## Facts

- Smurfit-Stone Container Corp. emerged from Chapter 11 in 2010 and became a potential acquisition target.
- Rock-Tenn Company made an unsolicited proposal valuing Smurfit-Stone at $32 per share, with consideration split roughly 50% cash and 50% Rock-Tenn stock.
- Smurfit-Stone’s board formed a special committee, which deemed the initial proposal inadequate and directed its financial adviser to seek an improved bid from Rock-Tenn.
- The committee did not solicit other bidders, citing concern that doing so could jeopardize the Rock-Tenn deal.
- Rock-Tenn increased its offer to an effective $35 per share, structured as $17.50 in cash plus 0.30605 shares of Rock-Tenn common stock per Smurfit-Stone share.
- The financial adviser delivered a fairness opinion; the special committee unanimously recommended the revised offer, and the full board approved the merger.
- The merger agreement included a no-shop (with a fiduciary out), information and matching rights for Rock-Tenn regarding competing proposals, and a $120 million termination fee under specified circumstances.
- Stockholders filed consolidated class actions seeking to enjoin the stockholder vote and suspend the deal protections to permit a market canvass for higher bids.
- After expedited proceedings, the Court of Chancery ruled on plaintiffs’ motion for a preliminary injunction.

## Issues

1. Whether enhanced scrutiny under Revlon applied to a strategic merger providing approximately 50% cash and 50% stock consideration.
2. Assuming Revlon applied, whether plaintiffs showed a reasonable probability of success that the board’s process or the deal-protection measures were unreasonable, coercive, or preclusive under enhanced scrutiny (including Unitrin principles).
3. Whether plaintiffs satisfied the requirements for a preliminary injunction: likely success on the merits, imminent irreparable harm, and a balance of equities favoring injunctive relief.

## Decision

- The court held Revlon applied because the mixed consideration effectively cashed stockholders out of a substantial portion of their investment and functioned as a change-of-control transaction for purposes of enhanced scrutiny.
- The court found plaintiffs failed to show a reasonable probability of success that the board breached its Revlon duties; the board’s actions fell within a range of reasonableness.
- The court upheld the deal protections as neither coercive nor preclusive, and not unreasonable in the aggregate given the fiduciary out and the size/structure of the protections.
- The court denied the preliminary injunction, permitting the stockholder vote and transaction to proceed.

## Legal Principles

- Revlon enhanced scrutiny may apply to a strategic merger with mixed cash-and-stock consideration when the transaction has sufficient indicia of a change of control, including a significant cash-out component.
- Under Revlon, directors must act reasonably to obtain the best value reasonably available; Delaware law does not require a single mandated sale-process form (e.g., an auction) if the chosen approach is reasonable under the circumstances.
- Deal protections in a merger agreement are evaluated under enhanced scrutiny to determine whether they are coercive or preclusive and, if not, whether they fall within a range of reasonableness (including Unitrin-type analysis).
- A preliminary injunction requires a showing of likely success on the merits, irreparable harm, and equities favoring relief; failure to demonstrate likely success can be dispositive.

## Conclusion

The Court of Chancery applied Revlon to a roughly 50/50 cash-stock strategic merger but denied injunctive relief because plaintiffs did not show a likely breach of fiduciary duties or that the deal protections improperly foreclosed superior offers, and the equities favored allowing stockholders to vote on a premium transaction.


In re Smurfit-Stone Container Corp. S’holder Litig., No. 6164-VCP, 2011 WL 2028076 (Del. Ch. May 20, 2011)