In a bench decision issued on February 26 and filed on April 4, 2014, Chief Justice Strine, then-Chancellor of the Delaware Court of Chancery, rejected an uncontested, disclosure-only settlement related to a disputed merger (In re Medicis Pharm. Corp. S'holders Litig., Consol. C.A. No. 7857-CS, (Del. Ch. Feb. 26, 2014) (TRANSCRIPT)).

The dispute arose from the $2.6 billion acquisition of Medicis Pharmaceutical in 2012 by Valeant Pharmaceuticals (see What's Market, Valeant Pharmaceuticals International, Inc./Medicis Pharmaceutical Corporation Merger Agreement Summary). Shortly after the announcement of the merger agreement, the plaintiffs commenced an action alleging breaches of fiduciary duties, which they later amended to include allegations relating to the disclosures in the proxy statement. The parties eventually agreed on a settlement that did not involve any increase to the consideration or changes to the deal terms, but that did produce some additional disclosures. The plaintiffs' attorneys requested a fee of $400,000, which the defendants did not oppose.

The court questioned the plaintiffs' attorneys on the value of the additional disclosures and whether those disclosures changed the total mix of information available to the stockholders. The court acknowledged (by reference to the disco-era song "More, More, More") that the attorneys' efforts had produced more disclosure, but that the disclosure simply added support for management's recommendation for the merger without bringing new facts to light. The court did not accept that those disclosures were worth $400,000, in the absence of any other benefits to the stockholders and in light of the fact that the merger vote passed overwhelmingly. In then-Chancellor Strine's view, the court should only award large fees (which it has done, as in Southern Peru) when a new disclosure "materially changes the informational mix, and it should be in a way that contradicts, not reinforces, management's recommendation."

The court noted the irony that rejecting the settlement actually keeps the dispute alive to the potential detriment of the defendants. However, the court appeared confident that the claims have little chance of success in any event.

The decision to reject an uncontested settlement over a merger, though rare, is not unprecedented for the Court of Chancery. For example, the court made a similar decision last year in Transatlantic regarding the Alleghany Corporation/Transatlantic Holdings merger (see Legal Update, Delaware Court of Chancery Rejects Settlement, Finding Additional Disclosure Immaterial). These decisions may reflect a willingness of the court to bring greater scrutiny on the ever-increasing number of lawsuits brought over nearly every public M&A deal.