Section 14(e) of the Securities Exchange Act prohibits deceptive conduct when making a tender offer to shareholders. Recently, in Emulex Corp. v. Varjabedian, the United States Supreme Court declined to resolve a split among the circuit courts about what a plaintiff alleging a violation of Section 14(e) must prove. As a result, the Ninth Circuit is currently the only circuit allowing Section 14(e) claims based on negligent (as opposed to intentional) misrepresentations or omissions of material facts. This development may result in an uptick in tender offer lawsuits in that jurisdiction.
The Emulex case stemmed from the company’s merger with Avago. As part of that merger, Avago initiated a tender offer for Emulex’s outstanding shares. In accordance with SEC rules, Emulex filed a public statement with the SEC in which it supported Avago’s tender offer and recommended that Emulex shareholders tender their shares. Among other things, the statement observed that Emulex shareholders would receive a premium on their stock and described financial analyses that had been undertaken to reach this conclusion. However, Emulex’s statement omitted reference to a portion of its financial analysis that concluded the takeover premium offered for Emulex’s outstanding shares was below average for mergers involving similar companies. A putative class of shareholders brought suit, alleging that Emulex’s statement file with the SEC violated Section 14(e) of the Securities Exchange Act by failing to include the more lackluster price analysis.