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From Securities Regulation Daily, August 10, 2016

Like Trulia, disclosure settlement lacks fair trade

By Amy Leisinger, J.D.

A Seventh Circuit panel reversed and remanded the Southern District of Illinois’ approval of a disclosure settlement in connection with Walgreen Co.’s acquisition of Alliance Boots GmbH. Citing the Delaware Chancery Court’s decision in In re Trulia, Inc. Stockholder Litigation, the panel found that the disclosure provided to the class of shareholders offered no real benefit sufficient to support a finding of reasonableness as to the settlement. The court said a dissenting opinion filed by U.S. District Judge Staci Yandle, sitting by designation, will be issued separately (In re: Walgreen Co. Stockholder Litigation, August 10, 2016, Posner, R.).

Settlement. In 2014, Walgreens acquired Alliance and, within two weeks after filing a proxy statement seeking shareholder approval of reorganization, a class action was filed seeking additional disclosures alleged to be likely to affect shareholder decisions. Eighteen days later, the parties agreed to settle the suit. Walgreens agreed to issue several disclosures and the company was released from liability for other disclosure-related claims. The district court approved the settlement, including a $370,000 fee for class counsel that Walgreens had agreed not to oppose. A shareholder that objected to the settlement appealed.

"Worthless" disclosures. The appellate panel noted that disclosure settlements of this type have become common in resolving the lawsuits routinely filed in response to acquisition announcements. However common, the panel continued, a court must consider whether the agreement benefits class members and whether the new information provided would be considered significant by a reasonable investor. As noted in Trulia, the panel stated, a court must evaluate "the reasonableness of the ‘give’ and the ‘get,’" that is, what class members will take away in exchange for ending litigation.

The panel found that the supplemental disclosures agreed to in the settlement represent only a "trivial" addition to extensive disclosures in the proxy statement and offer no real benefit to shareholders. The disclosure concerning discussions with a potential director was "worthless," the panel stated, as shareholders know that a nomination will not occur without consultation. In addition, more specific information on stock allocations, merger risks, management choices and voting patterns, and a pending lawsuit already disclosed added nothing of note for shareholders, the panel found. The reorganization was approved by 97 percent of the Walgreens shareholders who voted, and it is "inconceivable" that these added disclosures reduced or increased support for the merger, according to the panel.

"The type of class action illustrated by this case—the class action that yields fees for class counsel and nothing for the class—is no better than a racket," the panel opined, and "should be dismissed out of hand." The settlement cannot be approved and the matter must be remanded to the district court, which should give "serious consideration" to appointing new counsel or dismissing the action, the panel concluded.

The case is No. 15-3799.

Attorneys: Patrick V. Dahlstrom (Pomerantz LLP) for James Hays. James W. Ducayet (Sidley Austin LLP) for Walgreen Co. and Walgreens Boots Alliance, Inc.

Companies: Walgreen Co.; Walgreens Boots Alliance, Inc.

MainStory: TopStory CorporateGovernance MergersAcquisitions IllinoisNews IndianaNews WisconsinNews

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