In Re Cox Communications, Inc. Shareholders Litigation

879 A.2d. 604 (2005)

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Nature of the Case

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Facts

Cox was a public company. The Cox Family controlled 74% of Cox's voting power. The Family decided that it would be in its best interest to acquire the remaining shares of Cox that it did not own-some 245.5 million shares-and to take Cox private again. The Family previewed its intention to offer to pay $32 per share as an initial bid in a merger transaction whereby the Family would acquire all of the public shares of Cox. The Family made clear that it expected that Cox would form a special committee of independent Cox directors to respond to and negotiate its Proposal. The Proposal specifically required approval by the Special Committee. The Proposal was announced publicly before the markets opened. The Special Committee was formed, and there was also the guaranteed 'Lynch' race to the courthouse by law firms. Complaints were filed even before the Special Committee could organize and do its works. The allegations were entirely boilerplate, with no relevance to the situation facing Cox. All this for a proposal which was just a proposal subject to the expected evaluation of a Special Committee of independent directors, which would soon be formed and have the chance to hire advisors. Abbey Gardy was smart enough to get a big share client despite it being the first to file with an extremely weak complaint. The law firms were fighting amongst each other for lead counsel. Abbey Gardy won the contest and was appointed lead counsel. The court denied the motion to expedite, for the obvious reason that there was as yet no transaction to enjoin. The board formed the Special Committee as anticipated in the Family's Proposal. It was comprised of three Cox directors who were not employees or officers of Cox, or otherwise affiliates of the Family, including Janet M. Clarke who was the Chairwoman. The board resolution creating the Special Committee specifically stated that the Cox board would not authorize or recommend any transaction with the Family unless the transaction was recommended to the full board by the Special Committee. Fried, Frank, Harris, Shriver & Jacobson LLP was selected as legal counsel. Goldman, Sachs & Co. was retained as financial advisor. The Special Committee gathered its 'bullets' to impress upon the Family that Cox had a bright future and should be valued much higher than the Proposal's $32 per share price. The Special Committee initiated the beginning of real negotiations by sending a letter to the Family unanimously rejecting the $32 price as unacceptable. The Family raised its bid to $33.50 per share and hinted that this might be its final bid. The next day, the Special Committee communicated to the Family that if the $33.50 bid was the Family's final bid, it would be rejected, and if that bid was intended to lead to a deal at $35.00, then the Family should know that the Special Committee would reject that price as well. The plaintiffs were invited into the negotiation dance by the Family's litigation counsel, Kevin G. Abrams of Richards Layton & Finger, but on a separate track from the Special Committee. P presented financial data that the Family should raise its bid to at least $38 per share. Ps were not informed the Family had already told the Special Committee that it was prepared to raise its bid to $33.50. This began a pattern of negotiating with both the Special Committee and the plaintiffs. On October 13, Abrams told Abbey that the Family might raise its offer to $33.50 and might agree to a majority of the minority condition. Later that day, Abbey told Abrams that the plaintiffs would accept a settlement at $37 per share with a Minority Approval Condition. Kennedy and one of his top subordinates for the Family's Holding Company met with the Special Committee. Kennedy indicated that the Family might raise its offer to $34 per share. After even more talk, Kennedy signaled a willingness to offer $34.50 with the proviso that if the Special Committee did not accept that price, the Family would cease consideration of taking Cox private. Clarke told Kennedy that the Special Committee would not recommend a price lower than $35.25 per share. Kennedy responded that if that was the Special Committee's position, the Family would withdraw its Proposal. The Special Committee said it would accept a deal at $35 per share. They split the difference at $34.75 per share price. Abrams called Abbey and told him that the Family's “best and final offer” was $34.75 per share and that the Family would not settle this case at any higher price. The next morning Abbey orally agreed to these terms. Abrams promptly informed the Special Committee's lawyers and the transactional counsel for the Family that the litigation was settled in principle and that a formal Memorandum of Understanding would be prepared. On October 19, Cox and the Family signed the merger agreement. In the attorneys' fee negotiations, the Family eventually agreed not to oppose a fee request of up to $4.95 million. Separately, the Family forged a deal by which it agreed not to oppose a fee request from the Georgia plaintiffs of more than $1.25 million. The transaction was finished with the only objection made to the plaintiffs' counsel request for an award of attorneys' fees. The objection was filed by Jeffrey Zoub and eleven funds managed by Franklin Mutual Advisers LLC (“Franklin Funds”). They were inspired to object by one of their attorneys, Elliott J. Weiss, a Professor of Law at the University of Arizona Law School. In recent years, Weiss has himself appeared as an objecting stockholder to fee requests.