The shareholders accused the directors of pushing an inferior deal in exchange for lucrative director seats on the buyer’s board.
M&A Stories
June 26, 2023
Introduction:
In a recent case involving the sale of a Missouri bank, a shareholder claimed damages against the board of directors for not disclosing a superior acquisition offer. However, the shareholder’s claim was unsuccessful.
Background:
The bank’s board of directors began exploring the sale of the bank in 2016. The first potential buyer presented an offer to purchase all the bank’s outstanding stock, which was discussed with the bank’s top shareholders on September 13, 2016. The directors proceeded with this offer and withheld information about other interested buyers and potentially higher offers from the shareholders.
One of the potential buyers, Alliant Bank, made an offer to purchase the bank for a higher price after the initial offer had expired. Despite receiving legal advice to explore other offers, the directors pushed for exclusive negotiation with the initial buyer, urging shareholders to ignore other potential buyers.
The directors excluded a dissenting director from meetings and did not solicit any other offers after November 28, 2016. Ultimately, 70% of the shareholders signed a stock purchase agreement with the initial buyer, which forced all shareholders to accept the buyer’s terms. The directors themselves benefited from the agreement and secured positions on the buyer’s board of directors.
Lawsuit:
The shareholder filed a class action petition on behalf of all the bank stockholders who sold their bank stock to the buyer. In the petition, the shareholder alleged the directors breached their fiduciary duties of care and loyalty to act in the best interest of the shareholders by securing a transaction that offered the best value available to the shareholders, and the directors breached their fiduciary duties through self-dealing by securing substantial compensation as members of the buyer board of directors.
The shareholder alleged that he and the class were directly harmed by the directors’ actions. The directors filed a motion to dismiss, which was granted by the trial court because the shareholders lacked standing to bring a direct action against the directors. The trial court held that the shareholder must bring a derivative action against the directors on behalf of the corporation. A derivative lawsuit is a much more cumbersome and time-consuming process. The trial court issued an order granting the directors’ motion to dismiss.
Outcome:
The trial court’s decision to dismiss the claim was affirmed on appeal by the Court of Appeals, based upon a 2014 Missouri Supreme Court decision involving similar facts. The shareholder may consider appealing to the Supreme Court. Notably, the Delaware courts, known for their expertise in corporate law, have rejected the requirement for derivative lawsuits in similar cases, a stance followed by California.
Case Reference:
See Laske v. Krueger, WD 85173, Missouri Court of Appeals, Western District (OPINION FILED: January 10, 2023).
Comment: It is possible that the shareholder may appeal to the Missouri Supreme Court, as the Court of Appeals acknowledged that Delaware law would permit this type of lawsuit but was bound by a 2014 decision by the Missouri Supreme Court.
By John McCauley: I write about recent legal problems of buyers and sellers of small businesses.
Email: jmccauley@mk-law.com
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