In re MONY Group Inc. Shareholder Lit.

• Decision Date: 17 February 2004
• Docket Number: C.A. No. 20554.
• Parties: In re the MONY GROUP INC. SHAREHOLDER LITIGATION.
• Court: Court of Chancery of Delaware

852 A.2d 9

In re the MONY GROUP INC. SHAREHOLDER LITIGATION.

C.A. No. 20554.

Court of Chancery of Delaware, New Castle County.

Submitted: February 17, 2004.

Decided February 17, 2004.

Carmella P. Keener, Rosenthal, Monhait, Gross & Goddess, P.A., Wilmington, DE; Steven G. Schulman, Seth D. Rigrodsky, Ralph N. Sianni, Milberg Weiss Bershad Hynes & Lerach, L.L.P., Wilmington, DE and New York City; U. Seth Ottensoser, Bernstein Liebhard & Lifshitz, L.L.P., New York City; Emily C. Komlossy, Lynda Grant, Goodkind Labaton Rudoff & Sucharow, L.L.P., New York City; Stephen T. Rodd, James S. Notis, Evan J. Kaufman, Abbey Gardy, L.L.P., New York City, for the Plaintiffs.

R. Franklin Balotti, Allen M. Terrell, Jr., J. Travis Laster, Thad J. Bracegirdle, David A. Felice, Richards, Layton & Finger, P.A., Wilmington, DE; Harvey Kurzweil, Richard W. Reinthaler, James P. Smith, III, John E. Schreiber, Dewey Ballantine, L.L.P., New York City, for the MONY Defendants.

David C. McBride, Adam W. Poff, Young Conaway Stargatt & Taylor, L.L.P., Wilmington, DE; John H. Hall, Jeffrey I. Lang, Erik Bierbauer, Debevois & Plimpton, L.L.P., New York City, for Defendants AXA Financial, Inc. and AIMA Acquisition Co.

OPINION

LAMB, Vice Chancellor.

I.

The plaintiffs request a preliminary injunction against a stockholder vote on a stock-for-cash merger between two companies engaged in the insurance industry. The plaintiffs allege that the defendant board, having decided to put the company up for sale, did not fulfill its duty to seek the best transaction reasonably available to the stockholders. Specifically, the plaintiffs allege the board members failed in meeting their fiduciary duties by deciding to forego a pre-agreement auction in favor of a process involving single-bidder negotiation followed by a post-agreement market check. Moreover, the plaintiffs challenge both the board's decision, following negotiation, that the resulting merger proposal was the best proposal reasonably available, and the adequacy of the market check utilized.

The plaintiffs also challenge the adequacy of disclosures made in a proxy statement sent out to stockholders of the selling company in anticipation of the stockholder vote. The plaintiffs argue that, for a number of reasons, certain parts of that proxy statement are either incomplete or misleading.

After careful consideration of the exhibits and depositions submitted to the court, as well as the parties' briefs and arguments made before the court, the court grants a limited injunction, relating solely to proxy statement disclosures concerning payments under certain change-in-control agreements. The court holds that the harm, if any, caused by requiring a supplemental disclosure is far outweighed by the benefits associated with a fully and fairly informed stockholder vote.

II.

A. The Parties

Defendant MONY Group Inc. ("MONY" or the "Company") is a publicly traded Delaware corporation whose business is selling life insurance to high-income individuals. MONY relies on the "career agent system" to sell its insurance, as opposed to a centralized, advertising-based model. The career agent system employs salespersons in offices throughout the country who actively solicit business for MONY.

Defendants Tom. H. Barrett, David L. Call, G. Robert Durham, Robert Holland, Jr., James L. Johnson, Robert R. Kiley, Jane C. Pfeiffer, Thomas C. Theobald, Frederick W. Kanner, David M. Thomas and Margaret M. Foran (the "Outside Directors") are outside directors of MONY. Defendants Michael I. Roth, Samuel J. Foti and Kenneth M. Levine (the "Inside Directors," together with the Outside Directors, the "Board") are inside directors. Roth is Chairman and CEO, Foti is President and Chief Operating Officer, and Levine is Executive Vice President and Chief Investment Officer.

Defendant AXA is a Delaware corporation also engaged in selling insurance. It is a wholly owned subsidiary of AXA, S.A., a French corporation whose shares trade on the Paris Bourse. AXA's insurance products business is conducted principally by its wholly owned subsidiary, The Equitable Life Assurance Society of the United States. Like MONY, AXA uses the career agent system. AIMA Acquisition Co. ("AIMA") is a wholly owned Delaware subsidiary of AXA created to affect the proposed merger with MONY.

Plaintiffs E.M. Capital, Inc., Elm Realty, Inc., Congregate Investors, Ltd., Abbott Hill Partners, L.P., Alan Martin, Amanda Kahn-Kirby, The Jewish Foundation for Education of Women, Edward Cantor, and Jerome Muskal (the "Stockholders," or the "plaintiffs") have continuously owned MONY common stock during the time period at issue. The Stockholders seek to act as class representatives for all holders of MONY common stock besides the defendants and their affiliates.

B. MONY's Problems And Merger Talks

The complaint suggests that MONY is a company with significant problems. The Company posted losses in 2001 and 2002, and in October 2002 had its financial strength ratings downgraded by the four major ratings firms. Though the Stockholders assert these problems were due to mismanagement, there is substantial testimony in the record indicating that the problems actually stemmed from the Company's demutualization in 1998, general weakness in equity markets, and the costs associated with its career agent system. According to Durham, MONY's main problem was that it had been unable to generate a volume of business sufficient to recoup the cost of running its many local agencies.¹

In November 2002, the Board met to discuss what to do about MONY's problems. MONY's financial advisor, Credit Suisse First Boston LLC ("CSFB"), gave a report to the Board. Among other things, CSFB's report suggested potential partners and acquirors for MONY, listing 12 companies including AXA. The Board considered and rejected the idea of publicly auctioning the Company, fearing that a failed auction would glaringly display the Company's weaknesses and provide competitors with information they could use to steal its career agents. Instead, the Board instructed Roth to quietly explore merger opportunities.

On December 4, 2002, Roth met with the CEO of AXA, Christopher Condron. Condron expressed interest in acquiring MONY. That same day, Roth reported to the Board his discussions with Condron and prior discussions that he had with other potential partners. The Board was enthusiastic about a potential deal with AXA because it was a large, stable company operating under the same business model, and thus could take full advantage of MONY's local agency network. The Board authorized solicitations of interest from AXA, but not from any other potential partner.

AXA contacted Roth in January 2003 to offer an initial transaction price of between $26 and $26.50 per MONY share. Roth negotiated with AXA over the next three months, during which time MONY and AXA entered into a confidentiality agreement that allowed AXA access to some of MONY's nonpublic information to facilitate its due diligence. Roth summarized the negotiations to the Board on March 18, 2003.

C. Change In Control Agreements And AXA's Initial Bid

MONY's senior management hold Change In Control agreements ("CICs") as part of their compensation packages. The CICs are golden parachute provisions that are triggered if MONY is acquired. During negotiations, Roth estimated to AXA that these CICs were worth $120 million.

On March 31, 2003, AXA proposed to acquire MONY for $28.50 per share. Sometime in April, however, AXA determined that the CICs were actually worth about $163 million. Accordingly, on April 16, 2003, AXA lowered its offer to $26.50 per share. Around that time, Roth also met with the CEO of another insurance company, New York Life, to discuss a possible transaction, but nothing came of that.

On May 5, 2003, Roth updated the Board on his negotiations with AXA. CSFB also offered a financial analysis of a transaction at $26.50 a share. Neither Roth nor CSFB reported on soliciting other potential offers, and CSFB affirmatively stated that it had not sought alternative bids. The Board met again on May 13 and authorized Roth to negotiate a definitive merger agreement with AXA. At that time, the Board first received estimates of the cost of the CICs.

During these negotiations, AXA informed MONY that it would only agree to a form of stock-for-stock merger using American Depository Receipts ("ADRs") at a fixed exchange ratio.² The Board met again on May 21 to discuss an ADR-for-stock merger. AXA's proposal was 1.92 AXA ADRs for each MONY share, subject to a real dollar cap of $37 and a real dollar floor of $17 (the "Original Offer"). Uncomfortable with that wide range and the corresponding lack of clarity about the value stockholders would receive, the Board rejected the offer.

The record also suggests that the Board thought that the CICs were too large and that AXA's offered price would have been higher if not for the CICs. The Board resolved not to approve any transaction until it could amend the CICs. Although the Stockholders argue that the CICs were the principal reason the Board rejected the merger proposal, the record testimony uniformly describes this reason for the Board's decision as secondary.

D. The Board Amends The CICs

In June 2003, the Board engaged the compensation consulting firm Frederic W. Cook & Co. ("Cook") to analyze the CICs (the "Cook Analysis"). On June 25, 2003, Cook reported to the Board that CICs typically amount to 1% to 3% of a proposed transaction, and sometimes up to 5%. Cook reported that MONY's CICs were worth about $205 million, or 15.4% of the proposed merger with AXA. Cook presented information as to how the MONY CICs compared to those in similar transactions in the form of charts. The Board reviewed these charts on a number of occasions during the course of the summer of 2003.

In July 2003, the Board informed senior management that it would not renew the CICs when they expired on ...