## Facts

- Delphi Financial Group, Inc. had a dual-class structure: Class A (public, one vote per share) and Class B (held by founder/CEO Robert Rosenkranz, ten votes per share).
- Rosenkranz held under 13% of outstanding shares but controlled 49.9% of the voting power through Class B.
- Delphi’s charter provided that, in a merger, Class A and Class B would receive equal consideration, but the charter could be amended by stockholder vote.
- Tokio Marine Holdings, Inc. pursued an acquisition of Delphi; Rosenkranz negotiated and stated he would not consent unless Class B received a premium over Class A notwithstanding the equal-treatment charter provision.
- Delphi formed a special committee to represent Class A stockholders in negotiating with Rosenkranz and the acquirer.
- The committee negotiated a deal with disparate consideration, resulting in materially higher per-share merger consideration for Class B than for Class A, alleged to confer a large additional benefit on Rosenkranz.
- The transaction was conditioned on approval by a majority of disinterested Class A shares for both the merger and the charter amendment permitting differential consideration.
- Stockholder plaintiffs filed a consolidated class action and moved to preliminarily enjoin the stockholder vote on the merger and charter amendment, asserting fiduciary, charter/contract, and disclosure violations.

## Issues

1. Whether plaintiffs showed a reasonable likelihood of success that the controller and directors breached fiduciary duties and/or violated charter-based equal-treatment rights by structuring and supporting disparate consideration.
2. Whether plaintiffs showed irreparable harm and that the balance of the equities favored enjoining the stockholder vote, rather than permitting the vote and leaving plaintiffs to a damages remedy.

## Decision

- The Court of Chancery denied the motion for a preliminary injunction.
- The court found plaintiffs demonstrated a likelihood of success at least as to certain allegations against the controlling stockholder tied to leveraging the charter’s equal-treatment protection.
- The court nonetheless concluded the balance of equities did not favor blocking the stockholder vote given the substantial premium offered, the absence of a superior alternative bidder, and the availability of monetary damages if wrongdoing were later proven.
- The court emphasized permitting stockholders to exercise the franchise, particularly in light of the majority-of-the-minority protection for disinterested Class A holders.

## Legal Principles

- Preliminary injunctions in merger litigation require a showing of (1) reasonable likelihood of success on the merits, (2) imminent irreparable harm absent injunctive relief, and (3) a balance of equities favoring relief.
- A controlling stockholder’s extraction of non-ratable benefits in connection with a sale, including by conditioning consent on differential treatment, may support fiduciary-duty liability, including where minority protections are embedded in the charter.
- Even where plaintiffs show likely merit on fiduciary or charter-based claims, the court may deny injunctive relief when money damages are an adequate post-closing remedy and an injunction risks depriving stockholders of a high-premium transaction.
- Majority-of-the-minority approval and other process protections can weigh against interim judicial interference with a stockholder vote at the preliminary stage.

## Conclusion

The court allowed the merger and charter-amendment vote to proceed, holding that any likely wrongdoing tied to the controller’s demand for disparate consideration could be addressed through damages after the fact, and that the premium transaction and protected stockholder franchise outweighed the case for a preliminary injunction.


In re Delphi Financial Group S'holder Litig., 2012 WL 729232 (Del. Ch. Mar. 6, 2012)