Professional Documents
Culture Documents
Transaction ID 56720190
Case No. 10136-VCL
CONSOLIDATED
C.A. No. 10136-VCL
CERTIFICATE OF SERVICE
I, Mary S. Thomas, hereby certify that, on February 4, 2015, I caused a copy
of the foregoing Plaintiffs' Second Motion for Expedited Proceedings to be filed
and served upon the following counsel of record via File & ServeXpress:
William M. Lafferty
Leslie A. Polizoti
Lindsay M. Kwoka
MORRIS, NICHOLS, ARSHT & TUNNELL LLP
1201 N. Market Street
Wilmington, Delaware 19899-1347
Samuel A. Nolen
Kevin M. Gallagher
Rachel E. Horn
RICHARDS, LAYTON & FINGER, P.A.
One Rodney Square, 920 North King Street
Wilmington, Delaware 19801
Edward P. Welch
Edward B. Micheletti
Jenness E. Parker
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
920 North King Street
Wilmington, Delaware 19899-0636
C. Barr Flinn
Kathleen S. McCormick
YOUNG CONAWAY STARGATT & TAYLOR, LLP
Rodney Square, 1000 North King Street
Wilmington, Delaware 19801
/s/ Mary S. Thomas
Mary S. Thomas (Del. ID #5072)
CONSOLIDATED
STOCKHOLDER LITIGATION
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .................................................................................... ii
INTRODUCTION .....................................................................................................1
RELEVANT FACTUAL AND PROCEDURAL HISTORY ...................................2
ARGUMENT .............................................................................................................9
A.
B.
C.
TABLE OF AUTHORITIES
Page(s)
Cases
Alpha Natural Res., Inc. v. Cliffs Natural Res., Inc.,
2008 WL 4951060 (Del. Ch. Nov. 6, 2008) ....................................................... 10
Box v. Box,
697 A.2d 395 (Del. 1997) ..................................................................................... 9
In re Cogent, Inc. Sholder Litig.,
7 A.3d 487 (Del. Ch. 2010) ..........................................................................16, 17
Gantler v. Stephens,
965 A.2d 695 (Del. 2009) ................................................................................... 14
Gomi Investors, LLC v. Schimmell Holdings, Inc.,
2006 WL 2304035 (Del. Ch. July 27, 2006) ........................................................ 9
Hollinger Intl v. Black,
844 A.2d 1022 (Del. Ch. 2004) .......................................................................... 13
Icahn Partners L.P. v. Amylin Pharms., Inc.,
2012 WL 1526814 (Del. Ch. Apr. 20, 2012) ...................................................... 10
In re InfoUSA, Inc. Sholders Litig.,
2007 WL 3325921 (Del. Ch. Aug. 20, 2007) ..................................................... 13
Mills Acquisition Co. v. Macmillan, Inc.,
1988 WL 108332 (Del. Ch. Oct. 18, 1988), revd on other grounds
550 A.2d 35 (Del. 1988) ..................................................................................... 16
In re Netsmart Techs., Inc. Sholder Litig.,
924 A.2d 171 (Del. Ch. 2007) ............................................................................ 15
In re Pure Resources Inc. Sholder Litig.,
808 A.2d 421 (De. Ch. 2002) .......................................................................14, 17
In re Southern Peru Copper Corp. Sholder Deriv. Litig.,
52 A.3d 761 (Del. Ch. 2011) .............................................................................. 11
ii
iii
INTRODUCTION
Plaintiffs recognized from the beginning of this case that founder and
Executive Chairman Mickey Gooch, and his ally, Colin Heffron, were putting their
personal interests ahead of their fiduciary duties to the public stockholders of GFI
Group Inc. (GFI or the Company). As the Court is aware, this case arose
when Gooch and Heffron tried to conceal a proposed management buyout of GFIs
IDB business by wrapping it in a purported sale to CME Group Inc. (CME) of
the entire Company (the CME Transaction) at an unreasonably low price
($4.55/share, compared to the $6.20 topping bid that should have been paid to
GFIs public stockholders). As described below, in the last few weeks, as the
CME Transaction unraveled in the face of the superior proposal by BGC Partners,
Inc. (BGC), Goochs fiduciary breaches, aided by Heffron and former Special
Committee member Marisa Cassoni (Cassoni), have become ever more
egregious.
As confirmed by the response of the Special Committees counsel to
Plaintiffs specific inquiries into statements purportedly made on behalf of the GFI
Board, Gooch and Heffron have now affirmatively overridden the Board process,
issuing unauthorized press releases in order to skew the outcome of BGCs tender
offer. Even in their most skeptical moments, Plaintiffs never envisioned that
Gooch and Heffron would resort to outright fraud and such brazen abuse of their
fiduciary powers as they have done in the last few weeks. For the reasons set forth
below, immediate judicial intervention is required to protect GFI stockholders.
RELEVANT FACTUAL AND PROCEDURAL HISTORY
As described in Plaintiffs Second Supplement to the Verified Class Action
Complaint (the January 30 Complaint), CME and the Management Consortium
(consisting of Gooch, Heffron, and related individuals and entities) increased their
joint bid for GFI to $5.60 per share on January 15, 2015. January 30 Complaint at
12.
BGC immediately offered $5.85 per GFI share if the GFI Board (the
Board) counter-signed and returned the executed tender offer, and $5.75 per share
if it did not (the January 15 Revised BGC Proposal). Id. at 13. The Special
Committee immediately and unanimously determined that the January 15 Revised
BGC Proposal was likely to lead to a Superior Proposal under the CME/GFI
merger agreement (the CME Merger Agreement). Id. at 14.
As required by basic governance norms, Gooch and Heffron had abstained
from earlier votes regarding the Boards decision on whether to engage in
negotiations with BGC. Id. at 7, 17. Recognizing, however, that their planned
purchase of the IDB business was slipping away and that the only alternative
would eliminate their control over GFI, Gooch and Heffron suddenly inserted
themselves back into the Boards process, voting against the Special Committees
January 15, 2015 determination that the January 15 Revised BGC Proposal was
2
likely to lead to a superior proposal. Id. at 17. This maneuver was effective
only because Cassoni reversed her prior position in support of negotiating with
BGC and joined Gooch and Heffron in voting against the Special Committees
determination. Id. Only discovery will tell whether Cassonis allegiance to Gooch
comes from misplaced loyalties, fear, or something else. The 3-2 Board vote
prohibited the Special Committee from negotiating with BGC for enhancements to
the tender offer terms. Id. at 9.
This farce repeated in the ensuing days. On January 20, 2015, CME and the
Management Consortium offered $5.85 per share, matching BGC. Id. at 18.
BGC immediately offered $6.20 per GFI share if the Board counter-signed and
returned the executed tender offer, and $6.10 per share if it did not (the January
20 Revised BGC Proposal).
Id. at 19.
Id. at 24.
Gooch and Heffron understood and acknowledged the way their conflict
constrained their ability to use their fiduciary positions, having previously
abstained from the Boards process of evaluating the BGC bid. Id. at 17. But to
protect their self-interests, they changed course when they could no longer
compete with the consistently higher BGC proposals. As set forth herein, Gooch
and Heffron, joined by Cassoni, have: (i) hamstrung the Special Committee in its
efforts to negotiate with BGC; (ii) misled GFIs public stockholders about the
terms of BGCs bid and the basis for the Boards supposed recommendation in
favor of the CME Transaction and against tendering to BGC; and (iii) even acted
on purported behalf of the Board without any authorization.
BGCs Tender Offer was to remain open until 5:00 p.m. on February 3,
2015. On January 29, BGC publicly reaffirmed its commitment to the $6.10 tender
offer and strongly urged stockholders to oppose the CME Transaction at $5.85.
On Friday, January 30, 2015, GFIs public stockholders overwhelmingly
rejected the CME Transaction. 1
To the extent that Plaintiffs allegations, which deal in part with events unfolding
over the last several days, are not yet reflected in the current pleadings, Plaintiffs
will be filing a Motion for Leave to Further Supplement the Complaint and a
proposed Third Supplement to the Complaint by the end of this week.
4
and that further exploration of alternatives was fruitful and without grave risks to
the public stockholders.
This morning, BGC announced that 37.9 million shares had been tendered,
which, including shares already owned by BGC, was 43.3% of GFIs outstanding
shares and 70% of shares not owned by GFI executives and directors. Especially
in a heated proxy fight, the position of a board matters to many stockholders.
Surely BGC would have met the 45% threshold had Gooch and Heffron not misled
stockholders through the January 30 and February 2 Press Releases.
There is still (limited) time to remedy these misdeeds, however, because
BGC also announced that the tender offer has been extended to February 19, 2015.
Thus, assuming that another 1.7% of stockholders (armed with correct
information) tender their shares in the next two weeks, the only hurdle to closing
the tender offer will be BGCs condition of two-thirds board representation (the
BGC Board Condition). This condition should be no hurdle to completing a
deal. Any director acting in good faith would recognize that the Board should act
to meet this condition in order to allow public stockholders to obtain the $6.10
price per share offered by BGC.
advisor, Greenhill, has now given four fairness opinions (at $4.55 per share, $5.25
per share, $5.60 per share, and $5.85 per share). But, as explained in Plaintiffs
January 30 Complaint, Gooch and Heffron have repeatedly voted against proposals
7
supported by the Special Committee that would have allowed for negotiations with
BGC. If they are allowed to do the same with respect to any vote regarding
satisfaction of the BGC Board Condition, they will outvote the now two-member
Special Committee. Unless Gooch and Heffron are enjoined from interfering, the
stockholders will lose the transaction now on the table.
Thus, Plaintiffs seek an order: (i) requiring that Gooch and Heffron correct
the statements made in the unauthorized January 30 and February 2 Press Releases;
(ii) enjoining Heffron and Gooch from making further statements or taking action
with respect to any possible strategic transaction on the purported behalf of GFI,
without the Special Committees prior approval; (iii) enjoining Gooch and Heffron
from participating in any discussions or attending any meetings (except at the
Special Committees request or as a counterparty) on any issues regarding a
potential sale of all or part of GFI to BGC, including any Board meetings or
discussions regarding the BGC Board Condition; (iv) enjoining Gooch and Heffron
from taking any action that would prevent the Special Committee from convening
a Board meeting to consider and/or vote on the sale or potential sale of all or part
of GFI to BGC, or on any contemplated or actual steps to satisfy the BGC Board
Condition; and (v) in the event that BGC obtains the 45% tender offer condition,
mandating that the Special Committee (with assistance from Heffron, Gooch, and
Cassoni as necessary), take all steps necessary to meet the BGC Board Condition.
8
A.
they allege facts suggesting that the directors [exercised a] bad faith preference
for some other interest than that of the company and the stockholders. In re
Southern Peru Copper Corp. Sholder Deriv. Litig., 52 A.3d 761, 787 n.72 (Del.
Ch. 2011).
Gooch and Heffron are not opposing the BGC tender offer because they
believe that GFI stockholders are better off holding on to their GFI shares, and
likely suffering a steep stock price decline when the BGC deal is lost, rather than
selling to BGC for at least $6.10. Instead, Gooch and Heffron are opposing BGC
for at least two improper and self-interested reasons.
First, Gooch and Heffron are unwilling to surrender control of the Company
that they built, particularly to a hated rival like BGCs Howard Lutnick. But,
unable to use their equity stake to forestall such a change of control, Gooch and
Heffron are now openly using their fiduciary powers to serve their personal and
disloyal purposes.
Throughout the sales process beginning in 2013, Gooch used his equity
position to veto any possible transaction that would not result in him controlling
the core brokerage business of GFI. Now that the CME Transaction has been
rejected, Gooch and Heffron have resorted to more overt measures, using their
11
fiduciary position to sabotage any transaction where they lose control. Gooch and
Heffron would not allow the Board to negotiate with BGC when BGC made its
first approach late last July, and they definitely will not engage with BGC now that
BGC thwarted Goochs hoped-for transaction with CME. This, and Gooch and
Heffrons disloyalty, is confirmed by the fact that they broke their previous pattern
of abstention when they voted down the Special Committees recommendations
that the January 15 and January 20 Revised BGC Proposals were each likely to
lead to a Superior Proposal. It is a fair inference that Gooch and Heffron will
forever vote against any Board action to satisfy the BGC Board Condition, solely
so they can avoid losing control of their company to BGC (and Lutnick).
Second, and relatedly, despite their own equity stakes, Gooch and Heffrons
economic interests are adverse to GFIs public stockholders.
Because of the
unlawful 12-month dead hand tail provision embedded in the CME Support
Agreement, Gooch and Heffron cannot tender their shares to BGC for almost a
year, no matter what price is offered. Because the Management Consortium faces
a year of being locked in an investment with BGC as a controlling shareholder,
Gooch and Heffron are inherently against any BGC offer, regardless of price.
Plaintiffs have also stated a colorable claim that Gooch, Heffron, and
Cassoni unlawfully interfered with the Special Committee. On January 15, 2014,
the Board resolved to form the Special Committee, and empowered it to, among
12
other things, consider the CME deal, negotiate with CME and the Management
Consortium, decide not to pursue the CME deal, and explore other transformative
transactions. No Board action or intervening event has disbanded the Special
Committee or curtailed its powers or authority. Nevertheless, Gooch, Heffron, and
Cassoni are interfering with the Special Committee by refusing to call prompt
board meetings and overriding its determinations regarding the BGC proposals for
disloyal reasons.
There is every reason to think that they will continue to do so to sabotage the
Special Committees effort to fulfill the BGC Board Condition. Unless these
flagrantly disloyal fiduciaries are prevented from actively and continually using
their fiduciary powers as a weapon against BGC, GFIs stockholders will lose this
high-premium transaction, and the stock price will plummet.
This Court has broad powers to fashion equitable relief when fiduciaries so
blatantly abuse their position to benefit themselves to the detriment of
stockholders. See, e.g., Hollinger Intl v. Black, 844 A.2d 1022 (Del. Ch. 2004)
(invalidating a controlling stockholders disloyal effort to disband a committee
formed to consider alternatives in order to protect a personally beneficial
transaction); In re InfoUSA, Inc. Sholders Litig., 2007 WL 3325921, at *23 (Del.
Ch. Aug. 20, 2007) (disloyalty adequately pled where the five board members who
were not on the special committee voted to abolish it before it could assess
13
In re Pure Resources, 808 A.2d at 452; see also In re Cogent, 7 A.3d at 514
(finding that misleading or inadequate disclosures potentially give rise to
irreparable harm because a post-hoc evaluation of a plaintiffs disclosure claim
necessarily will require a court to speculate about the effect that certain
deficiencies may have had on a stockholder vote, resulting in an award of a lessthan-certain amount of money damages.).
More concretely, the breaches of duty have already caused and threaten to
cause additional irreparable harm to GFI stockholders as a result of credit rating
downgrades. Fitch has already downgraded GFIs credit rating, in part because
[o]n a stand-alone basis, GFIs financial and credit profile continued to weaken in
the nine months ended Sept. 30, 2014 . . . primarily due to increased professional
fees related to the CME transaction. Fitch has also indicated that further delay in
consummating a transaction stands to further harm GFI because, if GFI is unable
to close on a material transaction, Fitch believes that this would call into
question the long-term viability of GFIs business on a stand-alone basis, which
could put further pressure on the ratings. Stockholders will be irreparably harmed
if Gooch, Heffron, and Cassonis disloyalty is left unchecked and the BGC tender
offer is no longer a viable option.
C.
February 6, 2015
February 9, 2015
February 11-12, 2015
February 13, 2015
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