In Nguyen v. Barrett, C.A. No. 11511-VCG (Oct. 8, 2015), the letter opinion by Delaware Court of Chancery Vice Chancellor Sam Glasscock III denies a plaintiff's motion for the certification of an interlocutory appeal after the court rejected the plaintiff's efforts to enjoin the closing of a tender offer. The opinion will likely be cited going forward for its holding that there is no per se rule under Delaware law that a proxy statement must disclose to the stockholders the specific inputs and management projections that a financial adviser used in rendering a fairness opinion. The opinion does, however, leave open the prospect that under certain factual scenarios, such information might be material to the stockholders' decision-making process, and thus, must be disclosed.

The action challenged an all-cash tender offer by a wholly owned subsidiary of AOL Inc. for all the outstanding stock of Millennial Media Inc. In connection with the tender offer, Millennial filed a Schedule 14D-9 (the proxy), which formed the basis for the plaintiff's complaint. The complaint alleged that (1) the transaction's price and the process that led to the transaction were unfair to the stockholders; (2) the transaction was protected by unreasonable deal-protection provisions; and (3) the proxy failed to disclose material information related to the tender offer. As the court framed it, "the number of disclosure violations alleged [was] extraordinary."

Among the topics that the plaintiff alleged were either not disclosed or were disclosed but misleading were the following:

• Why a strategic committee of the board determined that AOL's initial offer of $2 per share was not in the best interest of the shareholders but later determined that $1.75 was sufficient.

• The reasons stated by AOL to Millennial regarding the justification for its reduced offer.

• The number of Millennial shares actually and beneficially owned by the members of the board of directors.

• The criteria used by the financial adviser to select the companies that were used in its selected companies analysis.

• The criteria used by the financial adviser to select the transactions it reviewed in its selected transaction analysis.

• Whether (and if so, to what degree) the financial adviser's fee was contingent on the completion of the transaction.

• Why AOL was not provided with a "high scenario" forecast for the company, as—the plaintiff alleged—that "forecast presented the most favorable picture of the company's future financial performance and therefore supported a higher valuation of" Millennial.

As the court noted, however, by the time the parties had presented this matter for a preliminary injunction proceeding, most of these alleged disclosure violations had been abandoned by the plaintiff. The preliminary injunction proceeding addressed a single disclosure issue. The plaintiff argued that the management of Millennial provided "inputs that ... the financial adviser used to derive unlevered, after-tax free cash flows and a discounted cash flow (DCF) valuation and that the company disclosed that fact in the proxy, but that not all projections and inputs themselves were provided in the proxy." That disclosure issue set up the plaintiff's two arguments; that is, that (1) the proxy was misleading because it implied that management (rather than the financial adviser) produced the unlevered, after-tax free cash flows, or (2) "all management projections and inputs relied upon by [the financial adviser] must be disclosed as a matter of law." In a bench ruling rejecting the application for preliminary injunction, Glasscock held (1) that the proxy fairly gave notice that management did not prepare the calculations of unlevered, after-tax free cash flows and (2) rejected the plaintiff's argument that there exists (or should exist) a per se rule that all management inputs that are provided to and relied upon by the financial adviser in completing a DCF model (and therefore opining on the fairness of a transaction) must be disclosed to the stockholders.

The latter ruling of the court was the subject of the application for an interlocutory appeal. The court rejected that application and ruled: "I do not find our case law to be undeveloped or conflicted, and therefore I cannot certify interlocutory appeal. Here the company did not prepare projected unlevered, after-tax free cash flows, and accordingly, did not provide such projections to its financial adviser. It did provide projections of earnings, non-cash stock-based compensation, and change in net working capital. While these precise inputs were not disclosed in the proxy, the company did disclose projected net revenues, gross profits, and adjusted EBITDA.

The court continued: "Our case law provides that, where bankers derive unlevered, after-tax free cash flows rather than relying on management projections, the inputs on which they rely are not per se subject to disclosure. As this court has previously noted, 'a disclosure that does not include all financial data needed to make an independent determination of fair value is not per se misleading or omitting a material fact. The fact that the financial advisers may have considered certain non-disclosed information does not alter this analysis.'"

The court's ruling on this point makes clear that there is no per se rule that all inputs considered by a financial adviser in constructing a DCF model must also be provided to the stockholders in a proxy. Rather, challenges to the sufficiency of the information provided to stockholders in proxy statements will continue to rise or fall on the specific facts of each individual case as the court makes an independent judgment as to the materiality of the information that plaintiff stockholders contend should have been disclosed.