Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co.
| Docket Number | 19 Civ. 10067 (PAE) |
| Decision Date | 29 June 2023 |
| Parties | ALTIMEO ASSET MANAGEMENT and ODS CAPITAL LLC, individually and on behalf of all others similarly situated, Plaintiffs, v. QIHOO 360 TECHNOLOGY CO. LTD., HONGYI ZHOU, XIANGDONG QI, and ERIC X. CHEN, Defendants. |
| Court | U.S. District Court — Southern District of New York |
This decision resolves lead plaintiffs' motion for reconsideration or, in the alternative, certification of an interlocutory appeal from the Court's March 21, 2023 decision. That ruling (the “March 2023 decision”) denied in part and granted in part defendant Hongyi Zhou's motion to dismiss plaintiffs' First Amended Complaint (“FAC”). See Altimeo Asset Mgmt. v Qihoo 360 Tech. Co. (Altimeo IIP), No. 19 Civ. 10067 (PAE), 2023 WL 2585942 (S.D.N.Y. Mar. 21, 2023).
In the FAC, Dkt. 53, lead plaintiffs Altimeo Asset Management and ODS Capital LLC (“ODS”) (collectively “plaintiffs”) claimed that internet company Qihoo 360 Technology Co. Ltd. (“Qihoo”) and three of its leaders carried out a scheme to depress the price of Qihoo's American depositary shares (“ADS”) and stock (together, “Qihoo securities”), with the goal of enabling them to pay Qihoo shareholders an unfairly low price when they took the company private in 2016 (the “Go-Private Merger” or the “Merger”). Lead plaintiffs sued on behalf of a putative class comprised of owners of Qihoo securities who sold shares during the class period (“seller shareholders”), or who tendered those shares for the Merger consideration (“tenderer shareholders”).[1] They alleged violations of §§ 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (“Exchange Act”) and the implementing rule of the Securities and Exchange Commission (“SEC”), 17 C.F.R. § 240.10b-5 (“Rule 10b-5”).
On March 21, 2023, the Court sustained the FAC's claims on behalf of the seller shareholders. However, as relevant to the instant motion, the Court dismissed the FAC's claims on behalf of the tenderer shareholders, finding that these failed to allege economic loss or loss causation as to those shareholders. Altimeo III, 2023 WL 2585942, at * 18-24. The Court also denied plaintiffs' request for leave to amend the FAC to add allegations gleaned from a Cayman Islands appraisal action brought by non-class members who had dissented from the Merger. See id. at *28 n.26 (citing Dkt. 128 at 6 n.4).
Plaintiffs now ask the Court to reconsider its denial of leave to amend in light of those additional allegations, as set out in plaintiffs' proposed Second Amended Complaint (“SAC”), Dkt. 157, Ex. A. These additional allegations, plaintiffs argue, reveal that Qihoo's “intrinsic value” at the time of the Merger exceeded the Merger consideration of $77/ADS. On that basis they contend that the SAC adequately alleges economic loss and loss causation as to the tenderer shareholders. Dkt. 150 (“Motion for Reconsideration” or “MTR Mem.”). In the alternative, plaintiffs seek certification of an appeal, under 28 U.S.C. § 1291(b), of the Court's dismissal of their claims alleging, as to the tenderer shareholders, economic loss and loss causation. MTR Mem. at 1.
For the foregoing reasons, the Court denies the motion in its entirety.
I. Background
The Court incorporates its March 2023 decision by reference, and recounts here only the facts and procedural history necessary to situate the reader. See Altimeo III, 2023 WL 2585942, at *2 -11. The proposed SAC's additional allegations are discussed in full later in this opinion. See infra Section II.C.3.
Lead plaintiffs Altimeo and ODS owned Qihoo securities, including ADS purchased on the New York Stock Exchange during the putative class period.[3] As relevant here, both tendered shares in connection with the Go-Private Merger. See SAC ¶¶ 34-35; see also Dkt. 12-3 (certifications of Altimeo and ODS purchase and sales).
Qihoo is a Cayman Islands corporation that offers internet and cloud-based products- including internet and mobile security tools, an internet browser, a search engine, and a mobile app store-to hundreds of millions of customers. SAC ¶¶ 47-51. Zhou is Qihoo's co-founder and served as chairman and CEO during the class period. Id. ¶ 37. Qi is Qihoo's co-founder and served as president and director during the class period. Id. ¶ 38. Chen served as a Qihoo director from 2014 through the Merger, and acted as chairman of the special committee of independent directors that the Company appointed to evaluate the Merger. Id. ¶¶ 39, 41.
On June 17, 2015, Zhou, who had partnered with four investment companies (collectively, the “Buyer Group”), approached Qihoo's board with a preliminary non-binding proposal to acquire all of Qihoo's outstanding shares for $77.00 in cash per ADS and $51.33 in cash per Class A or Class B ordinary share. Id. ¶¶ 56-57. At the time, Qihoo was valued at approximately $8 billion. Id. ¶¶ 14, 181. The Merger offer valued Qihoo at approximately $9.3 billion. Id. ¶ 3.
Two days later, on June 19, 2015, Qihoo's board formed a special committee to evaluate the terms of the Buyer Group's proposal, negotiate with the Buyer Group or its representatives, and explore strategic alternatives. Id. ¶¶ 41, 59. Zhou was not a member of the committee. Id. The committee retained J.P. Morgan Securities to act as financial advisor in connection with its review of the Merger proposal, id. ¶ 60, and Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden Arps”) to act as legal counsel. See Dkt. 116, Ex. 2 (“Final proxy statement”) at 30.
Heated negotiations over the terms of the Merger agreement followed. During the negotiation period, the Buyer Group repeatedly rejected the special committee's attempts to negotiate a higher Merger price of $80.00 per ADS on December 9, id. at 35, and December 10, 2015, id. at 36. The Buyer Group, through its counsel, also rejected the special committee's attempts behalf through December 12 and 13, 2015, to seek a purchase price increase, generally. Id. at 37.
On December 16, 2015, J.P. Morgan gave the special committee its opinion that the Buyer Group's preliminary offer ($77.00 per ADS and $51.33 per ordinary share) was fair to Qihoo shareholders. SAC ¶ 63. J.P. Morgan's opinion was based on management projections provided to it by Alex Xu, Qihoo's co-CFO.[4] Id. ¶ 169. These projections (the “J.P. Morgan projections”) contained a discounted cash flow (“DCF”) analysis supporting the Merger offer of $77/ADS. Id. ¶ 20. DCF valuations “project[] the future profit of a business and then discount[] that future profit (e.g, based on the time value of money) to derive the businesses] present value.” Id. ¶ 184. J.P. Morgan's DCF analysis valued Qihoo at $10,425 billion, id. ¶ 187,[5] and calculated the range of ADS equity values as between $68.43 and $91.61, Final proxy statement at 56.[6] The special committee and the Board approved the Merger the same day. SAC ¶ 64.
On December 18, 2015, the Board executed the Merger Agreement, Id. ¶ 75, Between January 11 and March 3, 2016, Qihoo published four successive versions of Proxy Materials (collectively, the “proxy materials”) that sought to persuade shareholders to vote for the Merger. Id. ¶ 81.[7] The proxy materials reported J.P. Morgan's DCF analysis, including its range of ADS equity values. Final proxy statement at 56-57.
Shareholders who wanted to exercise their appraisal rights under Section 238 of Cayman Islands Companies Law had to commit to doing so before the vote on the Merger. SAC ¶¶ 10307; see Altimeo III, 2023 WL 2585942, at *23 n.21. Three Qihoo securityholders-Blackwell Partners LLC-Series A, Crown Managed Accounts SPC, and Maso Capital Investments Limited (the “Dissenters”)-initiated such an action in the Cayman Islands (the “appraisal action”). SAC ¶ 153. Plaintiffs in this action did not.
On March 30, 2016, the shareholders voted on the Go-Private Merger. Id. ¶ 101. For the Merger to pass, at least two thirds of the voting rights of the shares present and voting in person or by proxy had to vote for it. Id. ¶ 99. Approximately 99.8% of the total votes cast at the meeting were in favor of the Merger, thereby approving it. Id. ¶ 101. Pursuant to its terms, the Merger closed on July 15, 2016, at which point each share was exchanged for the right to receive $51.33 and each issued and outstanding ADS represented the right to receive $77. Id. ¶¶ 4, 108.
On August 14, 2020, this Court granted Qihoo and Chen's motion to dismiss the FAC for failure to state a claim under Federal Rules of Civil Procedure 12(b)(6) and 9(b). See Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co.,No. 19 Civ. 10067 (PAE), 2020 WL 4734989 (S.D.N.Y. Aug. 14, 2020) pAltimeo P), vacated and remanded, 19 F.4th 145 (2d Cir. 2021) QAltimeo IP). The Court held that the FAC did not plausibly allege “that defendants, as of the Merger, had in place a concrete plan to relist,” which was the factual premise on which its “claims of material misrepresentations and omissions all turn.” Id. at *17. On November 24, 2021, the Second Circuit vacated the dismissal and remanded. See Altimeo II, 19 F.4th. The Circuit held that the FAC alleged facts plausibly supporting the inference that, as of the shareholder plan to approve the Go-Private Merger, defendants had had an undisclosed plan in place to relist. Id. at 149-51.
At the time of the Circuit's decision, Zhou had not been served. On February 1, 2022, the Court permitted plaintiffs to serve Zhou and Qi by alternative means. Dkt. 100.
On February 8, 2022, the appraisal action went to trial before the Grand Court of the Cayman Islands, Financial Services Division. SAC ¶ 167. The trial, which was conducted by video conference, was live-streamed over a...
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