United States District Court, D. Oregon
CITY OF HIALEAH EMPLOYEES' RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated,, Plaintiff,
FEI COMPANY, THERMO FISHER SCIENTIFIC INC., THOMAS F. KELLY, DONALD R. KANIA, HOMA BAHRAMI ARIE HUIJSER, JAN C. LOBBEZOO, JAMI K. DOVER NACHTSHEIM, JAMES T. RICHARDSON AND RICHARD H. WILLS, Defendants.
M. Berne, Jennifer S. Wagner, and Nadia H. Dahab, STOLL STOLL
BERNE LOKTING & SCHLACHTER David T. Wissbroecker, ROBBINS
KELLER RUDMAN & DOWD LLP, CA. Of Attorneys for Plaintiff.
S. Van Der Weele and Kara M. Borden, K&L GATES LLP, B.
John Casey, STOEL RIVES LLP, Of Attorneys for Defendant
Thermo Fisher Scientific Inc.
Angeli and Kristen Tranetzki, ANGELI LAW GROUP, Boris
Feldman, Keith E. Eggleton, and Michael R. Petrocelli, WILSON
SONSINI GOODRICH & ROSATI, Of Attorneys for Defendant FEI
Company, Thomas F. Kelly, Donald R. Kania, Homa Bahrami, Arie
Huijser, Jan C. Lobbezoo, Jami K. Dover Nachtsheim, James T.
Richardson, and Richard H. Willis.
OPINION AND ORDER
Michael H. Simon, United States District Judge.
March 7, 2017, Plaintiff City of Hialeah Employees'
Retirement System (“Plaintiff”) filed a Second
Amended Complaint (“SAC”) against Defendant
Companies FEI Company (“FEI”) and Thermo Fisher
Scientific Inc. (“Thermo”), as well as named
Individual Defendants Thomas Kelly, Donald Kania, Homa
Bahrami, Arie Huijser, Jan Lobbezoo, Jami Dover Nachstsheim,
James Richardson, and Richard Wills (collectively,
“Defendants”) bringing claims under § 14(a)
and § 20(a) of the 1934 Securities and Exchange Act
(“The 1934 Act”). Before the Court is Defendant
FEI and Individual Defendants' motion to dismiss
Plaintiff's SAC, and Defendant Thermo's motion to
dismiss Plaintiff's SAC. For the following reasons, the
Court grants Defendant FEI and Individual Defendants'
motion to dismiss and also grants Defendant Thermo's
motion to dismiss.
motion to dismiss for failure to state a claim may be granted
only when there is no cognizable legal theory to support the
claim or when the complaint lacks sufficient factual
allegations to state a facially plausible claim for relief.
Shroyer v. New Cingular Wireless Servs., Inc., 622
F.3d 1035, 1041 (9th Cir. 2010). In evaluating the
sufficiency of a complaint's factual allegations, the
court must accept as true all well-pleaded material facts
alleged in the complaint and construe them in the light most
favorable to the non-moving party. Wilson v.
Hewlett-Packard Co., 668 F.3d 1136, 1140 (9th Cir.
2012); Daniels-Hall v. Nat'l Educ. Ass'n,
629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a
presumption of truth, allegations in a complaint “may
not simply recite the elements of a cause of action, but must
contain sufficient allegations of underlying facts to give
fair notice and to enable the opposing party to defend itself
effectively.” Starr v. Baca, 652 F.3d 1202,
1216 (9th Cir. 2011). All reasonable inferences from the
factual allegations must be drawn in favor of the plaintiff.
Newcal Indus. v. Ikon Office Solution, 513 F.3d
1038, 1043 n.2 (9th Cir. 2008). The court need not, however,
credit the plaintiff's legal conclusions that are couched
as factual allegations. Ashcroft v. Iqbal, 556 U.S.
662, 678-79 (2009).
complaint must contain sufficient factual allegations to
“plausibly suggest an entitlement to relief, such that
it is not unfair to require the opposing party to be
subjected to the expense of discovery and continued
litigation.” Starr, 652 F.3d at 1216. “A
claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678 (citing
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556
FEI is an Oregon corporation that designs, manufactures and
supports a broad range of high-performance microscopy
workflow solutions that provide images and answers at the
micro-, nano-, and picometer scales. Defendant Thermo Fisher
is a Delaware corporation that provides products and services
to customers in a variety of scientific fields. On September
19, 2016, FEI was acquired by Thermo Fisher and became its
wholly owned subsidiary. The Individual Defendants were
members of FEI's management and board of directors
(“the Board”) before its merger with Thermo.
Plaintiff Hialeah Employees' Retirement System is a
former shareholder of FEI.
FEI Projections and Performance
fall of 2015, FEI engaged in its annual, comprehensive
strategic and financial review and planning process. As part
of that process, FEI management prepared two sets of
projections (jointly, “the Management
Projections”). One set (“the Higher
Projections”) was compiled by aggregating
department-specific projections made by managers at various
business units across FEI. The other set (“the Lower
Projections”) modified the Higher Projections downward
by “applying adjustments developed by FEI senior
management to reflect FEI group-level
dynamics.” The Board used the Higher Projections in
the acquisition of DCG Systems, Inc. in December 2015 and
updated both sets of Management Projections after that
reported strong earnings for the fourth quarter of 2015 and
first quarter of 2016. On February 2, 2016, FEI reported
record revenue for the fourth quarter of 2015. Revenue for
that quarter was up 8.2% compared with fourth quarter 2014.
FEI's CEO, Defendant Kania, announced that he expected
“improved organic revenue growth driving increased
earnings and cash flow for FEI” in 2016. On May 4,
2016, FEI reported that it had exceeded its revenue
projections for the first quarter of 2016 and saw a revenue
increase of 3.5%, compared with the first quarter of 2015.
The earnings per fully diluted share (EPS) for the first
quarter of 2016 were $0.56, at the top end of the February
2016 projections of an EPS range of $0.46 to $0.57. Defendant
Kania commented that “[o]ur record backlog positions us
for accelerated revenue and profitability growth as 2016
February 2, 2016, Marc Casper, the president and CEO of
Thermo Fisher, called defendant Kania, FEI's President
and CEO, to express Thermo Fisher's interest in
discussing a potential strategic transaction with FEI. Kania
then notified the Board of Casper's message and interest.
On February 4, 2015, Kania and defendant Kelly, the chairman
of the Board, met with Goldman Sachs about their possible
retention as FEI's financial advisor. In response to a
conflict questionnaire sent by FEI's general counsel,
Goldman Sachs disclosed that it had received approximately $7
million in fees from Thermo over the past two years. The
Board determined that these past fees would not create a
conflict of interest that would jeopardize Goldman's
ability to effectively advise the Board. The Board entered
into an agreement with Goldman Sachs to provide financial
advice to the Board. Of the fees that FEI agreed to pay
Goldman, $10 million was contingent on the announcement of a
merger, and $35 million was contingent on the closing of the
after entering into the agreement with Goldman Sachs, FEI
provided the firm with a copy of the updated Management
Projections. Neither FEI nor Goldman Sachs expressed a view
that one set was better or more realistic than the other. On
February 10 and 11, 2016, the Board held a meeting in which
Goldman Sachs discussed the Management Projections. At that
meeting, no Board member expressed the view that one
projection was more reasonable than the other.
March 21, 2016, Thermo made an initial, non-binding proposal
of an acquisition price of $96.00 per share in cash. The same
day, the Board determined that the proposal was
“insufficient in comparison to the value embodied in
the Company's standalone plan.” Again, no Board
member took the view that the Higher Projection was less
realistic than the Lower Projection. On April 15, 2016,
Thermo sent FEI a revised non-binding indication of interest
proposing to acquire FEI at a price of $103.00 per share in
cash. The Board held a meeting to discuss the proposal the
next day and decided to explore whether FEI could obtain a
better price from a different party.
April 16, 2016 and April 18, 2016, Goldman Sachs contacted
three parties to explore their interest in a potential
acquisition. One of the parties declined. Two of the parties
executed confidentiality agreements containing standstill
provisions. On April 28, the Board authorized Goldman Sachs
to engage in transaction discussions with Thermo and the
other two parties.
April 20, 2016, Kania told Casper that Thermo's offer of
$103.00 per share was insufficient. In an effort to
“convey the intrinsic value of FEI” to Thermo,
FEI provided Thermo with the Higher Projections. On April 29,
Kania and FEI's CFO met with Thermo's senior
management and made presentations on FEI's business,
products, ongoing strategy and vision, financials and
outlook. On May 5th, one of the other parties engaged in
transaction discussions informed FEI that they were no longer
interested in continuing discussions.
12, 2016, Thermo raised its offer to acquire FEI to $105.00
per share. The same day, the second party that had engaged in
transaction discussions informed FEI that they were no longer
interested in continuing discussions. The Board met to
discuss Thermo's offer the next day. At this point, the
Board began calling the Higher Projections unrealistic.
Plaintiff alleges that the Board knew that using the Lower
Projections would result in a lower estimate of the intrinsic
value of FEI, thereby making a share price close to $105.00
appear fair. Later that day, Kania made a counteroffer to
Thermo of $110.00 per share. The next day, Thermo offered
$107.50 per share. The Board accepted this offer on May 16,
26, 2016, the Board met with Goldman Sachs, which provided
the financial analysis that would ultimately appear in a
proxy statement disseminated to shareholders (“the
Proxy”). Based on its analysis of the Lower
Projections, Goldman Sachs told the Board that $107.50 per
share was a fair price (the “Fairness Opinion”).
The Board unanimously approved the Acquisition and
recommended the Acquisition to FEI's shareholders for
alleges that as a result of the Acquisition, the Individual
Defendants expected to secure liquidity for hundreds of
thousands of shares of illiquid FEI stock, valued at more
than $42.8 million combined. Other material benefits accruing
to the Board, Plaintiff alleges, included the accelerated
vesting of their unvested stock options and unvested
restricted stock units. This benefit was not available to
other stockholders. Further, members of management were to
receive up to $29 million in change-of-control benefits upon
the closing of the merger, and received salary increases and
tens of thousands of additional shares of restricted stock on
the eve of the signing of the merger.
27, 2016, FEI's Board filed and disseminated the Proxy to
the Company's shareholders. The Proxy recommended that
the Company's shareholders vote in favor of the
Acquisition. The Proxy contained both sets of Management
Projections, but explained that the Board had directed
Goldman Sachs to base its analysis for the Fairness Opinion
on the Lower Projections because those “were more
likely to reflect the future business performance of FEI on a
standalone basis than would the [Higher Projections].”
The Proxy elaborated on this decision:
[T]he Board of Directors considered that the [Higher
Projections] were compiled based on individualized
projections developed by managers at various business units
across FEI without any adjustments by FEI senior management
to reflect the historical reality that it was rare for all of
FEI's business units to achieve their projected financial
goals in any particular year. Therefore, the [Higher
Projections] represented an upside case that would be
dependent on substantially all individual business units of
FEI performing at planned levels of performance, which was
inconsistent with FEI's historical experience, and as a
result such [Higher Projections] were significantly less
likely than the [Lower Projections] to reflect a reasonable
estimate of the future performance of FEI on a standalone
Proxy warned that the Management Projections were “not
fact and should not be relied upon as being necessarily
indicative of actual future results, ” and that
“actual results may be materially better or worse than
those contained in the Management Projections.”
the Proxy included both sets of projections, certain line
items that were included in the Lower Projections table were
omitted from the Higher Projections table. The omitted items
(a) Changes in net working capital;
(b) Capital expenditures; and
(c) Unlevered Free Cash Flow.
also alleges that the Fairness Opinion and analysis presented
in the Proxy statement was flawed because it applied a
discounted cash flow (DCF) analysis to the already-discounted
Lower Projections, which, they allege, double-discounted the
inherent value of FEI. On August 30, 2016, a majority of
FEI's shareholders ...