## Facts

- During a 1981 takeover contest, Marathon Oil Company obtained internal and external valuation analyses, including the “Strong Report” (optimistic, long-range asset valuation) and a First Boston valuation prepared for takeover planning and bargaining.
- On October 31, 1981, Mobil announced a hostile tender offer for up to 68% of Marathon shares at $85 per share.
- Marathon publicly urged shareholders to reject Mobil’s bid as inadequate and pursued alternative transactions, including efforts to find a friendly acquirer.
- On November 17, 1981, Marathon reached an agreement with U.S. Steel for a two-stage acquisition, beginning with a tender offer for about 51% of Marathon shares at $125 per share.
- On November 18, 1981, Irving Starkman sold Marathon shares on the open market for $78 per share, before U.S. Steel’s offer became public.
- Starkman sued Marathon and certain directors, alleging Rule 10b-5 violations and breach of fiduciary duty based on nondisclosure of (1) ongoing U.S. Steel negotiations before a definitive agreement and (2) the valuation reports and projections.
- The district court denied class certification motions and granted summary judgment for defendants; Starkman appealed.

## Issues

1. Whether Rule 10b-5 required disclosure of preliminary merger negotiations with U.S. Steel and internal/external valuation materials characterized as “soft information.”
2. Whether omission of that information made Marathon’s existing public statements materially misleading under the “total mix” materiality standard.
3. Whether the same nondisclosures supported a breach of fiduciary duty claim against Marathon’s directors.

## Decision

- The Sixth Circuit affirmed summary judgment for Marathon and the individual defendants.
- The court held there was no Rule 10b-5 liability for failing to disclose preliminary negotiations before a definitive agreement.
- The court held there was no Rule 10b-5 duty to disclose speculative valuation reports and projections where their omission did not render Marathon’s public statements materially misleading.
- Because the fiduciary duty claim rested on the same nondisclosure theory, it failed as well.

## Legal Principles

- Rule 10b-5 does not impose a general duty to disclose internal projections, asset appraisals, or other “soft information” merely because investors might find it useful.
- A duty to disclose arises when omission of information makes an affirmative statement materially misleading, assessed by whether the omission would significantly alter the total mix of information available.
- Preliminary merger discussions and contingent negotiations ordinarily need not be disclosed before reaching sufficient certainty, particularly where disclosure could confuse investors or distort the market’s understanding of tentative talks.
- Speculative valuations prepared for internal planning or bargaining, especially those based on long-range assumptions, are less likely to be material and are not typically required to be disclosed absent misleading public statements.

## Conclusion

The court rejected liability for nondisclosure of tentative merger negotiations and speculative valuation analyses, holding that federal securities law requires disclosure of such information only when necessary to prevent existing public statements from being materially misleading.


Starkman v. Marathon Oil Co., 772 F.2d 231 (6th Cir. 1985)