In re Netsmart Technologies Shareholders Litigation
Delaware Court of Chancery
2007 Del. Ch. LEXIS 35 (2007)
The Netsmart Technologies, Inc. (Netsmart) board of directors (defendants) voted to auction control of the company to an outside bidder. After a quick and cursory survey of their options against the backdrop of a volatile market, the directors decided to limit the bidding to private-equity (PE) firms, with whom the directors could deal more confidentially and efficiently than with strategic buyers. Another advantage of limiting the bidding to PE firms was that any PE merger was likely to leave Netsmart’s current board and management in place. The board encouraged competition among the PE bidders and eventually struck a sensible and advantageous deal with Insight Venture Partners (Insight) (defendant). However, dissident shareholders charged that limiting the bidding to PE firms was a poorly motivated and tactically flawed decision that gave short shrift to their best interests. The shareholders petitioned the Delaware Court of Chancery for a preliminary injunction blocking the Insight merger.
Rule of Law
Holding and Reasoning (Strine, J.)
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