Bucyrus clears hurdle in merger lawsuits

Listen to this article

Oak Creek-based Bucyrus International Inc. has overcome the first major hurdle in a handful of lawsuits seeking to halt a proposed $8.6 billion merger with Caterpillar Inc. and Badger Merger Sub Inc.

Judge Charles Clevert Jr. of the U.S. Federal Court for the Eastern District of Wisconsin on Jan. 19 denied plaintiffs’ motion for injunctive relief in City of Sterling Heights Police & Fire Retirement System v. Bucyrus International, et al.

Plaintiffs in the four consolidated cases argued defendants provided Bucyrus shareholders with insufficient information about the process by which the board entered into the proposed merger, including the financial matrices underlying the fairness of the transaction. The plaintiffs contended the board should have provided a complete set of projections for 2011-2021.

Clevert ruled the 171-page preliminary proxy and proxy statements neither contained material misrepresentations nor that there was material matter that should have been provided.

“Nothing in the record suggests that the projections sought by the plaintiffs are inconsistent with, or significantly different from, the information disclosed by the Defendants to shareholders to date,” according to Clevert’s ruling. “Moreover, there is nothing before the court indicating that there has been or will be a rival bid for Bucyrus International. It would be imprudent on this record for the court to enjoin the … only deal on the table …”

He continued to find that plaintiffs would not suffer irreparable harm as a result of the denial of their motion. The 10-year projections sought would include information that would be too speculative to be reliable and therefore was not required.

“Here, the Bucyrus Board took sufficient steps to inform itself of the company’s market value and then made a reasonable business decision to ultimately accept Caterpillar’s merger proposal of $92 per share,” according to Clevert’s ruling. “That decision represents an implied premium of 32 percent for Bucyrus shareholders. Hence, this court cannot conclude that the Bucyrus Board somehow breached its fiduciary duties to its shareholders under the circumstances.”

The plaintiffs’ response

The defense has filed a motion to dismiss.

Should the court grant that motion, plaintiffs will appeal, said David Wissbroecker, of Robbins Geller Rudman & Dowd LLP in San Diego and lead counsel for the plaintiffs. But they are not appealing the Jan. 19 decision.

Lead counsel for Bucyrus, Cristina Hernandez of Quarles & Brady LLP in Milwaukee, did not return calls seeking comment. Likewise, local counsel for defendants Caterpillar, based in Peoria, Ill., and Delaware-based Badger Merger declined to comment on the decision.

The ruling isn’t necessarily a setback. Now plaintiffs can pursue a claim for damages rather than injunctive relief.

Assuming the dismissal motion is denied, discovery will occur, revealing the problems with the documentation provided to shareholders, Wissbroecker said.

“We’re going to keep on fighting as hard as we can,” he said, “and hope that the merits of our allegations are borne out.”

A ‘solid win’ for business?

But case observers are skeptical.

“The decision represents a solid win for publicly traded companies against what seems clearly to be a frivolous lawsuit,” said John Emory Jr., president of Emory & Co. LLC, a Milwaukee-based mergers and acquisitions advisory firm. “It’s rare for a lawsuit like this to be litigated through to a decision. The attorneys at Quarles & Brady obtained a solid win for their client.”

While the defense might have been taking the riskier route to litigate rather than settle, the decision didn’t surprise James Bedore, a shareholder with the Business Law Practice and chairman of the securities team of Reinhart Boerner Van Deuren SC, Milwaukee. Bedore, who has defended a number of shareholder rights actions, said Wisconsin is not known as a jurisdiction overly friendly toward such lawsuits.

While the ruling is nonprecedential, Emory said, it does yield persuasive value for other publicly traded companies defending themselves against challenges to merger and acquisition transactions.

Attorney Matthew Rowe, of Ruder Ware LLSC, Wausau, and a board member of the Business Law Section of the State Bar of Wisconsin, said a Bucyrus shareholder meeting was held as scheduled Jan. 20, just one day after the ruling.

”At that meeting, the Bucyrus shareholders approved the merger by a substantial majority,” he said. “It appears that the merger is now on track to close sometime in mid-2011.”

The Private Securities Reform Act, enacted by Congress in 1995, was critical to the defense prevailing. The act heightened the pleading standard, Rowe said.

“Toughening the pleading standards was a good idea from a public policy perspective, as it helped limit strike suits that allege securities fraud but are based on little factual information and driven solely by a corporate announcement or other event that depresses the company’s stock price,” he said. “Before the adoption of the reform act, companies would oftentimes just settle shareholder lawsuits like this in order to eliminate the uncertainties and risk of protracted litigation.”

Attorney Jason Scoby, chairman of the Business, Banking and Corporate Law Section of the Milwaukee Bar Association, pointed out that under relevant case law, the plaintiffs needed to satisfy three requirements: irreparable harm, inadequate traditional legal remedies and a likelihood of success on the merits.

Scoby, of O’Neil, Cannon DeJong Hollman & Laing SC, Milwaukee, said the court clearly explained why the plaintiffs failed to satisfy any of the three requirements.

“The court could’ve denied the plaintiffs’ motion based on the fact that they couldn’t satisfy the first requirement, that they faced irreparable harm if the injunction was not granted,” he said. “However, the court took care to also hold that the plaintiffs failed to satisfy the other two requirements.”

In arriving at its decision, the court alluded to the Business Judgment Rule, Scoby said. That rule provides that a court will rarely substitute its own judgment for that of the corporation’s board when the board engaged in sufficient due diligence prior to arriving at its decision.

Jane Pribek can be reached at [email protected].