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Assad v. Digitalglobe, Inc.

United States District Court, D. Colorado

July 21, 2017

GEORGE ASSAD, individually and on behalf of all others similarly situated, Plaintiff,
v.
DIGITALGLOBE, INC., et al., Defendants. JEWELTEX MANUFACTURING INC. RETIREMENT PLAN, on behalf of itself and all others similarly situated, Plaintiff,
v.
DIGITALGLOBE, INC., et al., Defendants. ROYCE BUSSEY, individually and on behalf of all others similarly situated, Plaintiff,
v.
DIGITALGLOBE, INC., et al., Defendants. DANE GUSSIN, Plaintiff,
v.
DIGITALGLOBE, INC., et al., Defendants. STUART ZAND, individually and on behalf of all others similarly situated, Plaintiff,
v.
DIGITALGLOBE, INC., et al., Defendants.

          ORDER

          PHILIP A. BRIMMER United States District Judge.

         This matter is before the Court on Plaintiff's Motion for Preliminary Injunction filed by plaintiff Dane Gussin in Gussin v. DigitalGlobe, Inc., , Case No. 17-cv-01190-PAB, Docket No. 19 (“Gussin”), and Plaintiff's Motion for Preliminary Injunction filed by plaintiff Stuart Zand in Zand v. DigitalGlobe, Inc., , Case No. 17-cv-01570-PAB, Docket No. 14 (“Zand”). Movants ask the Court to preliminarily enjoin a shareholder vote by defendant DigitalGlobe, Inc. related to a proposed merger that is scheduled for July 27, 2017.

         I. BACKGROUND[1]

         This securities dispute arises out of the proposed merger of DigitalGlobe, Inc. and a subsidiary of MacDonald, Dettwiler and Associates Ltd. (“MDA”). Docket No. 25 at 2.[2] There are five consolidated cases pending before this Court. Id. at 4. All five cases assert claims under the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., and Securities and Exchange Commission (“SEC”) Rule 14a-9, 17 C.F.R. § 240.14a, related to the proposed merger of DigitalGlobe and MDA. See Docket No. 25 at 2-3.[3] Two of the cases include motions for a preliminary injunction. Id. These motions seek to enjoin DigitalGlobe's shareholder vote on the merger, which is set to be held on July 27, 2017. DigitalGlobe is a Delaware corporation with its headquarters in Westminster, Colorado that provides high-resolution satellite imagery of the Earth and related data and analysis to clients including the United States government. Gussin, Docket No. 29-4 at 34. MDA is a Canadian telecommunications and information services conglomerate. Id. at 33.

         DigitalGlobe began seeking buyers of itself or some of its assets in 2015. Gussin, Docket No. 29-4 at 100. On November 20, 2016, MDA made a “non-binding indication of interest to merge with DigitalGlobe in an all-stock transaction at no premium to the trading price of DigitalGlobe.” Id. at 100-101. MDA and DigitalGlobe negotiated over the next several months. Id. at 101-07. DigitalGlobe also discussed potential transactions with other entities. Id. at 104-05. On December 6, 2016, DigitalGlobe's board of directors formed a transactions committee to explore potential offers. Id. at 102. On January 27, 2017, MDA offered a combination of $17.50 in cash and $17.50 worth of stock in MDA for each share of DigitalGlobe, which became the framework for the final deal. Id. at 107. On February 17, 2017, news of the proposed merger leaked out, and media reports were published that MDA was in discussions to acquire DigitalGlobe. Id. at 111.

         On February 24, 2017, DigitalGlobe and MDA entered into and announced an agreement and plan of merger (“Merger Agreement”). Gussin, Docket No. 29-4 at 4. Pursuant to the terms of the Merger Agreement, DigitalGlobe will merge with a special-purpose subsidiary of MDA, with DigitialGlobe's shareholders receiving $17.50 in cash and 0.3132 shares of MDA for each share of DigitalGlobe that they own. Id. The day before news of the proposed merger broke, the market value of this consideration was approximately $35.00, representing a premium of approximately 18% over DigitalGlobe's closing price on that date. Id.

         The transaction will result in DigitalGlobe shareholders owning approximately 37.1% of the combined company. Gussin, Docket No. 29-4 at 4-5. After the completion of the transaction, three members of DigitalGlobe's board will be appointed to positions on MDA's board of directors. Id. at 162. DigitalGlobe board member Nick S. Cyprus, who served on DigitalGlobe's transactions committee, is one of the people set to be appointed to MDA's board. Id.

         On April 27, 2017, DigitalGlobe and MDA filed an F-4 registration statement in relation to the proposed transaction. Gussin, Docket Nos. 29-2, 29-3. The SEC reviewed the filing and, on May 24, 2017, the SEC commented on the registration statement, requesting nine changes. Gussin, Docket No. 29-7. None of the requested changes is related to issues raised by movants in the present motions. In response to the SEC's comments, DigitalGlobe and MDA filed an amended F-4 registration statement on June 2, 2017. Gussin, Docket No. 29-4 at 2. References to the “registration statement” below refer to the amended version.

         During the negotiations process, DigitalGlobe engaged PJT Partners LP and Barclays Capital, Inc. (“Barclays”) to provide financial advice related to possible transactions. Gussin, Docket No. 29-4 at 36. Both financial advisors provided fairness opinions to the DigitalGlobe board on February 23, 2017, which were attached to the registration statement. Id.; Gussin, Docket No. 29-6. The registration statement also contains a summary of financial analyses performed by the financial advisors. Gussin, Docket No. 29-4 at 123-47.

         The financial advisors' analyses were based, in part, on non-public information supplied by MDA and Digital Globe, some of which was later included in the registration statement. Gussin, Docket No. 29-4 at 123-24, 134-36. In particular, DigitalGlobe management's financial projections for fiscal years 2017-21 are included. Id. at 147-50. These projections are based on three similar scenarios regarding performance of the company's divisions. Id. The projections are presented in terms of revenue; earnings before interest, taxes, depreciation, and amortization (“EBITDA”) pre-stock based compensation; EBITDA post-stock based compensation; capital expenditures; levered free cash flow; and unlevered free cash flow. Id. at 150-51. The registration statement provides figures to reconcile the financial measures used in the projections that do not comply with generally accepted accounting principles (“non-GAAP”) with financial measures that do comply with generally accepted accounting principles (“GAAP”), but only for fiscal year 2017. Id. at 154-56.

         The first lawsuit related to the proposed transaction was filed in this district on May 3, 2017, four business days after the initial registration statement was filed. Docket No. 1. Three other cases related to the transaction were later filed in this district, including Gussin. The complaint in Zand, however, was filed on May 22, 2017 in the United States District Court for the District of Delaware. Zand, Docket No. 2. On June 5, 2017, Zand filed his motion for a preliminary injunction. Zand, Docket No. 14. On June 14, 2017, Gussin filed a similar motion. Gussin, Docket No. 19. The Zand case was transferred to this Court on June 27, 2017. Zand, Docket No. 1. On July 6, 2017, the Court ordered the five then-pending actions consolidated. Docket No. 25. The Court held a hearing on the preliminary injunction motions on July 14, 2017.

         II. DISCUSSION

         “A preliminary injunction is an extraordinary remedy never awarded as of right.” Winter v. NRDC, 555 U.S. 7, 24 (2008). “To obtain a preliminary injunction, the moving party must demonstrate four factors: (1) a likelihood of success on the merits; (2) a likelihood that the movant will suffer irreparable harm in the absence of preliminary relief; (3) that the balance of equities tips in the movant's favor; and (4) that the injunction is in the public interest.” RoDa Drilling Co. v. Siegal, 552 F.3d 1203, 1208 (10th Cir. 2009) (citing Winter, 555 U.S. at 20). “Moreover, ‘because a preliminary injunction is an extraordinary remedy, the right to relief must be clear and unequivocal.'” Beltronics USA, Inc. v. Midwest Inventory Distribution, LLC, 562 F.3d 1067, 1070 (10th Cir. 2009) (quoting Greater Yellowstone Coal. v. Flowers, 321 F.3d 1250, 1256 (10th Cir. 2003)) (internal quotation marks omitted).[4]

         SEC Rule 14a-9(a) prohibits “solicitation . . . by means of any proxy statement . . . containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading.” 17 C.F.R. § 240.14a-9(a). To state a claim under Rule 14a-9, a plaintiff must establish: “(1) that the proxy contained a material misrepresentation or omission; (2) that the defendant acted with the requisite state of mind [negligence], and (3) that the proxy was the essential link in completing the transaction in question.” In re Zagg Sec. Litig., 2014 WL 505152, at *7 (D. Utah Feb. 7, 2014) (internal quotation marks ...


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