By Nate Raymond
For most companies, settling shareholder suits that pop up in
the wake of merger announcements has become a cost of doing
business. Settlements routinely involve a few hundred thousand
dollars to the plaintiffs' lawyers in exchange for a few extra
disclosures in deal documents. The U.S. Chamber of Commerce has
attacked the phenomenon, dubbing it "the trial lawyers' new
merger tax," but in the main, corporations would rather pay to
make the suits go away than delay deals by fighting them.
Not Intel. After the company announced its $7.68 billion
acquisition of McAfee in August 2010, the inevitable shareholder
suits followed. Yet there was no quick settlement. Instead, the
boards of Intel and McAfee elected to litigate, even after the
deal closed a year ago. And on Thursday, it won. A state court
judge in San Jose, California, tossed the shareholders' class action, more than two years after the litigation began.
For the defendants, fighting the lawsuit in Santa Clara
Superior Court was about saying enough was enough, said Intel
counsel Wayne Smith of Gibson, Dunn & Crutcher. Only a year
earlier, another Intel acquisition-turned-lawsuit resulted in
the defendants paying $700,000 to plaintiffs' lawyers in a
disclosure-only settlement arising out of its $884 million
acquisition of Wind River Systems. This time, Intel didn't want
to pay, Smith said.
Whose call it was to not settle depends on who's on the
phone. Plaintiffs' counsel Randall Baron of Robbins, Geller,
Rudman & Dowd said once he decided there was real value to the
case, the plaintiffs' lawyers decided against the typical quick
settlement. "We never even discussed a disclosure settlement,"
he said. The defendants, in contrast, say in court papers filed
in August that it was they who refused to cut a deal, thus
depriving the plaintiffs' lawyers of a "quick payday."
"It's just a business for them, and Intel decided they
didn't want to pay extortion every time they acquired a
company," Smith said.
Robbins Geller's complaint for breach of fiduciary duty
against McAfee, its directors and officers and Intel focused on
the conduct of McAfee CEO David DeWalt at the time of the
merger. The suit alleged that DeWalt never informed McAfee's
board that he had been working in the months prior to the deal
to help Intel formulate a bid for McAfee. The suit called
Intel's subsequent $48 per share bid "unfair and undervalued,"
even though it represented a 60 percent premium over the then
The litigation was consolidated in Santa Clara Superior
Court, where McAfee is headquartered. After it was appointed to
lead the case, Robbins Geller moved for expedited discovery in
an attempt to enjoin a shareholder vote on the Intel
acquisition. But Judge James Kleinbergdenied the motion in
October 2010. The McAfee deal closed in February 2011, but the
litigation lived on.
The plaintiffs did manage to win several motions. In July
2011, Kleinberg denied a preliminary motion to dismiss and
subsequently certified a class of McAfee shareholders in January
2012, over defense objections by Intel and the former McAfee
directors' lawyers at Wilson Sonsini Goodrich & Rosati about the
adequacy of Robbins Geller's client, the Central Laborers'
Pension Fund, as a class representative. (The defendants called
Central Laborers a "professional plaintiff" frequently
represented by Robbins Geller.)
Nevertheless, in a tentative ruling Thursday, Kleinberg
finally agreed the suit should be dismissed. The judge found
that the plaintiffs failed to raise a triable dispute over
whether McAfee's independent directors breached their fiduciary
duties to shareholders. And as for DeWalt, Kleinberg said there
was "no basis" to find the chief executive was acting out of
self-interest during the early talks with Intel, "rather than
out of a motivation to maximize share prices for the benefit of
all McAfee shareholders."
The judge has not yet issued a formal final order, but Smith
said that the plaintiffs notified him Thursday that they would
not seek a hearing to challenge the tentative ruling. Baron said
he disagreed with the ruling and plans to appeal. "At this
point, if (Kleinberg's) going to have a full record in front of
him, he might as well let it go to trial," he said. "But he
chose not to."
(This story has been updated to include the name of the law
firm that represented McAfee's directors and officers and more
details on the complaint.)
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