159] or an award of rescissory damages.[160] Just as a fair process can support the price, an unfair process can taint the price.[161]

         Broadly framed, the deal process in this case had two phases. The first phase encompassed Sprint and Softbank's overtures to Clearwire, the negotiation of the original merger agreement, and Sprint and Softbank's efforts to obtain stockholder approval at the original price of $2.97 per share. When stockholder approval was not achieved and DISH intervened, the ...


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