Varjabedian v. Emulex Corporation

Avago Technologies Wireless Manufacturing, Inc. (Avago) entered a merger agreement to acquire semiconductor company Emulex Corp. (defendant). An Avago subsidiary made a tender offer to buy Emulex’s outstanding stock at $8 per share, a 26.4 percent premium over the stock price before the merger announcement. Emulex decided to issue a statement advising shareholders whether to accept or reject the offer and hired Goldman Sachs to analyze the deal. As part of its recommendation to accept, Goldman Sachs produced a chart showing the premiums stockholders received in 17 similar transactions in the semiconductor industry in the five preceding years. The chart showed the 26.4 percent premium as within the normal range but below average. Emulex omitted the chart from the Schedule 14D-9 Recommendation Statement it filed with the Securities and Exchange Commission (SEC). Gary Varjabedian, Jerry Mutza, and other Emulex shareholders (plaintiffs) brought a class-action lawsuit, claiming $8 was too low. The trial court named Mutza lead plaintiff, and Mutza claimed that omitting the chart from Emulex’s recommendation statement misled shareholders in violation of the Williams Act. Relying on other circuit-court decisions, the trial court dismissed Mutza’s § 14(e) claims because he did not adequately plead that Emulex deliberately excluded the chart. The shareholders appealed, arguing that a negligent failure to disclose material information violates § 14(e).