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.
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
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.
LASTER, Vice Chancellor.
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
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
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.
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.
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.
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.
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.
of the recapitalization, Clearwire, Sprint, Eagle River, and
the Strategic Investors entered into an Equityholders'
Agreement. 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. 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.
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.
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").
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. They considered a variety of alternatives,
including issuing debt, selling spectrum, and selling the
Company as a whole.
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.
Clearwire Turns To Sprint.
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.
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
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.
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.
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.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
The Sprint-Softbank Transaction
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.
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." Son planned for Sprint to acquire
Clearwire so that Sprint could use the spectrum
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.
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.
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. 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
Sprint Approaches Clearwire and Eagle River.
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." Without explaining why, Cowan
told Stanton that the transaction was "urgent and needs
to be done in the next 8-10 days." 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.
October 8, 2012, Stanton met with Dan Hesse, Sprint's
CEO, who "expresse[d] a strong desire" to buy
Clearwire. Like Cowan, Hesse emphasized that the
matter was "urgent and needs to be done in the next two
weeks, " without telling Stanton why. 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.
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
The Sprint-Softbank Transaction Leaks.
October 11, 2012, the news of the Sprint-Softbank Transaction
appeared in the press. 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.
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."Hesse told Stanton that Sprint planned to
buy out one of the Strategic Investors. Stanton reported the
call to the Strategic Committee. 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 . . . ."
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.
Stanton Tries To Elicit An Offer From
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. 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.
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
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. 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.
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
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." Stanton reported the incident to the
Clearwire Board and expressed concern that "Sprint
appears to be attempting to cut us off from our
The November 2 Meeting
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. 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).
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
and Son recalled the meeting differently. Fisher remembered
Stanton saying, "At $2.97, I can deliver the
shareholders. At $2.96, I cannot." 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
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
Softbank Lines Up Intel.
wanted Sprint to acquire Clearwire before the Sprint-Softbank
Transaction closed. To move quickly, Sprint needed to
convince the remaining Strategic Investors to waive their
notice rights under the Equityholders' Agreement.
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
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.
quid pro quo was simple and straightforward: Intel
would support the Clearwire-Sprint Merger in return for a
broader business arrangement with Softbank.
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. 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." 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.
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
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."
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." Stanton thought he could
generate a competitive dynamic with Sprint by finding buyers
for Clearwire's spectrum. 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.
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.
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 . . .
." 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." 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
The Accelerated Build
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. 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."
Accelerated Build represented a huge undertaking for
Sprint. 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." 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. Stanton proposed that Clearwire and
Sprint first finish negotiating the Clearwire-Sprint Merger.
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. 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.
December 7, 2012, the Special Committee directed Stanton to
continue negotiating with Sprint and to reiterate
Clearwire's demand for $3.15 per share. Two days
later, Sprint increased its offer to $2.90 per share. The
Special Committee again stood firm at $3.15 per
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
Son Draws a Line in the Sand.
Son learned that the Special Committee was continuing to
demand $3.15 per share, he was furious. Son believed
that Stanton "had made a commitment to [him] in
California to do this deal at $2.97." 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.'"
than immediately accepting Son's price, Clearwire
continued to explore the alternative of selling
spectrum. After DISH refused to increase its
offer, Clearwire reached out to other parties, including
Google. Google said it wasn't interested in a
transaction. 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.
December 16, 2012, the members of Clearwire's Special
Committee and its Audit Committee held a joint
meeting. 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.
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
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." 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
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
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.
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.
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.
Reactions To The Merger
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." 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
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]." Alternatively, DISH proposed to buy 11.4
billion MHz-pops of Clearwire's spectrum for $2.18
intervention at $3.30 per share changed the negotiating
landscape. The Special Committee instructed Stanton to engage
with DISH. DISH's appearance also energized
stockholder opposition to the merger.
Negotiations With DISH End.
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." To signal the sincerity
of their effort, the Special Committee caused Clearwire to
decline the January and February draws under the Note
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. DISH expressed its strong disapproval
and terminated discussions.
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
Two New Developments
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. 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
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. The Special
Committee directed management to engage with Verizon, but
doubted that a spectrum sale "could resolve the
fundamental liquidity issues [Clearwire] faced . . .
." 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
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. 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.
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." Stanton also reported that
stockholders remained opposed to the merger.Stanton
exhorted Fisher and Hesse "to increase your price
soon." But Sprint and Softbank continued to
resist a price increase.
Clearwire and Sprint Solicit Stockholder
April 23, 2013, Clearwire and Sprint filed a joint definitive
proxy statement in support of the Clearwire-Sprint
Merger. 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
. . . ." Sprint similarly recommended the merger
as "substantively and procedurally fair to
[Clearwire's] unaffiliated stockholders . . .
." 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 . . . ."
3, 2013, four large Clearwire stockholders-Mount Kellett,
Glenview Capital, Highside Capital, and Chesapeake
Partners-formed a group to oppose the merger. They
collectively held a significant percentage of Clearwire's
unaffiliated shares. The parties called them the "Gang
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." 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
• "Sprint plans to rapidly deploy 2.5 GHz
• "Clearwire could take certain actions that would
most likely result in significant delays to network
• "[S]print may transfer value to other
shareholders through wholesale payments (~33% of every $1
based on no-vote ownership) plus spectrum lease
• "Clearwire may become more valuable as Sprint
traffic and payments increase."
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
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.
Son's Roadshow Backfires.
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.
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]. 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. He told investors that
Clearwire was "essential to his strategy and as a
result, they would not [Clearwire] go bankrupt,
" 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
candor doomed the stockholder vote on the Clearwire-Sprint
Merger. On May 15, 2013, Stanton told Hesse and Fisher that
the "vote will fail." 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.
Sprint Increases Its Offer.
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." On May 21, Clearwire
convened its meeting of stockholders and immediately
adjourned the vote until May 31.
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. 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."
Exasperated, Hesse replied to Fisher:
Stanton's behest, Fisher agreed to "keep [Son] away
from shareholders" until after the stockholder
vote. 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
While we have no specific board approved plan in the
event of a no vote, we would likely do a mix of the
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
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.
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.
DISH Tops Again.
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. 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. DISH also
offered interim financing of up to $80 million per month
exchangeable at $2.50 per share.
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.
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
• "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
• "Financing will be required for Clearwire to
continue operating in 2013, make the December interest
payment, and continue operations into 2014 (approximately
• "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
• "Spectrum Use Agreement - to execute our current
strategy, we will need to negotiate an agreement to buy,
lease, or deploy on Clearwire spectrum."
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
• "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
5, 2013, the Special Committee and the Clearwire Board
changed their recommendation on the Clearwire-Sprint
Merger. Hersch told Stanton that the move
"maximize[s] our leverage with Sprint . . . and
improve[s] our chances of getting a bump."
Sprint And Softbank Consider Whether To Bump Again.
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." 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
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. The presentation discussed four
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.
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" 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.
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. Sprint also modeled a variation of the
Limited Build where Clearwire constructed 8000 LTE sites.
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
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. He told Son that the Full Build was
"difficult to understand since a detailed calculation is
not available . . ., but [my] feeling is,
'really?'" He agreed that the Limited
Build was feasible, but cautioned that it provided at best a
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. They also
created a full set of projections for Clearwire's
standalone business under the Full Build (the "Full
Build Projections"). 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
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]." Both the Full Build and the Limited
Build, however, were "materially worse than the
scenarios where the [Clearwire] deal
closes." Sprint's best option was to
increase its offer for Clearwire.
U.Sprint Decides to Increase Its Offer
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
• "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."
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.
The Final Merger Consideration
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
19, 2013, Fisher spoke with representatives of the Gang of
Four. They agreed to support the Clearwire-Sprint Merger at
$5.00 per share. 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%.
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
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
. . . ." The Special Committee also noted that
Sprint's lawsuit against DISH "gives rise to greater
uncertainty regarding the closing of the DISH
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. Sprint and Clearwire subsequently
entered into an amended merger agreement that increased the
merger consideration to $5.00 per share.
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.
THE BREACH OF FIDUCIARY DUTY CLAIM
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.
The Standard Of Review
determine whether a corporate fiduciary has breached its
duties, a court examines the fiduciary's conduct through
the lens of a standard of review. "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."
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.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.
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. 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. The burden of proof therefore remained
with Sprint "throughout the trial to demonstrate the
entire fairness of the interested
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. 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.
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." 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."
concept of fairness has two basic aspects: fair dealing and
fair price."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."
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." 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
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." The economic inquiry called for by the
fair price aspect is the same as the fair value standard
under the appraisal statute. 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. 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. "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."
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." 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. . .
." 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.
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. 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 or an award of rescissory
damages. Just as a fair process can support the
price, an unfair process can taint the price.
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 ...