Submitted: May 23, 2019
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
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
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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.
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.
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
• 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
• 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.
McMullen Convinces The Board To Build A Mid-Cap Mining
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.
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.
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.
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. 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.
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. McMullen was focused on an
acquisition, particularly "something not in the PGM
space to diversify risk." JX 59.
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.
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.
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
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. 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.
The Company's Stock Price
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.
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.
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
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.
Sibanye Contacts McMullen.
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.
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.
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.
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.
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
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 Submits An Indication Of Interest.
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.
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.
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
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.
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.").
McMullen Presents The Indication Of Interest To The
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
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.
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;
McMullen Remains Committed To Sibanye.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
The Board Decides Not To Form A Special
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."
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
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
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.
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.
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.
McMullen Continues To Focus on Sibyane.
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.
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.
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.
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.
BAML Begins An Abbreviated Pre-Signing Market
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.
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.
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
presentation identified twenty-eight third parties divided
into four categories:
• "Interested Parties"-Sibanye, Coeur, and
• "Possibly Interested Parties"-Gold Fields,
Independence Group NL, Kinross, MMG Limited, Rio Tinto, and
• "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.
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
• 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
• 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.
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.
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.
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.
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.
The Abbreviated Pre-Signing Market Check
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." Sibanye had already sent a draft merger
agreement to Jones Day.
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.
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.
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.
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.
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.
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
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
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
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
Sibanye Revises Its Price.
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.
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.
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
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
Stillwater Negotiates With Sibanye.
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 ¶
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.
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 $15.17 per share. PTO Ex.
also reviewed potential merger of equals transactions with
Northern Star and Independence. JX 432 at '417. According
to the minutes, the Board decided not to pursue either
transaction because: (i) the lack of synergies; (ii)
"the significant disparity in trading multiples";
(iii) "no merger-of-equals or similar transaction
appeared to be available to the Company at this time";
(iv) "neither Northern Star nor Independence Mining had
signed a confidentiality agreement"; and (v) "a
substantial delay in the process to pursue such a possible
transaction could result in the loss of a potential
transaction with Sibanye." JX 432 at '417;
see McMullen Tr. 769. At the time, Northern Star and
Independence had both proposed a merger-of-equals transaction
and both had signed confidentiality agreements. There was
also a meaningful probability that the Sibanye transaction
would slip into the following year.
the meeting, the Board instructed management to seek a higher
price from Sibanye. That evening, McMullen and Bateman had
dinner with Richard Stewart, Sibanye's Executive Vice
President of Business Development. PTO ¶ 265. After the
dinner, Stewart emailed Froneman that "Mick's number
is 18$ 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.
December 3, 2016, Stewart called McMullen and offered $18 per
share. PTO ¶ 267. BAML had been expecting $19 per share.
See JX 438.
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
- . . .
- 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.
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.
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.
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
McMullen Demands His Stock Awards.
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
The Board Approves The Merger.
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