Wayne L. Ryan Revocable Trust v. Ryan

• Citation: 957 N.W.2d 481,308 Neb. 851
• Decision Date: 09 April 2021
• Docket Number: No. S-19-951.,S-19-951.
• Parties: WAYNE L. RYAN REVOCABLE TRUST et al., appellees, v. Constance "Connie" RYAN, appellee, and Streck, Inc., appellant.
• Court: Supreme Court of Nebraska

308 Neb. 851

957 N.W.2d 481

WAYNE L. RYAN REVOCABLE TRUST et al., appellees,

v.Constance "Connie" RYAN, appellee,andStreck, Inc., appellant.

No. S-19-951.

Supreme Court of Nebraska.

Filed April 9, 2021

Thomas H. Dahlk and Victoria H. Buter, of Kutak Rock, L.L.P., Omaha, and Ronald E. Reagan, of Reagan, Melton & Delaney, L.L.P., for appellant.

Kamron T.M. Hasan, David A. Lopez, and Marnie A. Jensen, of Husch Blackwell, L.L.P., Omaha, for appellees Wayne L. Ryan Revocable Trust et al.

Daniel J. Welch and Damien J. Wright, of Welch Law Firm, P.C., Omaha, for appellee Constance "Connie" Ryan.

Heavican, C.J., Cassel, Funke, Papik, and Freudenberg, JJ.

Funke, J.

The sales process implemented by a corporation's successor president and chief executive officer (CEO) failed to produce an offer acceptable to the majority shareholder. When the corporation was not sold, the majority shareholder sued the president and CEO, as well as the corporation, alleging shareholder oppression and breach of fiduciary duty. The corporation elected to purchase the petitioning shareholder's shares, which initiated a valuation proceeding in district court. The court held a 9-day bench trial and determined the fair value of the shares to be purchased by the corporation to be $467 million. The court awarded the petitioning shareholder approximately $256 million in prejudgment interest and, over objection, ordered the corporation to pay the fair value portion of the judgment within 10 days.

The corporation, Streck, Inc., appeals the court's valuation of shares, award of prejudgment interest, and order to make payment. Based on the record and credibility findings of the district court, and the statutory law governing prejudgment interest in a proceeding to value a petitioning shareholder's shares, we conclude that Streck's appeal is without merit. Therefore, we affirm.

I. BACKGROUND

1. PARTIES

(a) Streck

Streck, a closely held, private family business, is a Nebraska corporation with its principal place of business in La Vista, Sarpy County, Nebraska. Streck is a subchapter S corporation under the Internal Revenue Code.

Streck is a worldwide industry leader in developing and manufacturing cell stabilization technology for use in hematology, immunology, and molecular diagnostics. Streck's products are used to control and calibrate laboratory instruments that analyze blood cells and DNA, and they have a significant impact in health care. When Dr. Wayne L. Ryan founded Streck in 1971, Streck's core business was hematology controls. Streck was " ‘first to market’ " with a majority of its products, and it maintains approximately three-quarters of the hematology control market in the United States. Dr. Ryan subsequently developed a blood collection tube

(BCT) product, which allows for the preservation and transportation of blood samples. The BCT products’ capability to stabilize "DNA and ... RNA" was a significant advancement in the field of molecular diagnostics. In addition, Streck's flow cytometer identifies white blood cells, which allows for the diagnosis of diseases, such as AIDS and various cancers.

Streck, with its 330 employees and 200,000 square foot facility, has a fully integrated business model for its products, with research and development, manufacturing, and distribution. Streck has a strong operational performance, increasing sales every year since inception with no product recalls in the past 25 years. Streck has deeply entrenched relationships with its largest customers that are secured with long-term contracts. Streck has a valuable portfolio of intellectual property, with, as of December 2014, 42 patents and 42 pending patent applications. Streck has an intellectual property strategy, with both offensive and defensive strategies, designed to protect its position in the market. For its BCT products, Streck planned to apply for broad patent protections for extended periods of time.

Streck's financial performance surged in recent years. From 2010 to 2014, Streck's annual net sales went from $73.9 million to $101.8 million, averaging 8 percent growth each year. During this time period, Streck's average gross profit margins were 62.6 percent, 64.4 percent, 66.7 percent, 68.6 percent, and 69.7 percent. Streck's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) during this period was $33.7 million, $36.1 million, $40.1 million, $49.6 million, and $53.6 million. In April 2014, Streck had 10 new products in development. In July 2014, Streck set a goal to double sales within the next 6 years and set a goal for 2015 to develop and execute a growth strategy to achieve $200 million in sales by 2020. Streck expected continued growth with its BCT products and planned to gain one of the largest companies in Streck's industry as a new client.

(b) Ryan Family

Dr. Ryan was Streck's founder, director of research and development, CEO, and chairman of the board. Dr. Ryan and his wife, Eileen Ryan, had five children: Constance Ryan (Connie), Tim Ryan, Stacy Ryan, Carol Ryan, and Steven Ryan. The ownership structure of Streck is comprised of the Wayne L. Ryan Revocable Trust (the RRT), which owns 52.275 percent; Eileen's trust, which owns 39.641 percent; and Connie's trust and the 2014 "Grantor Retained Annuity Trust," which owns 8.008 percent. In 2014, Dr. Ryan gifted .026 percent of Streck's voting stock to Carol, Steven, and Barry Uphoff, a family friend. Uphoff worked in Streck's laboratory after college and later served on Streck's board of directors for nearly a decade, including a brief period as chairman of the board.

In March 2013, Eileen passed away. Eileen's estate conveyed her one-third of Streck's voting shares to Connie, giving Connie two-thirds of the company's voting shares. As a result, Connie obtained voting control of Streck, with the power to appoint a majority of Streck's board of directors. In September 2013, based on her own recommendation to the board, Connie replaced her father, Dr. Ryan, as CEO. Connie proposed that Streck name a new director of research and development and encouraged Dr. Ryan to retire. Dr. Ryan did not object to Connie's becoming CEO so long as the company was sold. Connie agreed to prepare the company for sale in the next 2 to 3 years.

In the spring of 2014, Dr. Ryan made Carol the trustee of the RRT.

2. PROJECT BLIZZARD

Connie's effort to sell Streck was referred to within Streck as "Project Blizzard." In January 2014, prior to the launch of Project Blizzard, Streck received interest from potential buyers. A private investor told Connie he would buy Streck for $330 million. Mike Morgan, Streck's former chief financial officer (CEO), valued Streck at $285 million for purposes of making an offer to purchase 10 percent of Streck. Uphoff, who is also the founder and managing partner of a private equity firm, Capricorn Healthcare & Special Opportunities (Capricorn), submitted an indication that he would purchase Streck for $425 million.

During this time, Dr. Ryan engaged Carson Wealth Management Group (Carson) to conduct a valuation. Carson found Streck to be a "very high quality business with incredible margins and solid growth prospects." Two analysts from Carson independently valued Streck at approximately $705 million.

According to the testimony of Carol, based on the interest from prospective buyers in the early part of 2014, Connie and Streck's chairman of the board, Ron Gartlan, believed they could conduct a sales process themselves and bring in an investment banker at the end of the sales process. Connie and Gartlan determined that the sale of Streck would be run through Streck's management, without input from Dr. Ryan and Carol. Dr. Ryan and Carol voiced that Streck was going blind into the sale as to its true value, and they expressed concern about the lack of the involvement of an investment banker. Gartlan indicated that he was familiar with an investment banker that Streck could use, and in March 2014, Streck engaged the investment banker without interviewing other candidates. Thereafter, Dr. Ryan and Carol were excluded from the meetings which Streck and its investment banker had with potential buyers.

Project Blizzard consisted of three rounds of bidding. In the first two rounds, each prospective buyer submitted a preliminary indication of interest (IOI). In the third round, each buyer submitted a final letter of intent (LOI). The bids excluded the approximately $76.5 million of cash held by Streck, which would be distributed to the shareholders prior to closing. All of the bids submitted through the process agreed to Streck's primary terms, which were to keep the business in Omaha, Nebraska; maintain relationships with key customers; and retain key employees, including Connie and her management team.

Ten potential buyers, consisting of one diagnostics health care company and nine private equity companies, submitted an IOI in the first round. Most bids contained a range with a low number and high number. The bids were as follows: Bio-Techne, Inc., $387 million to $427 million; Water Street, $415 million to $430 million; Summit Partners, $425 million; Capricorn, $425 million to $450 million; Bain Capital Partners, LLC, $475 million to $525 million; The Carlyle Group, $550 million to $600 million; The Jordan Company, $550 million to $600 million; Genstar Capital Management LLC, $570 million; GTCR, $575 million to $625 million; and Warburg Pincus LLC, $525 million to $625 million. GTCR, a private equity firm based in Chicago, Illinois, launched a new fund in 2014 and was searching for a platform company in molecular diagnostics. GTCR submitted a bid with a midpoint of $600 million, which was the highest in the first round.

Connie, with support from the board and Streck's investment banker, selected 6 of the 10 potential buyers to visit Streck to meet with management, tour the facilities, and obtain further due diligence from Streck. The four lowest bids from round one advanced to...