Walker v. Shield Acquisition Corp.

• Citation: 145 F.Supp.2d 1360
• Decision Date: 30 March 2001
• Docket Number: No. CIV. A. 1:00 CV 0481 ODE.,CIV. A. 1:00 CV 0481 ODE.
• Parties: Marsha WALKER, on behalf of herself and all others similarly situated Plaintiff v. SHIELD ACQUISITION CORP., Hagemeyer P.P.S. North America, Inc. and David G. Gundling Defendants.
• Court: U.S. District Court — Northern District of Georgia

145 F.Supp.2d 1360

Marsha WALKER, on behalf of herself and all others similarly situated Plaintiff v. SHIELD ACQUISITION CORP., Hagemeyer P.P.S. North America, Inc. and David G. Gundling Defendants.

No. CIV. A. 1:00 CV 0481 ODE.

United States District Court, N.D. Georgia, Atlanta Division.

March 30, 2001.

William S. Lerach, Esq., Mark Solomon, Esq., Eric Alan Isaacson, Esq., Henry Rosen, Esq., Milberg Weiss Bershad Hynes & Lerach, San Diego, CA, Martin D. Chitwood, Esq., Chitwood & Harley, Atlanta, GA, Paul J. Geller, Esq., Cauley Geller Bowman & Coates, Boca Raton, FL, for Plaintiff.

Michael Scott French, Esq., David L. Pardue, Esq., Kritzer & Levick, Atlanta, GA, James E. Farnham, Esq., Stacy Colvin Taylor, Esq., Edward J. Fuhr, Esq., Hunton & Williams, Richmond, VA, for Defendants.

ORDER

ORINDA D. EVANS, District Judge.

The instant federal securities litigation is presently before the court on Defendants' motion to dismiss and Plaintiff's motion for appointment of a lead plaintiff and approval of lead counsel. For the reasons set forth below, the motion to dismiss is granted. The remaining motion is dismissed as moot.

The relevant facts in this case are set forth in the Complaint or are judicially noticed as described below. Shield Acquisition Corporation ("Shield"), a Texas corporation, acquired most of the stock of Vallen Corporation ("Vallen"), a Texas corporation, pursuant to a tender offer which closed December 17, 1999 (the "Tender Offer"). Shield was a wholly owned subsidiary of Hagemeyer P.P.S. North America, Inc. ("Hagemeyer),¹ which in turn was a subsidiary of Hagemeyer NV, a company organized under the laws of the Netherlands. [Compl. ¶ 12; Ex. 99.A.1 to Schedule 14D-1 ("Offer to Purchase") at 16].

Marsha Walker ("Plaintiff") owned and tendered 500 shares of Vallen common stock to Shield and received $25.00 per share as promised by the Tender Offer documents. [Compl. ¶ 10]. She filed the instant suit for damages seeking to represent a class of tendering shareholders, alleging that certain Vallen executives ("Vallen Insiders") who owned stock improperly received additional consideration for their shares pursuant to the Tender Offer. [Id. ¶¶ 24-5, 32]. Her claim is that all Plaintiffs should receive the per-share equivalent of that received by the Vallen Insiders. [Id. at ¶¶ 7, 32]. According to the Complaint the Vallen Insiders were:

                                               Beneficial
                Individual Ownership Interest Position
                James W. Thompson              137,965 Vallen shares             President and CEO of Vallen
                Leighton J. Stephenson         16,481 Vallen shares              Vice President, Secretary and
                                                                                 Treasurer of Vallen
                David G. Key                   24,738 Vallen shares              Former Vice President and General
                                                                                 Manager of Vallen
                Robert W. Bruce                173 Vallen shares                 Employee and Director of Vallen
                                                                                 Knowledge Sys. Group, a division of
                                                                                 Vallen, (son of Chairman of the
                                                                                 Board)
                

[Complaint ¶ 12].²

The factual background is as follows. Vallen began actively seeking out potential third party-purchasers beginning in March, 1999. [Compl. ¶ 14]. By October, 1999, serious discussions were ongoing between Hagemeyer and Vallen concerning Hagemeyer's acquisition of Vallen. [Id.] On October 20, 1999, Vallen's Board of Directors approved bonuses, denominated "Retention and Transition Awards," which would be paid to thirteen key employees in the event of a change in control. [Schedule 14D-9 at 4-5]. The Vallen Insiders were four of these thirteen employees. [Id.].

On November 14, 1999, Hagemeyer Shield³ and Vallen entered into an Agreement and Plan of Merger ("Merger Agreement"). [Compl. ¶ 17]. The parties agreed that Shield would make a tender offer for all outstanding shares of Vallen at $25.00 per share. [Id.]. The Tender Offer was conditioned on Shield's acquiring at least two thirds of the outstanding stock. [Id. at ¶ 16]. The tender of 55-56% percent already had been locked up through a separate agreement with Leonard J. Bruce, Chairman of Vallen's Board of Directors, who held that amount of outstanding stock. [Id.; Schedule 14D-9 at 3]. The Vallen Insiders collectively held 3.3% of Vallen's stock. [Compl. ¶ 16].

The Merger Agreement stated that upon successful completion of the Tender Offer, the merger of Shield and Vallen would be accomplished under the provisions of the Texas Business Corporation Act ("TBCA"). [Ex. 99.C.1 to Schedule 14D-1 ("Merger Agreement") § 2.1]. If Shield received more than 90% of Vallen's shares in the Tender Offer, a "short-form" statutory merger would occur whereby Shield could be merged into Vallen without the necessity of further action by the board of directors or a shareholders' vote. [Merger Agreement § 2.1; Offer to Purchase at 2, 19, 31-2; TBCA Art. 5.16]. Pursuant to an Option Agreement, if Shield did not receive at least 90%, Shield would have an option to purchase enough newly issued Vallen shares, not to exceed 10% of the outstanding shares, to enable it to reach the 90% threshold. [Ex. 99.C.5 to Schedule 14D-1].

The Merger Agreement made provision for valuing the shares of any dissenting shareholders under § 5.12 of the TBCA. [Merger Agreement § 2.2(d)]. It stated that Vallen's directors, officers and employees would remain as such following the tender offer, until replaced according to procedures set out in the Merger Agreement. [Merger Agreement § 1.4]. Vallen agreed it would use best efforts to obtain the resignation of members of the Board after the merger so as to accommodate Hagemeyer's designees to the Board. [Id.]. The names of Hagemeyer's four designees to the then-existing six-member Board of Directors were stated in the offering document. [Offer to Purchase at 31, I-3; Schedule 14D-9 at A-2].

The Merger Agreement stated that the surviving corporation, which was to be Vallen, would honor all existing written commitments concerning "retention and transition" payments previously adopted by Vallen for the benefit of current or former officers, directors, or employees. [Merger Agreement §§ 2.1; 8.10].

On November 15, 1999, Vallen and Hagemeyer announced the upcoming Tender Offer. [Compl. ¶ 18]. On or about November 19, 1999, Hagemeyer and Shield filed with the Securities and Exchange Commission a Schedule 14D-1 Tender Offer Statement pursuant to Section 14D(1) of the Securities Exchange Act of 1934 ("Tender Offer Statement"). [Id. ¶¶ 2, 19]. Vallen filed a Schedule 14D-9 Solicitation/Recommendation Statement pursuant to Section 14(d)(4) of the Securities Exchange Act of 1934 ("Solicitation/Recommendation Statement"). [Id. ¶ 4]. The Tender Offer Statement included a copy of the Merger Agreement.

The Tender Offer commenced on November 19, 1999, when Vallen sent all shareholders the Solicitation/Recommendation Statement. [Id. ¶ 19]. It described the $25.00 per share cash offer and also disclosed the retention and transition awards which would be honored for Vallen's key employees if the merger was consummated [Id. ¶¶ 4, 19]. Specifically it provided:

By resolution of the Compensation Committee of the [Vallen] Board on September 2, 1999, and by unanimous written consent of the [Vallen] Board on October 20, 1999, the Company granted Retention and Transition Awards in the aggregate amount of $1,427,025 to be paid to 13 specified key employees upon a Change in Control (as defined in the resolutions adopted by the Compensation Committee on September 2, 1999). Of the thirteen employees awarded Retention and Transition Awards, four were directors or executive officers of the Company. Their names and the amounts of Retention and Transition Awards to which they are entitled (as a result of the transactions contemplated in the Merger Agreement) are listed below:

                   James W. Thompson         $250,000
                   Leighton J. Stephenson    $125,000
                   David G. Key              $125,000
                   Robert W. Bruce           $125,000
                

[Schedule 14D-9 at 5; see also Compl. ¶ 4].

The Vallen Board and the Vallen Insiders had approved and recommended the Tender Offer. [Compl. ¶ 19; Schedule 14D-9 at 6-11]. The Tender Offer Statement indicated that Hagemeyer had approved the payment of the transition and retention awards. [Compl. ¶ 22; Offer to Purchase at 25].

The Tender Offer concluded on December 17, 1999. [Id. ¶ 1]. According to the complaint, Shield was successful in acquiring at least the requisite two-thirds of Vallen's stock.⁴ [Id. ¶¶ 16, 23]. At that time, Shield paid all shareholders including the Vallen Insiders $25.00 cash per share tendered. [Id. ¶¶ 1, 19]. Subsequently, the merger of Shield and Vallen under the provisions of the Texas Business Corporation Act took place. [Merger Agreement § 2.1]. Vallen was the surviving corporation, and was then wholly owned by Hagemeyer. [Id.]. The transition and retention awards were paid. [Compl. ¶¶ 5, 6].

Plaintiff's Complaint alleges that the transition and retention awards were a ruse for additional payments to Vallen Insiders for their stock, in violation of § 14(d)(7) of the 1968 Williams Act Amendments ("The Williams Act") to the Securities Exchange Act of 1934, 15 U.S.C. §§ 78n(d)(6)-(7) (1994) ("The Exchange Act") and SEC Rule 14d-10(a)(2). Plaintiff seeks damages for herself and putative class members in an amount equal to the alleged additional per-share consideration paid to the Vallen Insiders under the so-called "best price" provision of The Williams Act and Rule 14d-10.

Section 14(d)(7) of The Williams Act provides:

Where any person varies the terms of a tender offer or request or invitation for tenders before the expiration thereof by increasing the...