Judge Rejects Fee Bid in $20 Billion Sprint M&A Challenge
A gaggle of top plaintiffs firms that challenged a $20 billion deal involving Sprint Nextel Corporation got some disappointing news this week when a Kansas judge denied their bid for $8 million in fees.
Johnson County District Court Judge Thomas Sutherland rejected the request on Wednesday, dealing a blow to lawyers at Bernstein Litowitz Berger & Grossman; Kessler Topaz Meltzer & Check; Grant & Eisenhofer; Robbins Geller Rudman & Dowd; and Stueve Siegel Hanson. The firms represented a proposed class of Sprint shareholders who sued to demand changes to the sale of a 70 percent stake in the company to SoftBank Corp.
The firms had requested $8 million in fees and more than $300,000 in expenses for "significant monetary and nonmonetary benefits" that shareholders supposedly gained through the the litigation. But Judge Sutherland ruled that the plaintiffs hadn't shown that changes made to the deal were attributable to the case as required under Kansas law.
Sprint was represented by counsel from Skadden, Arps, Slate, Meagher & Flom. SoftBank had a team from Morrison & Foerster.
The plaintiffs sued shortly after the $20 billion deal was announced in October 2012, alleging that the Sprint board breached its fiduciary duty by failing to maximize shareholder value. The shareholders claimed the board inappropriately allowed Sprint CEO Daniel Hesse to negotiate directly with SoftBank CEO Masayoshi Son instead of forming a special committee to evaluate the deal and seek out alternatives. They also alleged the deal made unreasonably favorable concessions to SoftBank.
The SoftBank deal ultimately closed at $21.6 billion in July 2013. In their motion for fees, the plaintiffs lawyers noted that the companies amended their merger agreement to provide shareholders with appraisal rights soon after an amended complaint in the case raised that issue. They also pointed out that Sprint formed a special committee to evaluate a competing offer from Dish Network Corporation and to handle further negotiations with SoftBank; that Sprint delayed the shareholder vote on the merger to negotiate with DISH; and that when the postponement of the merger vote was announced, SoftBank upped its offer.
Sutherland ruled Wednesday that the plaintiffs had the burden of showing that their lawsuit spurred the companies to alter the deal. And he determined that they didn't come close.
"Instead of providing this court with any affirmative evidence that they, through this litigation, caused defendants' actions, plaintiffs rely solely on the fortuitous chronology of events," the judge wrote. And even if the burden were on the defendants, he concluded, the companies could show that changes to the merger were due to the efforts of the independent committee rather than to the litigation.
Sutherland had denied two earlier motions to dismiss the case, but he ruled that the the shareholders' core claims ultimately couldn't survive scrutiny. "Plaintiffs have not shown that they possessed knowledge of provable facts to support many of their allegations," the judge wrote.
In a joint statement, lawyers for the plaintiffs said Sprint and SoftBank took "numerous corrective actions" to resolve problems flagged by the case. "The court concluded, even on the appraisal issue where we were the first and only people to identify the problem in the merger agreement, that defendants' corrective actions were mere coincidence," they wrote. "It's a shame defendants got away with hiding evidence behind the attorney-client privilege and work product doctrine."