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Chester County Employees' Retirement Fund v. KCG Holdings, Inc.

Court of Chancery of Delaware

June 21, 2019

CHESTER COUNTY EMPLOYEES' RETIREMENT FUND on behalf of itself and all other similarly situated former stockholders of KCG HOLDINGS, INC., Plaintiff,
v.
KCG HOLDINGS, INC., DEBRA J. CHRAPATY, DANIEL COLEMAN, PETER R. FISHER, CHARLES E. HALDEMAN, JR., RENE M. KERN, JAMES T. MILDE, JOHN C. (HANS) MORRIS, ALASTAIR RAMPELL, DANIEL F. SCHMITT, LAURIE M. SHAHON, COLIN SMITH, HEATHER E. TOOKES, ADRIAN WELLER, VIRTU FINANCIAL, INC., and JEFFERIES LLC, Defendants.

          Submitted: March 20, 2019

          Michael Hanrahan, Paul A. Fioravanti, Jr., Kevin H. Davenport, Samuel L. Closic, Eric J. Juray, PRICKETT, JONES & ELLIOTT, P.A., Wilmington, Delaware; Eric L. Zagar, J. Daniel Albert, Stacey A. Greenspan, Matthew C. Benedict, KESSLER TOPAZ MELTZER & CHECK, LLP, Radnor, Pennsylvania; Jeremy S. Friedman, Spencer Oster, David F.E. Tejtel, FRIEDMAN OSTER & TEJTEL PLLC, New York, New York; Counsel for Chester County Employees' Retirement Fund.

          Daniel A. Mason, Brendan W. Sullivan, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Andrew G. Gordon, Susanna M. Buergel, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, New York, New York; Counsel for Virtu Financial, Inc. and KCG Holdings Inc. (n/k/a Virtu KCG Holdings LLC).

          William M. Lafferty, Ryan D. Stottmann, Coleen W. Hill, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; Counsel for Defendants Debra J. Chrapaty, Daniel Coleman, Peter R. Fisher, Charles E. Haldeman, Jr., Rene M. Kern, James T. Milde, John C. (Hans) Morris, Alastair Rampell, Daniel F. Schmitt, Laurie M. Shahon, Colin Smith, Heather E. Tookes and Adrian Weller.

          Gregory V. Varallo, Kevin M. Gallagher, Sarah T. Andrade, RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Brian A. Herman, John M. Maloy, MORGAN, LEWIS & BOCKIUS LLP, New York, New York; Counsel for Jefferies LLC.

          MEMORANDUM OPINION

          MCCORMICK, V.C.

         In July 2017, Virtu Financial, Inc. ("Virtu") acquired KCG Holdings, Inc. ("KCG") for $20 per share. In this case, a former KCG stockholder alleges KCG's directors failed to maximize value for the KCG stockholders in negotiating the merger, largely because of the actions of different influencers at both the beginning and the very end of the process that led to the transaction.

         At the front end of the process, the plaintiff points to secret dealings between Virtu and Jefferies LLC ("Jefferies"), KCG's largest stockholder and long-time financial advisor, which allegedly undermined the KCG board's ability to extract greater value from Virtu. The plaintiff contends that beginning in December 2016 and continuing through February 2017, Virtu and Jefferies met and discussed a potential acquisition of KCG. During that time, Jefferies proposed to Virtu that a sale of KCG's standalone bond-trading platform, BondPoint, would increase KCG's tangible book value ("TBV") to over $21 per share. Jefferies even gave Virtu confidential information about BondPoint, information which the plaintiff alleges Jefferies obtained as KCG's financial advisor. The plaintiff posits that by mid-February, Virtu and Jefferies had agreed that Jefferies would support a $20 per share deal price, and Virtu would sell BondPoint post-acquisition using Jefferies as its financial advisor.

         Meanwhile, KCG's board was unaware that Virtu was interested in acquiring KCG until late February. On February 23, 2017, Virtu sent KCG's board a proposal to acquire KCG at a price in the range of $18.50 to $20 per share. At the time, Jefferies was advising KCG's board on a restructuring plan that KCG's management believed was a financially superior alternative to KCG's offer. KCG's board still determined to engage in negotiations with Virtu at Jefferies' recommendation.

         Just before KCG received Virtu's initial expression of interest, Jefferies informed KCG's board of some-but not all-of its discussions with Virtu. Not immediately, but eventually, KCG became suspicious of Jefferies, tried to exclude Jefferies from the sales process, and hired another financial advisor. But Jefferies continued to advise KCG on the restructuring plan and pressure KCG's board to pursue a transaction with Virtu.

         At the back end of the process, the plaintiff points to different culprits. In April 2017, Virtu made its best and final bid of $20 per share. Every director except for KCG's chief executive officer, Daniel Coleman, approved a $20.21 per share counteroffer. Coleman told the board that a $20.21 counteroffer was "too low" and that the restructuring plan would create 25% more value than KCG's offer. Still, Coleman promised that he would support the merger if he could negotiate a satisfactory compensation and retention pool for himself and his management team. Coleman's desire to obtain compensation for his management team conflicted with the KCG board's obligation to maximize consideration paid to the KCG stockholders. Despite this conflict, the board authorized Coleman to negotiate simultaneously the compensation pool and deal price. In the end, KCG rejected the $20.21 counteroffer and Coleman negotiated a compensation pool to his satisfaction. Then, the KCG board-including Coleman-approved a $20 per share price.

         Compounding concerns, the night before the board approved the $20 per share price, Coleman and his management team revised the company's financial projections to be more pessimistic. The plaintiff says that the board approved those revisions over email. KCG's financial advisor then based the fairness opinion on the more pessimistic projections. With the revised projections, the deal price fit squarely in the middle of the financial advisor's discounted cash flow analysis.

         The plaintiff commenced this litigation shortly after KCG announced the merger. Initially, the plaintiff sought a preliminary injunction based on a claim that the merger was subject to anti-takeover measures found in Section 203 of the Delaware General Corporation Law. After discovery on the preliminary injunction motion, KCG issued a new proxy designed to moot the plaintiff's Section 203 claim, and the plaintiff withdrew the preliminary injunction motion. Using documents and testimony obtained in the preliminary injunction phase, the plaintiff amended its complaint to allege that the director defendants breached their fiduciary duties in negotiating and approving the merger and that Virtu and Jefferies aided and abetted in those breaches. The plaintiff also asserted a civil conspiracy claim against Virtu and Jefferies.

         The defendants have moved to dismiss the complaint. They argue that the merger is subject to the deferential business judgment standard of review under Corwin v. KKR Financial Holdings LLC because it was approved by a majority of KCG's stockholders in a fully informed, uncoerced vote.[1]

         The plaintiff, however, has identified three significant deficiencies in the defendants' disclosures concerning the merger that render the stockholder vote uninformed.

         First, the proxy fails to disclose detailed information about the BondPoint divestiture strategy proposed by Jefferies to Virtu. The proxy instead includes an ambiguous statement that Jefferies proposed that "certain divestitures" could raise KCG's TBV, creating the misleading impression that the divestiture strategy was undeveloped. By contrast, the complaint portrays a detailed, BondPoint-specific divestiture strategy informed by confidential financial information not previously disclosed to the stockholders. Next, the proxy fails to disclose Coleman's initial "too low" view of the $20.21 per share counteroffer, later support of the $20 per share deal price, and intervening negotiations of the compensation pool. Last, the proxy fails to disclose the more optimistic, earlier projections presented during the merger negotiations and the circumstances surrounding the creation of the later revised projections. It is reasonably conceivable that a stockholder would view the omitted facts as material and that the information disclosed is materially misleading.

         Because the plaintiff alleges facts sufficient to support a finding that the stockholder vote was not fully informed, Corwin does not lead to dismissal.

         As an independent basis for dismissal, the defendants argue that the plaintiff fails to state non-exculpated claims against the director defendants. The complaint, however, adequately alleges that the director defendants were fully complicit in the procedural flaws at the back-end negotiations. According to the complaint, the director defendants knowingly placed Coleman in a position to extract compensation for management at the expense of the per share merger price received by the stockholders. They then approved last-minute revisions to the company's projections that made the deal price more reasonable relative to the company's discounted cash flow valuation. These actions are enough to infer bad faith and state a non-exculpated claim for breach of fiduciary duties.

         The claims of aiding and abetting and conspiracy against Virtu and Jefferies also survive the defendants' motion. Claims for breach of the duty of care, though exculpated, provide a valid predicate for claims of aiding and abetting. Here, at a minimum, the plaintiff's concerns about the front-end process flaws concerning Jefferies and Virtu's secret negotiations adequately state a claim that the director defendants breached their duty of care. The complaint also adequately alleges that Virtu and Jefferies created the sort of informational vacuum this Court has found sufficient to constitute knowing participation in a breach of fiduciary duties in support of an aiding and abetting claim. Further, the complaint adequately alleges facts from which it can be inferred that Virtu and Jefferies conspired to pursue the merger for their own benefit and to the detriment of the stockholder class.

         I. FACTUAL BACKGROUND

         The background facts come from the Verified Second Amended Class Action Complaint (the "Complaint") and documents it incorporates.[2]

         A. Jefferies' History with KCG

         KCG was a global financial services firm that offered market-making, high-frequency trading services across asset classes, product types, and time zones. KCG was the product of a 2013 merger between GETCO Holding Company, LLC and Knight Capital Group, Inc. ("Knight Capital"). Jefferies had owned an interest in Knight Capital. As a result of the 2013 merger, Jefferies received a large pay-out and financial advisory fees while simultaneously retaining a substantial equity position in Knight Capital, later named KCG. Over the next three years, Jefferies nearly doubled its stake in KCG and continued to receive substantial financial advisory fees. In the fall of 2016, Jefferies advised KCG to repurchase the largest stockholder's shares. After the buyback, Jefferies became KCG's largest stockholder, owning approximately 24% of KCG's outstanding stock. The Complaint alleges that in 2016, Jefferies was looking to cash out of its KCG investment.

         B. Virtu Reaches Out to Jefferies to Express an Interest in Acquiring KCG

         Virtu was one of KCG's primary competitors. It had unsuccessfully pursued an acquisition of Knight Capital in 2012. By late 2016, Virtu viewed KCG's stock price as depressed and considered acquiring KCG. On December 19, 2016, Virtu's controlling stockholder, Vincent Viola, told Jefferies' CEO Richard Handler about Virtu's interest in acquiring KCG.

         Right after his meeting with Viola, Handler began negotiating a deal to sell KCG to Virtu. Handler asked Alexander Yavorsky, a Jefferies investment banker and long-time advisor to KCG, to analyze a $20 per share acquisition of KCG. The $20 per share price was based on the projected increase in KCG's TBV-the value of a company's equity after removing intangible assets-resulting from a sale of KCG's standalone bond trading platform, BondPoint. The next morning, Yavorsky provided Handler an analysis illustrating that BondPoint's sale would likely yield at least $200 million in proceeds and raise KCG's TBV by more than $2.20 per share to between $21 and $21.50 per share.

         On December 20, 2016, Handler met with Virtu's CEO, Douglas Cifu, who proposed that Virtu acquire KCG for $17 to $18 per share. Relying on Yavorsky's analysis, Handler countered that TBV was the proper way to value KCG, and that KCG's TBV would increase to at least $21 per share upon BondPoint's sale. Two days later, Cifu sent a text message to Handler saying that Jefferies' position on KCG's sale was "loud and clear," and Cifu was "[g]oing to run through some models with [Viola]" and get back to Handler in January 2017.[3]

         On December 27, 2016, Handler emailed KCG's CEO, Daniel Coleman, to suggest that KCG sell BondPoint and use the proceeds to repurchase KCG shares. Coleman responded that at that time KCG was not interested in a sale of BondPoint, which was experiencing rapid growth. Handler did not disclose to Coleman his discussions with Virtu. At the time, KCG management was developing a restructuring initiative (the "Restructuring Plan"). Indeed, Jefferies was assisting KCG with this effort. Coleman stated that a sale of BondPoint might be worth considering after the restructuring.

         Virtu prepared for negotiations concerning KCG throughout January 2017. In preparing, Virtu assumed a post-acquisition sale of BondPoint. On January 24, 2017, Virtu's CFO, Joseph Molluso, had Virtu's financial advisor, J.P. Morgan Securities LLC ("J.P. Morgan"), prepare a sensitivity table calculating KCG's TBV after a sale of BondPoint and repurchase of shares.

         Jefferies' Yavorsky delivered an hour-long presentation on KCG to Virtu on February 14, 2017. Notes from the meeting indicate that Yavorsky shared with Virtu confidential information regarding BondPoint, which Jefferies acquired as KCG's financial advisor. That information included BondPoint's EBITDA, growth rate, and projected value. KCG had never publicly disclosed that information nor authorized Jefferies to disclose it to Virtu.[4]

         The next day, Jefferies' Yavorsky floated a potential price range to Virtu's Molluso. Yavorsky stated that Jefferies was "[f]ocused on a price with a 2 handle," and Molluso "socialized that there [was] a bid offer [of] $18-$20 . . . ."[5] In an internal Virtu update, Molluso told Viola that Jefferies "[c]learly wants to do something."[6] Viola responded, "[w]e can make a deal happen."[7]

         Jefferies and Virtu's CEOs met on February 16, 2017. They discussed KCG's TBV and the price Jefferies would accept for its KCG shares. A few hours later, Molluso emailed Yavorsky to discuss BondPoint. Over the next few days, Handler and Cifu exchanged text messages on the timing and contents of Virtu's initial bid to KCG.

         C. Virtu Offers to Acquire KCG

         The plaintiff posits that, by the February 16, 2017 meeting of CEOs, Jefferies

and Virtu had reached a meeting of the minds that Jefferies would support Virtu's acquisition of all outstanding KCG shares for $20 per share. It was not until February 21, 2017, however, that Jefferies informed KCG of Virtu's interest in acquiring KCG. At that time, Handler told Coleman that Virtu would be making a formal offer to acquire KCG. Handler did not disclose to Coleman or anyone else at KCG that he had been negotiating with Virtu over the past two months.

         On February 22, 2017, Jefferies' Yavorsky told KCG's deputy general counsel about his February 14 meeting with Virtu. The deputy general counsel shared the news with KCG's general counsel, who then called Yavorsky directly. During these conversations, Yavorsky only discussed his February 14 meeting and did not provide information concerning his other communications with Virtu.

         On February 23, 2017, Virtu's Cifu emailed KCG's Coleman a non-binding indication of interest to acquire KCG at a price in the range of $18.50 to $20 per share in cash.[8] This offer represented a significant premium to the then-current trading price of $14.31, but it received a cool reception.

         Coleman acknowledged Virtu's bid, but accelerated management's efforts on the Restructuring Plan, which "management believed would return more capital to stockholders with less risk and disruption than a transaction with Virtu . . . ."[9] At that time, Coleman did not know the full extent of Jefferies' discussions with Virtu and he engaged Jefferies, and specifically Yavorsky, to help formulate the Restructuring Plan.

         D. KCG's Board Retains Advisors

         On February 26, 2017, KCG's twelve-person board of directors (the "Board") established a four-person sub-committee of outside directors to recommend an independent financial advisor to advise KCG in negotiations with Virtu.[10] The subcommittee met with various firms.

         On March 15, 2017, the Board met and decided, at the recommendation of the sub-committee, to retain Goldman Sachs ("Goldman") as KCG's financial advisor, and Sullivan & Cromwell LLP as KCG's legal advisor.

         E. KCG and Virtu Negotiate the Merger Agreement

         At the March 15 meeting, the Board discussed the Restructuring Plan and Virtu's bid. Coleman stated "management's belief that the value from the [Restructuring] Plan would be approximately 25% higher than" Virtu's offer, and stated "there was the potential for significant upside above and beyond the [Restructuring] Plan if the markets were to revert to more normal conditions."[11] The Board's advisors agreed with this analysis.[12] The Board concluded that Virtu's offer, even at the $20 per share price at the top-end of the range, undervalued KCG.

         The day before the March 15 Board meeting, however, Jefferies had reached out to KCG to encourage it to engage in discussions with Virtu. And at the Board meeting, despite the directors' view that Virtu's offer undervalued KCG, the Board determined to engage with Virtu as Jefferies recommended. Goldman took away from the meeting that "Jefferies (in [its] capacity as shareholder) told both the KCG chairman and CEO that if they didn't engage with Virtu, they would 'no longer be aligned, '" and that Jefferies was "[h]ighly likely to support a takeover; [and] gave price guidance to Virtu prior to its bid."[13]

         In a letter to Virtu dated March 15, Coleman requested additional detail from Virtu on what he described as key execution risks related to the proposed transaction, including with respect to retaining KCG employees. Coleman conditioned further discussion with Virtu on "threshold issues," including whether Virtu would (i) raise its price range which, "even at the top-end of the range, significantly undervalue[d] KCG," and (ii) share its retention and compensation plans for KCG's employees.[14]

         Virtu responded on March 16, proposing a form of non-disclosure agreement.[15] On March 17, Virtu and KCG entered into a non-disclosure agreement to allow KCG to commence its diligence process. Virtu received access to KCG's data room on March 20.

         F. KCG Attempts to Cabin Jefferies' Involvement in the Process

         Jefferies was frustrated that KCG selected Goldman over Jefferies and continued to push to be retained as an advisor on the merger. Handler demanded to meet with Coleman because, "given all the history, [Coleman] owe[d] [him] that . . . . [H]e deserve[d] this and w[ould] be extremely upset if [Coleman] refuse[d]."[16]

         Coleman, however, had grown distrustful of Yavorsky. After KCG received Virtu's March 16 communication, it became clear that Virtu and Yavorksy were in contact. Coleman instructed Virtu to cease communications with Yavorsky and to deal directly with Goldman. KCG also requested details about Jefferies' communications with Virtu. Jefferies' did not respond immediately. On March 29, 2017, Jefferies provided a timeline. The timeline omits: reference to the February 16 meeting of CEOs regarding KCG's value; that Handler assisted Virtu in drafting its initial February 23 bid letter; and that Jefferies shared confidential information with Virtu regarding BondPoint.

         Coleman informed Handler that he did not trust and did not want to work with Yavorsky specifically. Despite Coleman's reservations, Coleman offered Jefferies a $1 million advisory fee for the Restructuring Plan. Handler wanted more and insisted on "a real advisory role with a fair fee" as KCG's merger advisor.[17]Coleman agreed and recommended to the Board that Jefferies serve as co-advisor with Goldman on the merger. Ultimately, a committee of the Board rejected Coleman's recommendation.

         G. Other Expressions of Interest

         After the March 15 Board meeting, various news outlets published articles disclosing that Virtu had made an unsolicited offer to purchase KCG. This news led to a dramatic increase in KCG's stock price. KCG issued a press release confirming that it had received an unsolicited proposal from Virtu to acquire all of the outstanding KCG common stock for $18.50 to $20.00 per share in cash. Virtu also issued a press release confirming that it had made an offer to acquire KCG.

         On March 16, an entity identified in the proxy as "Party A" contacted Coleman to inform him that Party A was interested in exploring a strategic combination with KCG. Party A executed a non-disclosure agreement, obtained access to the data room, and held diligence sessions with members of KCG's management team. By March 24, however, Party A had informed Coleman that it was no longer interested in pursuing a possible transaction.

         On March 23, the Board instructed Goldman to reach out to other possible bidders for KCG. At a March 29 meeting of the KCG Board, Goldman reported to the Board that it had reached out to six potential bidders. Only one of the six, "Party B," expressed interest in receiving more information about KCG. A few days later, Party B withdrew its expression of interest and did not enter into a non-disclosure agreement with KCG.

         H. Virtu Offers $18.50 Per Share

         On April 10, 2017, Virtu offered $18.50 per share in cash to acquire KCG. Virtu's bid letter enclosed a voting agreement requiring Jefferies to support a sale of KCG to Virtu (the "Voting Agreement").[18]

         The next morning, Jefferies' Handler emailed Coleman insisting that Virtu would do a deal at $20 per share.[19] Roughly two hours later, Handler emailed Coleman again: "To be crystal clear, I have direct reason to be highly confident V[irtu] will do a deal at 20 dollars per share in cash today. That is what the [B]oard should be considering."[20]

         During a Board meeting on April 11, Coleman and others reported on Jefferies' communications regarding the $20 per share deal. Coleman reiterated that the Restructuring Plan could return $500 million to KCG shareholders within the next five fiscal years, and that the "[v]alue from [the] [R]estructuring [P]lan should be ~25% higher than [Virtu's] bid," with significant additional upside should market volatility return to normal conditions.[21] After this discussion, the KCG Board rejected Virtu's $18.50 offer. The Board instructed management to counter Virtu's offer "with an open ended price per share above $20.00."[22]

         I. Virtu Increases Its Offer to $20 Per Share

         In response to KCG's demand for an open-ended price above $20 per share, on April 12, 2017, Virtu delivered its "best and final" $20 per share bid.[23] Jefferies told KCG's Board Chairman Charles E. Haldeman, Jr. "that a $20 price per share would be embraced by Jefferies."[24]

         At a Board meeting held that same day, all Board members but Coleman voted in favor of a counter-offer of $20.21 per share-KCG's book value at the close of the first quarter of 2017. Coleman opposed the counteroffer because it "was still too low."[25] Yet Coleman promised to support the offer if Virtu could eliminate "closing risks, particularly personnel risks and the retention pool . . . ."[26]

         The next morning, Coleman delivered KCG's $20.21 counteroffer stating that the Board conditioned its approval of the merger on Virtu's agreement to a compensation and retention pool for KCG's employees. That afternoon, Coleman updated Haldeman on his compensation negotiations with Cifu. Haldeman asked if Coleman had heard anything from Virtu about price; Coleman responded that he had not. The next morning, Haldeman emailed Coleman, "[p]erhaps you can get the comp issued resolved and then you can resolve the price issue."[27]

         By April 15, 2017, Virtu had yet to agree to a compensation proposal to Coleman's liking. Haldeman encouraged him to keep negotiating. On April 17, 2017, Coleman informed the Board that he was still negotiating the compensation pool and waiting for a response to the latest counteroffer.

         After Cifu finally delivered Virtu's proposal on the compensation and retention pool, Coleman reported to Haldeman that "[t]hese numbers won't hold it together. I see no reason to hang out . . . . We have given on every issue."[28] At Haldeman's suggestion, Coleman created an exhibit illustrating outstanding compensation issues, which depicted a $13 million difference on the amount of bonus compensation for KCG's top management (close to the $13.5 million difference between KCG's $20.21 counter-offer and Virtu's $20 bid). Later that afternoon, Virtu rejected KCG's $20.21 counteroffer. That evening, Cifu reached an agreement with Coleman regarding the compensation pool, and Coleman emailed Haldeman, "[s]ounds like we have a deal on comp[.]"[29] Despite Virtu's earlier rejection of the $20.21 counteroffer, Haldeman thought this was good news. He responded: "[G]reat news. Thank you for your understanding on this. The Board is very appreciative on this."[30]

         At the April 19, 2017 meeting, the Board unanimously approved Virtu's $20 offer subject to Goldman's delivery of a fairness opinion. Later that evening, Jefferies and Virtu also executed their Voting Agreement.

         After the Board meeting, Coleman revised KCG's projections downward. Approximately six hours after the Board meeting ended, Coleman's management team circulated new five-year projections (the "Revised Projections") for KCG's standalone value under the Restructuring Plan. The Revised Projections differed from the projections that Coleman presented to the Board at the March 15 and April 11, 2017 Board meetings. The Revised Projections (i) lowered KCG's 2017 net revenue forecast by 2.6% and its 2017 adjusted EBITDA forecast by 21.8%; (ii) cut adjusted EBITDA by $28 million for the terminal year; (iii) cut 2017 adjusted net income by 42.8% from the April 11 projections; and (iv) shrunk KCG's projections for net revenue, adjusted EBITDA, adjusted net income and book value for all five years. Coleman requested that the directors (the "Director Defendants")[31]approve the changes reflected in the Revised Projections that evening to permit KCG to announce the merger before the Board's self-imposed deadline of April 20, 2017. The Director Defendants approved them by email.

         Goldman used the Revised Projections to change the assumptions underlying its discounted cash flow ("DCF") analysis. Due to the revisions, Virtu's $20 bid moved from the bottom to the middle of the DCF range.

         Goldman circulated its fairness opinion to the Board at 5:05 a.m. on April 20, 2017. The Board met at 6:30 a.m., and by 7:00 a.m., the Board had approved the merger.

         Later on April 20, 2017, KCG issued a press release announcing the merger. The press release announced that the $20 per share merger consideration represented a premium of approximately 45.7% over the unaffected stock price. This premium was higher than the median premium in similar transactions for each of the last five years, according to the press release. The merger consideration also represented a premium of approximately 12.7% over the closing price of KCG's stock on April 19, 2017, the last trading day before KCG and Virtu entered into the final merger agreement.

         In the same press release, KCG also announced negative pre-tax earnings for the first quarter of 2017 and a steep decline in net revenues from roughly $250 million for the first quarter of 2016 to less than $149 million for the first quarter in 2017. The press release further disclosed that, as of March 31, 2017, KCG had a TBV of $18.61 per share and a book value of $20.21 per share.

         J. The Proxy and the Preliminary Injunction Proceedings

         On June 1, 2017, KCG filed a definitive proxy statement in connection with the stockholders' vote on the merger. The next day, former plaintiff Herbert Greenway, a KCG stockholder, commenced this litigation against each of the Director Defendants, KCG, Virtu, Virtu subsidiary Orchestra Merger Sub, Inc., and Jefferies. Along with claims for breach of fiduciary duty and aiding and abetting, Greenway's initial complaint challenged the merger under 8 Del. C. § 203 ("Section 203").

         On June 9, 2017, this Court granted expedited discovery on the Section 203 claim alone.[32] After expedited discovery, which included document production and four depositions, KCG issued a new proxy (the "Proxy")[33] to moot the Section 203 claim. Greenway's counsel then withdrew the preliminary injunction motion on June 30, 2017.

         According to KCG, at the rescheduled vote held on July 19, 2017, 75.5% of KCG's shares, excluding the interested shares, voted in favor of the merger. The merger closed on July 20, 2017.

         K. Post-Merger Sale of BondPoint

         On June 2, 2017-the day after KCG issued the original proxy-Virtu told Jefferies that Virtu "would be in touch" to move forward a sale of BondPoint.[34] Jefferies gave Intercontinental Exchange, Inc. ("ICE") a BondPoint pitch book six days later-before the originally scheduled stockholder vote. On October 24, 2017, Virtu announced an agreement to sell BondPoint to ICE for $400 million in cash. The sale closed on January 2, 2018. Jefferies acted as Virtu's financial advisor on the sale. Virtu received $276 million in after-tax proceeds, paid Jefferies a $7 million fee, and applied the rest to pay down its merger-related debt.

         L. Procedural Posture

         On February 14, 2018, Chester County Employees' Retirement Fund ("Plaintiff") filed the first amended complaint, which the defendants ("Defendants") moved to dismiss. In response, on July 16, 2018, Plaintiff filed the second amended complaint[35] and Defendants renewed their motion to dismiss. The parties completed briefing on November 9, 2018, [36] and the Court held oral argument on March 20, 2019.[37]

         II. ...


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