Assignment 9-2: Dissolution Tashia Fouch Capella University BUS-4115: Business Law in Accounting Professor Khaled Ghany September 2023
In the case of Trulia, Inc. Stockholder Litigation, online real estate giant Zillow was seeking to acquire Trulia, Inc. in a stock-for-stock merger. Just after this merger was made public, four Trulia stockholders filed a class-action suit against Trulia's board of directors, alleging a breach of their fiduciary duties in approving the merger and stating that they had included misleading disclosures in the joint proxy statements(In Re Trulia, Inc. Stockholder Litigation: Court of Chancery Rejects Disclosure-Only Settlement and Signals New Era of Increased Scrutiny - Richards, Layton & Finger, n.d.). Several months later, the parties to the suit agreed to settle with an agreement-in-principle. Before having shareholders vote on the proposed settlement, Trulia had agreed to supplement proxy materials that shareholders had already received, with more information to ensure that they were as well-informed as possible prior to voting. In exchange, the plaintiffs would drop their motion to preliminarily enjoin the transaction and provide a release of claims on behalf of a proposed class of Trulia's stockholders. At issue before the court was whether the proposed class settlement was fair and reasonable to the affected class members. The law requires corporate directors to fully and fairly disclose all information that would be considered "material" in helping voters decide what's at stake prior to voting. Information is considered "material" if it's likely that a reasonable shareholder would consider it important in deciding how to vote. In this case, the court was of the opinion that material information was not fairly disclosed to stockholders. Although information was "fully" disclosed, the manner in which the information was provided to stockholders was considered unfair. This was because they received an extensive document containing over 200 pages of supplemental information that would make it difficult to adequately read through in a thorough enough manner to cast a vote. Also, the portion of the supplemental materials that outlined the opinions of the financial advisors to both companies was supposed to be summarized in a concise manner for the
stockholders, so that they wouldn't have to try to read through and figure out a bunch of financial jargon that they likely wouldn't understand. The financial disclosures were to be summarized with the important numbers that the stockholders needed to know, but they were not summarized when provided. As a result of these infractions, the Delaware Court of Chancery refused to approve the proposed settlement. They denied the settlement because the supplemental disclosures failed to provide a material benefit to the Trulia stockholders and were insufficient to justify the broad release of claims(In Re Trulia, Inc. Stockholder Litigation: Court of Chancery Rejects Disclosure-Only Settlement and Signals New Era of Increased Scrutiny - Richards, Layton & Finger, n.d.). References
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