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In re Appraisal of Stillwater Mining Co.

Court of Chancery of Delaware

August 21, 2019

IN RE APPRAISAL OF STILLWATER MINING COMPANY

          Date Submitted: May 23, 2019

          Samuel T. Hirzel, II, Elizabeth A. DeFelice, HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Lawrence M. Rolnick, Steven M. Hecht, Jonathan M. Kass, Glenn McGillivray, LOWENSTEIN SANDLER LLP, New York, New York; Attorneys for Petitioners.

          S. Mark Hurd, Lauren Neal Bennett, MORRIS, NICHOLS, ARSHT & TUNNELL LLP, Wilmington, Delaware; James R. Warnot, Jr., Adam S. Lurie, Brenda D. DiLuigi, Nicole E. Jerry, Elizabeth M. Raulston, LINKLATERS LLP, New York, New York; Attorneys for Respondent.

          MEMORANDUM OPINION

          LASTER, V.C.

         This post-trial decision determines the fair value of the common stock of Stillwater Mining Company ("Stillwater" or the "Company") as of May 4, 2017, which is when Sibanye Gold Limited completed its acquisition of Stillwater through a reverse-triangular merger (the "Merger"). Pursuant to an agreement and plan of merger dated December 9, 2016 (the "Merger Agreement"), each share of Stillwater common stock was converted at closing into the right to receive $18.00, subject to the right of each holder to eschew the merger consideration and seek appraisal.

         The petitioners perfected their appraisal rights and litigated this appraisal proceeding. They contended that Stillwater's fair value was $25.91 per share. To justify this outcome, they relied on an expert who valued Stillwater using a discounted cash flow ("DCF") model.

         The respondent in an appraisal proceeding is technically the surviving corporation, but the real party in interest is the acquirer. The petitioners' true opponent in this proceeding was Sibanye.

         Sibanye contended that Stillwater's fair value was $17.63 per share. To justify this outcome, Sibanye relied on a combination of metrics, including the deal price, Stillwater's unaffected trading price with an adjustment for a valuation increase between the unaffected date and closing, and an expert valuation based on a DCF model.

         Sibanye proved that the sale process was sufficiently reliable to make the deal price a persuasive indicator of fair value. Although Sibanye argued for a deduction from the deal price to account for value arising from the Merger, Sibanye failed to prove that an adjustment was warranted.

         The parties engaged in lengthy debate over whether Stillwater's adjusted trading price could provide a persuasive indicator of fair value. The reliability of the adjusted trading price depended on the reliability of the unaffected trading price, and both sides engaged experts who conducted analyses and offered opinions about the attributes of the market for Stillwater's common stock. The evidence demonstrated that Stillwater's trading price could provide a persuasive indicator of value, but that it was a less persuasive indicator than the deal price. This decision therefore does not use a trading price metric.

         Neither side proved that its DCF valuation provided a persuasive indicator of fair value. The experts disagreed over too many inputs, and the resulting valuation swings were too great, for this decision to rely on a model when a market-tested indicator is available.

         This decision concludes that the deal price is the most persuasive indicator of fair value. Relying on any of the other valuation metrics would introduce error. The fair value of the Stillwater on the valuation date was therefore $18.00 per share.

         I. FACTUAL BACKGROUND

         The parties generated an extensive evidentiary record. They commendably reached agreement on 283 stipulations of fact. During four days of trial, they introduced 909 exhibits and lodged twenty-one depositions in evidence. Three fact witnesses and seven expert witnesses testified live. What follows are the court's findings based on a preponderance of the evidence.[1]

         A. The Company

         At the time of the Merger, Stillwater was a Delaware corporation engaged in the business of extracting, processing, smelting, and refining minerals from an orebody known as the J-M Reef. Located in in the western United States, the J-M Reef contains deposits of palladium, platinum, and rhodium, which are known in the mining industry as "platinum group metals" or "PGMs." These metals are rare, and the J-M Reef is the only PGM asset in the United States. The other principal sources of PGMs are located in South Africa, Russia, and Zimbabwe, which present significantly greater political risk.

         Stillwater was headquartered in Littleton, Colorado, and its common stock traded on the New York Stock Exchange under the symbol "SWC." Stillwater's trading price was heavily influenced by commodity prices for palladium and, to a lesser degree, platinum.

         At the time of the Merger, Stillwater's operations consisted of two producing mines in south central Montana: the Stillwater Mine and the East Boulder Mine. Stillwater's other assets were development projects or exploratory properties that were not yet generating revenue.

         At the time of the Merger, Stillwater's two development projects were Blitz and Lower East Boulder. Blitz expanded the Stillwater Mine eastward. Lower East Boulder was a contemplated expansion of the East Boulder mine. Stillwater's two exploratory properties in the J-M Reef were Iron Creek and the Boulder Extension. Outside of the J-M Reef, Stillwater owned two other exploratory properties: (i) Altar, a copper-gold-porphyry deposit in the San Juan province of Argentina, and (ii) Marathon, a copper-PGM deposit in Ontario, Canada.

         At the time of the Merger, Michael "Mick" McMullen served as Stillwater's President and CEO and as a member of its board of directors (the "Board"). The other six members of the Board were independent, outside directors:

• George Bee was a mining engineer who had held senior management positions or served on the boards of other mining companies.
• Patrice Merrin had served as an executive or director for numerous companies and was a director of Glencore plc, a multi-national mining firm. Merrin chaired the Board's Corporate Governance and Nominating Committee.
• Peter O'Hagan had worked at Goldman Sachs for nearly twenty-three years, including as co-head of its global commodities business.
• Michael Parrett was a Chartered Professional Accountant who had served in senior management positions and as a director for other mining companies.
• Brian Schweitzer had served as Governor of Montana. He was Chairman of the Board.
• Gary Sugar had spent thirty-two years at RBC Capital Markets, where he specialized in the mining sector. He served on the boards of other mining companies.

         B. McMullen Convinces The Board To Build A Mid-Cap Mining Company.

         McMullen was hired in December 2013 as a "turnaround CEO." McMullen Tr. 814-16; see Schweitzer Tr. 170. By early 2015, McMullen had refocused Stillwater's operations, cut costs, and generally turned the Company around. At this point, McMullen believed that market conditions favored the creation of a mid-cap mining company. He thought Stillwater could achieve this outcome either by growing through acquisitions or by combining with another industry player through a merger of equals.

         During a meeting of the Board in June 2015, McMullen gave a lengthy presentation on Company strategy that devoted twenty-six slides to various alternatives. See JX 44 at '848 to '874. McMullen's presentation discussed means of increasing earnings, increasing the trading multiple, and optimizing the capital structure, and then turned to the pros and cons of selling some or all of the business. The presentation was particularly negative about the prospect of a sale. See id. at '866 to '868. In another presentation, McMullen devoted over forty slides to discussing candidates for acquisitions or mergers of equals. See id. at '929 to '970.

         In addition to his own presentation, McMullen provided the Board with presentations from three investment banks. McMullen had a close relationship Dan Vujcic, then an investment banker with Jefferies Financial Group, Inc., and the Jefferies presentation was the most detailed. It analyzed an acquisition of another base metals company, focusing on Sandfire Resources NL, Western Areas Ltd., and Panoramic Resources Ltd. It also analyzed the possible acquisition of a downstream company, a possible spinoff of Stillwater's processing and trading business, and the option of maintaining the status quo. See id. at '014 to '080. A presentation from BMO Capital Markets was more of a high-level pitch book, but it identified selected acquisition opportunities. See id. at '081 to '183. A presentation from Nomura Holdings, Inc. discussed alternatives for refinancing Stillwater's convertible bonds. See JX 44 at '164 to '182.

         Sibanye has argued that this meeting marked the start of the Board's careful and thoughtful consideration of a sale of the Company, but the purpose of the meeting was not to prepare the Board for a sale. McMullen hoped to convince the Board to back him in creating a mid-cap mining company.[2] The Board, however, resisted, recalling unsuccessful acquisitions that had necessitated hiring a turnaround CEO in the first place. During the June 2015 meeting, the Board did not provide McMullen with a mandate to pursue any strategic options. See JX 43.

         After the June 2015 meeting, McMullen kept looking for opportunities to build a mid-cap mining company. During the second half of 2015, McMullen worked with Jefferies, BMO, and Citigroup to identify acquisition targets and merger-of-equals candidates.[3] McMullen was focused on an acquisition, particularly "something not in the PGM space to diversify risk." JX 59.

         During a meeting of the Board in October 2015, McMullen gave another presentation on the Company's strategy. See JX 61 at '102 to '127. He highlighted the risks Stillwater faced because of its dependence on palladium, which was used principally in catalytic converters. His presentation discussed the disruptive threat posed by electric cars, which could displace gasoline-powered cars and render catalytic converters obsolete. See id. at '105 ("Know Your Enemy-Electric Cars"). He recommended making a diversifying acquisition from which Stillwater would "emerge as a multi mine, multi commodity and multi jurisdiction mid cap miner with a bullet proof balance sheet." Id. at '127. He then reviewed six possible candidates: Sandfire, Western Areas, Panoramic, Northern Star Resources Ltd., Imperial Metals, and Hecla Mining Co. See id. at '128 to '179. He also circulated a presentation from Jefferies that discussed an acquisition of Sandfire. See id. at '249 to '292. During the weeks after the meeting, Jefferies provided McMullen with more detailed analyses of a deal with Northern Star, a large gold producer in Australia. See JX 67; JX 68.

         In December 2015, McMullen and a team from Stillwater visited the mining operations of Northern Star, where McMullen had a close relationship with senior management. During the visit, McMullen met with the CEO and CFO of Northern Star and discussed a potential merger of equals. See PTO ¶ 145; JX 73 at '867; see also JX 61 at '282 to '286; JX 67. At this point in time, a merger of equals with Northern Star was McMullen's top choice among Stillwater's strategic options.

         During meeting of the Board in January 2016, McMullen gave another presentation on the Company's strategy. See JX 86 at '002 to '040. As with the meetings in June and October 2015, his goal was to convince the Board to authorize him to build Stillwater into a mid-cap metals company. See JX 78 (McMullen discussing his desire to "come away from [the January] board meeting with a clear mandate"). McMullen recommended a merger of equals with Northern Star as the best option, telling the Board that the transaction "would make a very strong mid cap precious metals miner." JX 86 at '038. If Northern Star would not engage, then he recommended acquiring Sandfire or Western Areas. See id. at '039. He also identified some smaller acquisitions that "should be pursued independently" and "[r]egardless of whether Stillwater completes one of the larger deals." Id. at '040. Later in the meeting, he provided additional information about the proposed M&A strategy and further detail about Northern Star, Sandfire, Western Areas, Panoramic, Hecla, and Imperial. See id. at ''320 to '367. McMullen also distributed a presentation from Jefferies that analyzed mergers with Northern Star and Western Areas. See id. at '275 to '319

         At the conclusion of the January 2016 meeting, the Board gave management a mandate, but it was broad and vague. According to the minutes, "[t]he Board provided management with a sense of the Board for management to continue to pursue the options as discussed, but to return to the Board for any final decision." JX 90. During this litigation, Sibanye has argued that this mandate authorized management to pursue a sale of the Company, but that is not accurate.[4] McMullen put it best when he told a banker at Blackstone that he had "finally convinced the Stillwater board to go off and buy some things." JX 93 at '628; see Schweitzer Tr. 187.

         C. The Company's Stock Price

         While McMullen was trying to convince the Board to let him "buy some things," Stillwater's stock price was falling. The decline began in June 2016 and continued steadily through December. Over the course of this six month period, Stillwater's stock price fell by over 40%, dropping from $14.46 per share on June 1 to $8.57 per share on December 31. The market drop did not reflect any problems with Stillwater's operations. Instead, it reflected a decline in the spot price of palladium, which fell by 27% from $773.70 per ounce on June 1 to $562.98 per ounce on December 31. PTO Exs. A, B.

         During the Board meeting in January 2016, McMullen had told the Board that "[d]espite our stock being down 40%, we still have options open to us today." JX 86 at '012. But during the weeks following the January 2016 meeting, the stock price fell further. On January 19, it closed at $5.29 per share, down 38% from its closing price of $8.57 per share on December 31. The drop corresponded with further declines in the spot price of palladium, which closed on January 19 at $494.83 per ounce, down another 12% from its close of $562.98 per ounce on December 31.

         The Company's dismal stock performance caused McMullen to conclude that Stillwater did not have a currency that it could use for either an acquisition or a merger of equals. JX 93 at '628 ("[U]nfortunately the stock price has collapsed in the last 2 weeks and I don't think Stillwater has the currency to do anything anymore. Ce [sic] la vie."); see McMullen Tr. 826; JX 97 at '308 to '310, '313. He felt Stillwater had missed its opportunity to expand and was now just an "an option play on the P[alladium] price." JX 93 at '628; see JX 97 at '313

         At this point, McMullen told a banker at Blackstone that "[s]itting around for one or two years waiting for the price to recover" was "not my idea of a job." McMullen Tr. 828; JX 93 at '628. McMullen did not view himself as an "operational CEO." McMullen Tr. 814-16. He thought he "would become bored." McMullen Tr. 828. With his contract set to expire at the end of the year, McMullen began thinking about what he would do next, including the possibility of building a mining portfolio company for Blackstone. See McMullen Tr. 828; JX 93 at '627 to '628.

         D. Sibanye Contacts McMullen.

         On January 30, 2016, Sibanye reached out through BMO to arrange a meeting between McMullen and Sibanye's CEO, Neal Froneman. Without telling the Board, McMullen accepted.

         The meeting took place at an industry conference on March 1, 2016. PTO ¶ 161. When Froneman broached the subject of buying Stillwater, McMullen was receptive. He asked Froneman to provide "an informal proposal" in writing that included "an idea of valuation" and "transaction structure." JX 109 at '976; see PTO ¶ 164. Froneman had the impression that a deal "was doable if we got the valuation right." JX 109 at '976.

         After the meeting, Froneman asked McMullen for "specific guidance" about what would be acceptable. JX 110. McMullen indicated that Sibanye's offer should include "a large cash component." JX 113 at '175. He also told Froneman during these early discussions that an acceptable transaction should be priced at a premium of 30% over Stillwater's thirty-day volume-weighted average price ("VWAP"). Stewart Dep. 39; see also JX 162 at '283. Froneman agreed in principle to this pricing metric, and he began organizing a team to visit Stillwater's mines. See JX 113 at '174 to '175. Froneman asked to enter into a confidentiality agreement to facilitate diligence, but McMullen rejected the request, commenting that he wanted "to see some form of indicative, non-binding and highly confidential terms of a transaction before we go too far down the path." Id. at '174.

         McMullen took all of these actions without involving the Board. Indeed, he did not even inform the Board about Sibanye's approach. See Schweitzer Tr. 189-92; Wadman Tr. 657. Instead, on March 25, 2016, he agreed to extend his employment for an additional two years. JX 114 § 4.1. His original employment agreement had been scheduled to terminate on December 31, 2016, and the Board had expected that because McMullen was a short-term, turnaround CEO, he would not stay beyond that date. Wadman Tr. 670-71; see Wadman Dep. at 341; Schweitzer Tr. 170, 193. But with acquisition talks in the offing, McMullen agreed to a new deal. See JX 114.

         The new employment agreement permitted McMullen to serve concurrently as a director of Nevada Iron Limited and New Chris Minerals Limited, which later became GT Gold Corp. See JX 114 § 3.1, Ex. A. During 2016, McMullen did more than serve on the boards of these companies. He became Executive Chairman and CEO of Nevada Iron, and he served as Non-Executive Chairman and President of New Chris. See McMullen Tr. 863- 64; McMullen Dep. 45, 553; JX 93 at '628. Both companies were Australian resource firms whose equity comprised a significant portion of McMullen's net worth. JX 157 at '315; see McMullen Tr. 709, 863-64. Over the next year, while McMullen was busy selling the Company, he also caused Nevada Iron and New Chris to engage in transformative transactions.[5]

         In May 2016, the Board held its next regular meeting. In connection with that meeting, McMullen did not inform the Board about Sibanye's approach or his discussions with Sibanye.[6]

         E. Sibanye Submits An Indication Of Interest.

         During the first week of June 2016, executives from both Sibanye and Northern Star toured the Company's mines. PTO ¶¶ 171-72. Sibanye toured as part of their exploration of a potential acquisition of the Company. Northern Star toured separately, ostensibly as part of a mutual benchmarking exercise but really in connection with a potential merger of equals. McMullen and the Company's CFO, Christopher Bateman, led Sibanye and Northern Star on separate tours and ensured that neither saw one another. McMullen claimed that despite keeping the two teams separate, each knew that the other was on site because McMullen and Bateman would alternate between the tours and McMullen had them both sign the visitors log. McMullen said he did this as a clever way to create competition between the firms. See McMullen Tr. 726-27.

         After the visits, McMullen believed that a deal with Sibanye was more likely than with Northern Star. See JX 140 at '048; JX 142. Toward the end of June 2016, Northern Star reported that they were primarily interested in a joint venture involving Blitz. JX 145 at '845. That possibility did not interest McMullen. Id. Meanwhile, McMullen pushed Sibanye to provide an indication of interest in advance of the Board's next meeting, which was scheduled for July 28, 2016.[7]

         Sibanye began working with Citigroup to develop its bid. Two of the Citigroup bankers had previously advised McMullen and Bateman about the Company's alternatives. As part of its advice, Citigroup had recommended against a sale of the Company because of the limited universe of potential buyers. See JX 32 at '829; cf. JX 42 at '422.

         On July 21, 2016, Sibanye provided McMullen with a non-binding indication of interest to acquire Stillwater at $15.75 per share in cash, which valued the Company at $1.9 billion. PTO ¶ 177; JX 165. The letter described that price as reflecting "a 30% premium to Stillwater's volume-weighted average share price [(VWAP)] of US$12.12 over the last 20 trading days prior to 20 July 2016." JX 165 at '880; see PTO ¶ 178.

         As suggested by Sibanye's offer, Stillwater's stock price had mostly recovered, reflecting a recovery in the price of palladium. At the beginning of July 2016, the stock closed at $12.25 per share, up 132% from its low of $5.29 in January. During that same period, the palladium spot price had increased 22% to $605.63 per ounce. PTO Exs. A, B. Despite the stock's performance, McMullen did not revisit potential acquisitions or a merger of equals. He was now focused on selling the Company. See JX 156 (email from Vujcic to McMullen stating, "[W]e'll make sure the company gets sold. Don't worry about that.").

         F. McMullen Presents The Indication Of Interest To The Board.

         On July 27 and 28, 2016, the Board held a regularly scheduled meeting. At the end of the two-day meeting, the directors held a forty-five minute "executive session" with McMullen, who distributed and walked through a presentation titled "Business Development Update." JX 151 at '551; see Schweitzer Tr. 193; JX 526 at '377; Wadman Tr. 657-64. The presentation compared the Company's recent performance to various potential transaction partners, then described the pros and cons of transactions with Northern Star and Sibanye. After summarizing the terms of Sibanye's expression of interest, the presentation described the premium as "within the right range for shareholder value" and "broadly within the range of mining transactions." JX 151 at '568. McMullen gave his "strong recommendation . . . to engage with Sibanye and attempt to conclude [due diligence] as quickly as possible (likely to take 2 months) and achieve a higher price." Id. McMullen added that he would "look to engage with other potential bidders on a low key and informal basis to determine if there are alternative bidders." Id. He warned: "The list of other potential bidders is short given the commodity, size of transaction and whether [Stillwater's] shareholders would want their paper. The process of determining if there are alternatives will not be a long process." Id. He also told the directors that "[t]he market appears to be open for people to carry out M, and asset values have risen to a level where you want to be a seller rather than a buyer." Id.

         Brent Wadman, the Company's General Counsel, became concerned about what took place during the July meeting. He had not been asked to stay for the executive session and was not given access to McMullen's presentation. See JX 526 at '377; Wadman Tr. 657-64. He suspected that McMullen was running a sale process on his own, without Board oversight, and potentially using it as a means of exiting from the Company. Wadman believed that as General Counsel, he should have been involved. After the July meeting, Wadman asked McMullen to include him in the planning process. McMullen rebuffed him, saying that Wadman would be "brought in at a later date" and "offer[ing] no other information." JX 526 at '377; Wadman Tr. 658.

         After the July meeting, McMullen told Sibanye to submit its list of due diligence questions so the Company could start pulling the information together. He told Sibanye to direct all inquiries to himself or Bateman. See PTO ¶ 181; JX 183.

         G. McMullen Remains Committed To Sibanye.

         On August 9, 2016, Stillwater and Sibanye entered into a confidentiality agreement, and Sibanye gained access to the data room. PTO ¶ 183; JX 525 at 26; see also JX 194. On August 10, the Board met again. See JX 193. McMullen testified that at this meeting, the Board instructed him "to go out and . . . to sign the NDAs with the likes of Sibanye, and then, also, . . . to get as much interest as possible." McMullen Tr. 835.

         Rather than working closely with an investment bank to develop a process designed to generate "as much interest as possible," McMullen pressed forward with Sibanye. He interacted with some investment banks, but in a haphazard and unstructured way. For example, back in July 2016, a Macquarie banker had asked McMullen to meet for a market update. See JX 167. On August 10, the same day that the Board met, Macquarie proposed a formal engagement. Five days later, McMullen told Macquarie that it was "a bit early for us I think to be signing anyone up." JX 196.

         One week after the Board meeting, on August 18, 2016, McMullen and Bateman met with Bank of America Merrill Lynch ("BAML"), who had arranged the meeting to pitch Stillwater on possible mergers of equals. See JX 199; see also JX 163; JX 190. The BAML presentation materials did not discuss a sale of the Company or mention Sibanye, and McMullen and Bateman did not use the meeting to identify other possible acquirers. Instead, the BAML bankers got "the sense . . . that a sale was a possibility," and so they decided on their own to "pivot[] to focus more, as time went on, on that." Hunt Dep. 35.

         Acting on their own, the BAML bankers developed a list of fifteen possible acquirers whom they approached independently, pitching a potential acquisition of Stillwater as "a banker idea." JX 206 at '360. The record does not reveal exactly how many companies BAML contacted, what the BAML bankers said, or how seriously the companies took the pitch. Because BAML did not know that Stillwater was in discussions with Sibanye, they reached out to Sibanye as part of these efforts, ironically describing that a deal for Stillwater would be "[a] little pricey." JX 207 at '093. In the end, five companies expressed interest: Sibanye; Hecla; Coeur Mining, Inc.; CITIC Resources Holdings Limited, and Anemka Resources Ltd. See JX 211; JX 213; JX 214; JX 217 at '588 to '591.

         Having made these calls on their own, the BAML bankers held a follow-up meeting with McMullen and Bateman on September 7, 2016. The pitch book identified the parties contacted and expressing interest. It then described three types of sale processes Stillwater could pursue: a "proprietary process" with a single bidder, a targeted auction involving a limited number of likely buyers, or a broad auction involving outreach to many potentially interested parties. JX 217 at '603. BAML recommended against the proprietary process because the absence of competition would minimize Stillwater's negotiating leverage. BAML also recommended against a broad auction, given the existence of a "narrow list of most likely buyers." Id. This left a targeted auction as the recommended route.

         The pitch book described an illustrative timeline for a sale process. BAML recommended allocating the rest of September 2016 to contact potential buyers. During October and early November, the Company would enter into confidentiality agreements, respond to diligence requests, and then receive and evaluate initial indications of interest. From mid-November through early January 2017, the Company would host site visits, provide additional diligence, and then solicit and receive final bids. JX 217 at '605.

         Nothing formal came out of the September 7 meeting. McMullen and Bateman did not instruct BAML to proceed, nor did they take BAML's recommendation to the Board.

         Instead, McMullen and Bateman asked BAML and Vujcic, the investment banker who had been with Jefferies and was now working on his own, to arrange meetings with potential suitors at an industry conference during the week of September 20, 2016. BAML arranged a meeting with Coeur, and McMullen arranged a meeting with Hecla. See JX 220 at '609; JX 222; JX 224; PTO ¶ 190-91. Vujcic set up meetings with Kinross Gold Corporation and Gold Fields Limited, neither of whom had expressed interest. During each meeting, McMullen conducted what he called a "soft sound" regarding potential interest in buying the Company. PTO ¶ 192; see id. ¶¶ 193-97.

         On the last night of the conference, McMullen had dinner with Froneman. McMullen told him that he "remain[ed] committed" to a deal with Sibanye and that "no one else is in the data room," but cautioned that he was "being flooded by investment banks" pitching ideas for deals with gold-mining companies. JX 231 at '711.

         After the conference, BAML sent McMullen "a fairly detailed timeline" for a more compressed sale process. JX 225 at '629. The new timeline contemplated the process starting during the last week of September and ending during the first week of December. See id. at '632. BAML anticipated site visits taking place during November as part of the due diligence phase, but McMullen told BAML that the site visits needed to take place earlier in the process before parties sent their initial indications of interest: "Unless people get to site, they can't appreciate the scale of it and will not be putting their best foot forward in the indicative, non binding offers." JX 229 at '603. BAML revised the timeline, noting that they were "putting [it] together in a vacuum of info on what's taken place." Id. At this point, BAML had not been retained and did not yet know about Sibanye's bid. They only knew about their own, independent efforts to solicit interest.

         H. The Board Decides Not To Form A Special Committee.

         In anticipation of a board meeting on October 3, 2016, Wadman circulated a "list of potential buyers" to the directors. JX 234. The list identified eighteen companies and the status of Stillwater's discussions with each. According to the list, Sibanye had completed its first phase of diligence and was working with Citigroup to secure financing. Hecla and Coeur had expressed interest, entered into non-disclosure agreements ("NDAs"), and scheduled site visits. Northern Star was listed as "interested but very foucssed [sic] on a gold deal." Id. at '630. Six other companies were described as "[p]otentially interested" or as having "some interest," including Anglo American Platinum Limited ("Amplats"). Id. Six candidates were described as "[u]nlikely" and two as "not interested." Id. The list omitted CITIC and Anemka, even though both had expressed interest when BAML called with its "banker's idea."

         The list identified a representative who was responsible for interacting with each company. Evidencing the uncoordinated, unstructured nature of the Company's process, the list identified a hodgepodge of names. Vujcic was the contact for eight companies. BAML was the contact for four companies. Jefferies was the contact for another three. Macquarie was the contact for one company. An executive at New Chris, the company where McMullen served as Non-Executive Chairman and President, was listed as the contact for another company. No one had been formally engaged. Two companies had no contact listed.

         During the meeting, McMullen reported on the Company's outreach to the various parties. After his presentation, the directors instructed McMullen to obtain formal proposals from investment banks for a sell-side engagement. The Board also instructed McMullen to create a cash flow model that could be used to value the Company. See JX 246 at '308 to '309.

         Ever since the July 2016 meeting, Wadman had been concerned that McMullen was running a sale process to facilitate his exit from the Company. After McMullen rebuffed him, Wadman had shared his concerns privately with Schweitzer and Merrin. See Wadman Tr. 664-65; Schweitzer Tr. 157-58, 194. Neither took action.

         During the October meeting, Wadman presented his concerns to the full Board and recommended the formation of a special committee to oversee the sale process. Lucy Stark of Holland & Hart LLP, the Company's longstanding outside counsel, disagreed and advised the Board that she did not believe any conflict existed that warranted the creation of a special committee. JX 246 at '309; see Schweitzer Tr. 159.

         The directors other than McMullen then met in executive session. Schweitzer reported to Wadman that the Board had decided to form a special committee, and Wadman drafted a set of minutes memorializing the decision. See JX 238 at '245; Wadman Dep. 134-35; see also Schweitzer Tr. 205-06. But in the meantime, McMullen learned of the decision from two other directors. McMullen Tr. 745-47. The final minutes described the outcome of the executive session as follows:

- No decision was made to pursue or not pursue a potential strategic transaction at this time. The Board further discussed the potential for a committee and agreed that, should the need arise, the committee would consist of the entire Board with the exception of the CEO. It also discussed timing and the potential engagement of an investment banking firm to assist in the assessment process.

JX 246 at '310.

         I. McMullen Continues To Focus on Sibyane.

         On October 15, 2016, almost two weeks after the Board directed McMullen to solicit terms from investment bankers, McMullen finally drafted and sent out an email asking bankers to respond "by no later than COB Wednesday Oct 19 2016." JX 279 at '867. Other than Macquarie, the record does not reflect what bankers received the email or whom McMullen solicited, but Macquarie, BMO, BAML, and Jefferies submitted proposals.

         On October 17, 2016, Froneman told McMullen that Sibanye's offer of a "30% premium to VWAP remained unchanged" and that Sibanye's board of directors unanimously supported the transaction. JX 281 at '425. McMullen responded that he remained fully supportive of the deal. He also shared that Stillwater did not yet have a banker, telling Froneman that he had started reaching out to investment banks on a no-names basis. Demonstrating his commitment to the deal, McMullen told Froneman that he would be happy to have Stillwater's legal advisors start putting together an initial sales agreement. Id.

         The Board met again on October 26 and 27, 2016. After reviewing the proposals from the investment banks, the Board narrowed the list to BMO and BAML. JX 295 at '790. Vujcic, whom McMullen regarded as his "in house banker," summarized the state of the Company's outreach. JX 293 at '521. Compare JX 262 at '485, with JX 234 at '630. He reported that third parties exhibited a general "[l]ack of knowledge around the significant improvement in operations and general performance," and he reported that a number of parties were either focused on other deals, not considering M&A because of prior bad acquisitions, or not considering PGM companies because of negative associations with risky jurisdictions like South Africa and Russia. JX 293 at '522. For the first time, the Board authorized management "to engage in discussions with strategic buyers, financial buyers or any other party interested in consummating a potential strategic transaction with the [Company]." JX 296 at '791.

         After the meeting, McMullen scheduled a second site visit for Sibanye and discussed the "timelines to and post announcement" with Froneman. JX 315 at '291 to '292; see PTO ¶ 214. Sibanye convinced McMullen that they needed to announce the deal by mid-December 2016. See JX 281 at '425; JX 282 at '776; see also PTO ¶ 241.

         J. BAML Begins An Abbreviated Pre-Signing Market Check.

         On November 7, 2016, the Board formally retained BAML. PTO ¶¶ 216-17; see JX 323 at '371. The Board also decided to hire "additional legal counsel with substantial experience in advising Delaware publicly traded companies in respect of potential strategic transactions." JX 323 at '372. Four days later, the Board retained Jones Day. PTO ¶ 232.

         On November 8, 2016, Bateman sent BAML a package of information that included Sibanye's indication of interest from July, the non-disclosure agreements with Hecla and Coeur, a cash flow model, and instructions for accessing the data room. See JX 325; JX 326; JX 327; JX 328; JX 329. The next day, BAML sent management a slide deck titled "M&A Process Considerations." JX 331 at '277.

         BAML understood from management that Sibanye wanted to sign up a deal in December 2016, so BAML proposed to complete its outreach to a list of parties in just two days. That timeframe was drastically shorter than the four weeks that BAML had recommended in September 2016. Anyone who expressed interest would have three weeks to conduct diligence and submit an indication of interest, just half of the six weeks that BAML had recommended in September. At that point, the Board would decide whether to proceed with Sibanye or engage with the other bidders. PTO ¶ 226; see JX 331 at '280. Even though McMullen had previously told BAML that it was critical for potential bidders to visit the Company's mines before making an initial indication of interest, BAML's compressed timeline did not contemplate that step.

         BAML's presentation identified twenty-eight third parties divided into four categories:

• "Interested Parties"-Sibanye, Coeur, and Hecla.
• "Possibly Interested Parties"-Gold Fields, Independence Group NL, Kinross, MMG Limited, Rio Tinto, and South32 Limited.
• "Additional Parties To Contact"-Alamos Gold Inc., Anemka, CITIC, Fresnillo plc, Goldcorp Inc., IAMGOLD Corporation, Impala Platinum Holdings Limited, New Gold Inc., Northam Platinum Limited, Pan American Silver Corporation, X2 Resources, and Yamana Gold Inc.
• "Not Interested"-Northern Star, Amplats, Eldorado Gold Corporation, Evolution Mining Limited, Newcrest Mining Limited, Newmont Mining Corporation, and OZ Minerals.

JX 331 at '279. Anemka and CITIC were listed as "Additional Parties to Contact," even though they had expressed interest during BAML's earlier independent outreach. OceanaGold Corporation and Boliden AB, whom Vujcic had included in his review of the Company's outreach, were omitted from BAML's list.

         BAML's presentation included scripts for its bankers to use when making their calls. For "Possibly Interested Parties," the script stated:

• Announce participants and remind parties of confidentiality;
• Bof A Merrill Lynch has been retained by Stillwater Mining Company to explore strategic alternatives;
• We understand you have had some discussions previously with our client;
• We would like to further clarify your potential interest in Stillwater as the process moves forward;
• Do you have any interest to learn more?
• If so, we would suggest you sign an NDA for access to diligence on the company.

PTO ¶ 225 (formatting added); JX 331 at '281. For the "Additional Parties To Contact," the script omitted Stillwater's name and asked generally about interest in the PGM sector.

• Announce participants and remind parties of confidentiality;
• We are calling to gauge your potential interest in a situation in the PGM sector;
• Our client is a leading player and low cost producer of PGMs and substantial organic production growth;
• Do you have any interest to learn more?
• If yes, disclose that our client is Stillwater and suggest they sign an NDA for access to diligence.

PTO ¶ 224 (formatting added); JX 331 at '281. For Hecla and Coeur, BAML planned to skip the call and send instructions for submitting an indication of interest by November 23. PTO ¶ 231; JX 336; JX 337.

         Because of the expedited timeline, BAML decided not to contact companies in the "Not Interested" category, even though many of those companies had said they were not interested when BAML previously called them with "a banker idea." The response could have been different with a formal mandate. BAML's script for "Additional Parties to Contact" was not likely to generate interest because it did not say anything more than "a situation in the PGM sector." Because almost every other PGM company was located in a politically unstable jurisdiction, additional parties were less likely to have interest without a signal that the company involved was Stillwater. And because Stillwater had been advertising its interest in acquisitions, there was no reason for the additional parties to think that the situation involved Stillwater. See JX 124 at '074.

         Using its scripts, BAML contacted five of the six possibly interested parties, missing Gold Fields. See JX 351. BAML contacted eight of the twelve additional parties, missing Alamos, Goldcorp, New Gold, and Yamana Gold. See PTO ¶ 230; JX 338; JX 339; JX 340; JX 341; JX 342. BAML contacted Northern Star, even though they were listed as not interested. See JX 351 at '953.

         Three of the companies expressed interest: Anemka, Northern Star, and X2. BAML sent a confidentiality agreement and an invitation to submit a bid by November 29 to Anemka and Northern Star. BAML sent only a confidentiality agreement to X2, which quickly retracted its interest. See JX 395 at '412; see also JX 359 at '413.

         Sibanye learned about BAML's market check from Bateman. JX 332 at '969. Sibanye perceived that a compressed timeline was its "only real advantage" in the process. Id.

         K. The Abbreviated Pre-Signing Market Check Continues.

         On November 17, 2016, the Board met again, with Jones Day attending for the first time. BAML and McMullen updated the Board on the outreach and "the Board directed management to continue the strategic assessment process."[8] Sibanye had already sent a draft merger agreement to Jones Day.

         On November 18, 2016, BAML suggested contacting Norilsk Nickel, a Russian mining company that had owned a majority stake in the Company between 2003 and 2010. JX 367. McMullen decided against it. See McMullen Dep. 476.

         On November 20, 2016, the CFO of Northern Star informed McMullen that they were not interested in buying Stillwater but remained interested in a merger of equals. Northern Star asked McMullen to send a proposal. PTO ¶ 242.

         On November 22, 2016, the CEO of Independence informed McMullen that they were not interested in buying Stillwater but were interested in a merger of equals. PTO ¶ 246. Independence asked to sign a confidentiality agreement and perform diligence, explaining that they had trouble reaching BAML. Independence did not receive a confidentiality agreement until November 25. See JX 403; JX 405.

         The Board met again on the afternoon of November 23, 2016. McMullen reported that he had told Sibanye that its July proposal of $15.75 per share was not sufficient. He also reported that Sibanye needed the transaction to be "announced by the second week in December"; otherwise, Sibanye would need to delay the deal until the following year so that it could obtain stockholder approval to raise the capital needed to fund the Merger. JX 395 at '411. McMullen viewed a December signing as "ambitious given that . . . the Company's assessment process with other potential parties was ongoing and would need to be concluded prior to proceeding with a transaction with Sibanye." Id.

         By the time of the board meeting, twenty-four parties had received some type of formal or informal contact from BAML or Stillwater management. Four parties-Sibanye, Hela, Coeur, and Anemka-had signed NDAs and accessed the data room. Four parties- Sibanye, Hela, Coeur, and Northern Star-had conducted site visits. Two parties-Coeur and Anemka-had notified BAML that they would not proceed further. PTO ¶ 235; JX 393 at '868. Two other parties-Northern Star and Independence-had informed Stillwater that they were only interested in a merger of equals. Hecla had reported that it needed to find a partner and had asked Stillwater to extend its bid deadline from November 23 to November 30. PTO ¶ 247; JX 383. The Board extended Hecla's deadline to November 28. JX 395 at '413. By comparison, the Board had given Sibanye until November 30 to update its expression of interest from July. See JX 359 at '414.

         After receiving these updates, the Board met in executive session, and the minutes reflected for the first time that McMullen did not participate. See JX 395 at '413. The Board instructed BAML to evaluate a merger of equals as a potential alternative. Id. When McMullen learned of the decision, he was skeptical, believing that a merger of equals could not compete with "a circa $18/share []all cash offer from S[ibanye]." JX 406 at '376. He shared his negative opinion with one of the directors, who replied that a merger of equals was actionable and needed to be explored as an alternative to Sibanye. See JX 401.

         McMullen and BAML worked together to update the presentation that McMullen had given the Board in January 2016 on a potential merger of equals. See JX 384; JX 396. McMullen ranked the Company's options as follows: 1) Sibanye's acquisition; 2) a merger of equals with Northern Star; and 3) do nothing or a merger of equals with Independence. JX 396 at '707.

         After the board meeting on November 23, 2016, BAML followed up with Hecla to solicit a specific indication of interest. See JX 394 at '214. Hecla did not respond, and the Company treated Hecla as having dropped out of the process.

         On November 29, 2016, Northam asked to be included in the process. JX 414. BAML sent Northam a confidentiality agreement and invited them to submit a bid by December 7. PTO ¶ 258; see JX 423; JX 424. That same day, Independence asked for an extension to the bid deadline since they were still negotiating the confidentiality agreement. JX 411. McMullen decided that meant that Independence was not interested.

         L. Sibanye Revises Its Price.

         As of November 20, 2016, Sibanye anticipated borrowing $2.5 billion to complete the Merger. Of this amount, $1.98 billion would be used to pay for the Company's stock, with the consideration priced at a 30% premium over the Company's thirty-day VWAP, just as McMullen and Froneman had agreed in March. See JX 378 at '979, '009, '016, '017. The additional $500 million would be used to pay off the Company's debt, fund change-of-control payments for management, and pay transaction fees.

         But on November 30, 2016, Sibanye ran into problems. First, Sibanye realized that the Company's stock price had increased to a point where the pricing metric would cause the total purchase price to exceed Sibanye's financing. Using the 30% premium over the thirty-day VWAP, Sibanye would have to pay approximately $18.25 per share, an amount that would require Sibanye to supplement the transaction financing with cash on hand or from its revolving credit line. See JX 420 at '876.

         Second, Sibanye realized that it had calculated the purchase price in its indication of interest using a twenty-day VWAP rather than a thirty-day VWAP. Id. at '874. The Sibanye team recognized that they had agreed in principle to a thirty-day VWAP, but when they sent their initial indication of interest, they used a twenty-day VWAP because the Company's stock had been in a declining trend, so the shorter period resulted in a lower price. Id. at '873.

         Citigroup recommended pretending that Sibanye had never agreed to a pricing mechanism and had instead offered a fixed price. Id. The Sibanye team went along and disavowed all of the communications in which they had agreed in principle to a 30% premium over the thirty-day VWAP. See Stewart Dep. 147-48; PTO ¶¶ 243, 245; JX 397 at '448; JX 378 at '009, '016. Going forward, Sibanye would discuss price based on an indication of interest of $15.75 per share.

         M. Stillwater Negotiates With Sibanye.

         On December 1, 2016, the deal teams from the Company and Sibanye met in New York City. Sibanye proposed to acquire the Company for between $17.50 and $17.75 per share in cash. PTO ¶ 261.

         On December 2, 2016, the Board met in New York City. See JX 432; JX 430. McMullen shared Sibanye's revised offer. The minutes do not reflect any discussion of Sibanye's departure from the prior agreement in principle on a 30% premium over the thirty-day VWAP or the fact that the agreed-upon pricing metric would have supported a price around $18.25 per share. Even though BAML had worried about Sibanye using precisely this tactic, and even though McMullen had assured BAML that Sibanye would stick to the agreed-upon pricing metric, see JX 343 at '740 to '741, no one appears to have mentioned the change to the Board. See JX 432 at '414.

         During the meeting, BAML presented its preliminary financial analysis of the Company. Using a discounted cash flow analysis, BAML valued the Company at between $10.78 and $14.14 per share. Id. at '416. That same day, the Company's stock closed at $15.17 per share. PTO Ex. A.

         BAML also reviewed potential merger of equals transactions with Northern Star and Independence. JX 432 at '417. According to the minutes, the Board decided not to pursue either transaction because: (i) the lack of synergies; (ii) "the significant disparity in trading multiples"; (iii) "no merger-of-equals or similar transaction appeared to be available to the Company at this time"; (iv) "neither Northern Star nor Independence Mining had signed a confidentiality agreement"; and (v) "a substantial delay in the process to pursue such a possible transaction could result in the loss of a potential transaction with Sibanye." JX 432 at '417; see McMullen Tr. 769. At the time, Northern Star and Independence had both proposed a merger-of-equals transaction and both had signed confidentiality agreements. There was also a meaningful probability that the Sibanye transaction would slip into the following year.

         During the meeting, the Board instructed management to seek a higher price from Sibanye. That evening, McMullen and Bateman had dinner with Richard Stewart, Sibanye's Executive Vice President of Business Development. PTO ¶ 265. After the dinner, Stewart emailed Froneman that "Mick's number is 18$ and that he thinks he can get his board across the line on that." JX 434 at '426. Froneman, Stewart, and Citigroup discussed the limits of Sibanye's financing, which would support a bid up to $18.20 per share. A 30% premium on the twenty-day VWAP for the Company's common stock was $19.20 per share. Id. The group decided to bid $18.00 per share, observing that "if this is truly not good enough - they will come back but we need to be firm." JX 434 at '425.

         On December 3, 2016, Stewart called McMullen and offered $18 per share. PTO ¶ 267. BAML had been expecting $19 per share. See JX 438.

         On the evening of December 3, 2016, Bateman had "a very open discussion" with one of Sibanye's bankers from Citigroup, sharing information about the Board's internal dynamics, the Company's lack of other prospects, and his preferences for employment. See JX 444. The Citigroup banker reported on the conversation as follows:

- 1. Value. Didn't push back, as knows we're at our limits. Said Mick will recommend our proposal to the Board, [that two directors] are "very commercial". [Schweitzer] is the one most focused on 30% premium to 20D VWAP. I reiterated that we've truly been talking about 30D VWAP internally and with [Stillwater], which he seems to understand.
- . . .
- 3. MOE. He seemed quite dismissive of the MOE candidate, but said certain Board members are keen to not shut it down completely (I suspect more from a litigation perspective).
- 4. Chris' Plans. Said he honestly hasn't given a lot of thought to what's next, and he's generally open minded about it. . . . He could be open to staying with [Sibanye], but depends on the vision and the role. He would have no desire to be a divisional CFO, but potentially interested in an Americas Head position. . . .

Id. Bateman participated in this discussion one day after Jones Day had advised the Board and senior management about the risk of conflicts during the negotiations. In response, Bateman and other members of management had represented to the Board that they had not had any discussions with Sibanye about their roles. See JX 432 at '418.

         On December 4, 2016, Stewart called McMullen and told him that $18.00 was Sibanye's best and final offer. PTO ¶ 270. After Bateman's dinner with the Citigroup banker, Sibanye knew it did not have to bid higher.

         Later that afternoon, McMullen shared the offer with the Board. Fearing that the timeline might slip into 2017, the directors instructed management "to progress discussions with Sibanye" and to find out whether Northam remained interested. JX 440 at '742.

         On December 5, 2016, BAML reported that it had not heard anything from Northam. JX 445. That same day, Froneman called McMullen to reiterate that $18.00 per share was the best Sibanye could do given their financing constraints. PTO ¶ 272.

         N. McMullen Demands His Stock Awards.

         On December 7, 2016, McMullen asked Sibanye to "put something into the merger agreement" about his 2017 stock awards. JX 451. According to McMullen, Sibanye had previously agreed to the following terms:

- On Closing of the deal, the value of the awards would be converted to cash based on the metrics of the deal (share price etc) and the amount paid out as per the normal vesting schedule in cash, namely 1/3 of the RSU value at each of the end of 2017, 2018 and 2019, and all the PSU value is paid out at the end of 2019. If any employee leaves for Good Cause (fired or diminution of job role) then the RSU's accelerate in accordance with our plan docs, but the PSU amount is still paid out at the end of 2019.

Id. McMullen told Sibanye that the Compensation Committee had "decided that the 2015 and 2016 PSU's would vest at 150% for each series in the event of an $18 bid." Id.

         O. The Board Approves The Merger.

         On December 8, 2016, the Board met to consider the Merger Agreement and decide whether to proceed with the Merger. McMullen reported that Northam had withdrawn from the process. JX 454 at '744; see JX 459. By this point, BAML had interacted with fourteen parties since being ...


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