In re Smurfit-Stone Container Corp. Shareholder Litigation

Rock-Tenn Company (defendant) offered to acquire Smurfit-Stone Container Corporation (Smurfit-Stone) (defendant) for $32 per share, with merger consideration of 50 percent cash and 50 percent Rock-Tenn stock. A special committee of Smurfit-Stone’s board thought the offer was inadequate but authorized the committee’s independent financial adviser to allow Rock-Tenn to improve its offer. The special committee decided not to contact other companies about a potential transaction in part to avoid jeopardizing the Rock-Tenn transaction. Rock-Tenn subsequently increased its offer to $35 per share, again split equally between cash and stock. The special committee’s financial advisor found the price fair. The special committee unanimously recommended that the board accept Rock-Tenn’s offer, and the board did so. Smurfit-Stone stockholders (plaintiffs) then brought an action challenging the transaction, arguing that certain deal-protection devices in the approved merger agreement were unreasonable. Specifically, the agreement’s no-shop provision prohibited Smurfit-Stone from soliciting or encouraging another company’s bid. The agreement also gave Rock-Tenn the right to details of any unsolicited competing proposals so that Rock-Tenn could match or exceed the bid and provided for a $120 million termination fee payable to Rock-Tenn if Smurfit-Stone did not recommend the proposed transaction to stockholders or accepted another bidder’s superior proposal. The stockholders asserted that Smurfit-Stone’s board had breached their fiduciary duties of care and loyalty by failing to maximize the value of the company to its stockholders, as required by Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc. The stockholders sought a preliminary injunction to delay the stockholder vote on the proposed transaction and temporarily lift the deal-protection devices.