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Kessler Topaz Wins Reversal From Supreme Court of Delaware

June 30, 2020

On June 30, 2020, Kessler Topaz convinced the Supreme Court of Delaware to reinstate stockholders’ claims relating to the 2016 merger of Towers Watson and Willis Group to form Towers Willis.  KTMC’s plaintiff City of Fort Myers General Employees’ Pension Fund, on behalf of a class of former Towers investors, challenged the merger as unfair, and alleged that Towers’ former CEO John Haley had engineered the merger to secure a highly-lucrative pay package for himself. 

Specifically, plaintiffs alleged that in September 2015, when Towers stockholders were roundly criticizing the merger as a boon to Willis, Haley secretly met with Jeffrey Ubben, CEO of ValueAct Capital, then a 10% owner of Willis.  Ubben offered Haley a massive pay package under which Haley could earn up to six times his current pay (as much as $165 million), if the merger went through.  This discussion was never disclosed to the rest of Towers’ board, nor to stockholders when they were voting to approve it.  In November, with the merger facing sure defeat by Towers stockholders, Haley and Ubben then renegotiated the merger consideration to add an additional $5 per share.  This price was still a 7% discount to Towers’ unaffected (prior to the merger announcement) trading price.  Only through Haley and ValueAct’s significant lobbying of Towers stockholders did the renegotiated merger narrowly get approved by Towers stockholders. 

The Delaware trial court dismissed plaintiffs’ claims, finding that the undisclosed compensation discussion between Haley and ValueAct would not have been material information to Towers’ board or to its stockholders.  The trial court reasoned that Towers board and stockholders already knew that Haley was likely to make more money as the CEO of the combined Towers Willis than he was making at Towers, and that the compensation proposal “was a proposal only; it reflected a theory of compensation and upside potential in the event of pie-in-the-sky outcomes unconnected to any business plan or forecast.”  For these reasons, the Court of Chancery found that the proposal was immaterial information and did not need to be disclosed.

On June 30, 2020, the Delaware Supreme Court reversed, finding that the compensation proposal to Haley was in fact material information that needed to be disclosed.  The Court wrote:  “We acknowledge that the Proposal was not binding.  But that is not the point.  The fact that the Proposal was not a concrete agreement and had milestones requiring ‘Herculean’ efforts did not relieve Haley of his duty to disclose to the Towers Board the deepening of the potential conflict, particularly in an atmosphere of considerable deal uncertainty….  Here, Plaintiffs are entitled to an inference that the prospect of the undisclosed enhanced compensation proposal was a motivating factor in Haley’s conduct in the renegotiations to the detriment of Towers stockholders.”

The case is now remanded back to the trial court for further proceedings.  Among other things, the Court of Chancery will need to decide whether plaintiffs adequately pled claims against ValueAct and Ubben for “aiding and abetting” Haley’s breach of duty of loyalty.  Thereafter, plaintiffs will proceed with discovery and towards trial. 

We are gratified that the Supreme Court saw fit to reverse the dismissal of these meritorious claims and hope to achieve meaningful redress for Towers stockholders who were harmed by their fiduciaries’ misconduct.

The KTMC trial team consists of Lee Rudy, J. Daniel Albert, Geoffrey Jarvis, and Stacey Greenspan.