City of Hialeah Employees' Ret. Sys. v. FEI Co.

289 F.Supp.3d 1162

CITY OF HIALEAH EMPLOYEES' RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated, Plaintiff,

v.FEI COMPANY, Thermo Fisher Scientific Inc., Thomas F. Kelly, Donald R. Kania, Homa Bahrami Arie Huijser, Jan C. Lobbezoo, Jami K. Dover Nachtsheim, James T. Richardson and Richard H. Wills, Defendants.

Case No. 3:16–cv–1792–SI

United States District Court, D. Oregon.

Signed January 25, 2018

Gary M. Berne, Jennifer S. Wagner, and Nadia H. Dahab, STOLL STOLL BERNE LOKTING, & SCHLACHTER P.C., 209 S.W. Oak Street, Fifth Floor, Portland, OR 97204; A. Rick, Atwood, Jr., David T. Wissbroecker, ROBBINS KELLER RUDMAN & DOWD LLP, 655 West, Broadway, Suite 1900, San Diego, CA. Of Attorneys for Plaintiff.

Philip S. Van Der Weele and Kara M. Borden, K & L GATES LLP, One SW Columbia Street, Suite 1900, Portland, Or 97258; B. John Casey, STOEL RIVES LLP, 760 SW Ninth Avenue, Suite 3000, Portland, OR 97205. Of Attorneys for Defendant Thermo Fisher Scientific Inc.

David Angeli and Kristen Tranetzki, ANGELI LAW GROUP, 121 S.W. Morrison Street, Suite, 400, Portland, OR 97204; Boris Feldman, Keith E. Eggleton, and Michael R. Petrocelli, WILSON SONSINI GOODRICH & ROSATI, 650 Page Mill Road, Palo Alto, CA 94304. Of, Attorneys for Defendant FEI Company, Thomas F. Kelly, Donald R. Kania, Homa Bahrami, Arie Huijser, Jan C. Lobbezoo, Jami K. Dover Nachtsheim, James T. Richardson, and Richard, H. Willis.

OPINION AND ORDER

Michael H. Simon, District Judge.

On March 7, 2017, Plaintiff City of Hialeah Employees' Retirement System ("Plaintiff") filed a Second Amended Complaint ("SAC") against Defendant Companies FEI Company ("FEI") and Thermo Fisher Scientific Inc. ("Thermo"), as well as named Individual Defendants Thomas Kelly, Donald Kania, Homa Bahrami, Arie Huijser, Jan Lobbezoo, Jami Dover Nachtsheim, James Richardson, and Richard Wills (collectively, "Defendants") bringing claims under § 14(a) and § 20(a) of the 1934 Securities and Exchange Act ("The 1934 Act"). Before the Court is Defendant FEI and Individual Defendants' motion to dismiss Plaintiff's SAC, and Defendant Thermo's motion to dismiss Plaintiff's SAC. For the following reasons, the Court grants Defendant FEI and Individual Defendants' motion to dismiss and also grants Defendant Thermo's motion to dismiss.

STANDARDS

A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc. , 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett–Packard Co. , 668 F.3d 1136, 1140 (9th Cir. 2012) ; Daniels–Hall v. Nat'l Educ. Ass'n , 629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a presumption of truth, allegations in a complaint "may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively." Starr v. Baca , 652 F.3d 1202, 1216 (9th Cir. 2011). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff.

Newcal Indus. v. Ikon Office Solution , 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). The court need not, however, credit the plaintiff's legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal , 556 U.S. 662, 678–79, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

A complaint must contain sufficient factual allegations to "plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation." Starr , 652 F.3d at 1216. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (citing Bell Atl. Corp. v. Twombly , 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ).

BACKGROUND

Defendant FEI is an Oregon corporation that designs, manufactures and supports a broad range of high-performance microscopy workflow solutions that provide images and answers at the micro-, nano-, and picometer scales. Defendant Thermo Fisher is a Delaware corporation that provides products and services to customers in a variety of scientific fields. On September 19, 2016, FEI was acquired by Thermo Fisher and became its wholly owned subsidiary. The Individual Defendants were members of FEI's management and board of directors ("the Board") before its merger with Thermo. Plaintiff Hialeah Employees' Retirement System is a former shareholder of FEI.

A. FEI Projections and Performance

In the fall of 2015, FEI engaged in its annual, comprehensive strategic and financial review and planning process. As part of that process, FEI management prepared two sets of projections (jointly, "the Management Projections"). One set ("the Higher Projections") was compiled by aggregating department-specific projections made by managers at various business units across FEI. The other set ("the Lower Projections") modified the Higher Projections downward by "applying adjustments developed by FEI senior management to reflect FEI group-level dynamics."¹ The Board used the Higher Projections in the acquisition of DCG Systems, Inc. in December 2015 and updated both sets of Management Projections after that acquisition.

FEI reported strong earnings for the fourth quarter of 2015 and first quarter of 2016. On February 2, 2016, FEI reported record revenue for the fourth quarter of 2015. Revenue for that quarter was up 8.2% compared with fourth quarter 2014. FEI's CEO, Defendant Kania, announced that he expected "improved organic revenue growth driving increased earnings and cash flow for FEI" in 2016. On May 4, 2016, FEI reported that it had exceeded its revenue projections for the first quarter of 2016 and saw a revenue increase of 3.5%, compared with the first quarter of 2015. The earnings per fully diluted share (EPS) for the first quarter of 2016 were $0.56, at the top end of the February 2016 projections of an EPS range of $0.46 to $0.57. Defendant Kania commented that "[o]ur record backlog positions us for accelerated revenue and profitability growth as 2016 progresses."

B. Merger Negotiations

On February 2, 2016, Marc Casper, the president and CEO of Thermo Fisher, called defendant Kania, FEI's President and CEO, to express Thermo Fisher's interest in discussing a potential strategic transaction with FEI. Kania then notified the Board of Casper's message and interest. On February 4, 2015, Kania and defendant Kelly, the chairman of the Board, met with Goldman Sachs about their possible retention as FEI's financial advisor. In response to a conflict questionnaire sent by FEI's general counsel, Goldman Sachs disclosed that it had received approximately $7 million in fees from Thermo over the past two years. The Board determined that these past fees would not create a conflict of interest that would jeopardize Goldman's ability to effectively advise the Board. The Board entered into an agreement with Goldman Sachs to provide financial advice to the Board. Of the fees that FEI agreed to pay Goldman, $10 million was contingent on the announcement of a merger, and $35 million was contingent on the closing of the merger.

Shortly after entering into the agreement with Goldman Sachs, FEI provided the firm with a copy of the updated Management Projections. Neither FEI nor Goldman Sachs expressed a view that one set was better or more realistic than the other. On February 10 and 11, 2016, the Board held a meeting in which Goldman Sachs discussed the Management Projections. At that meeting, no Board member expressed the view that one projection was more reasonable than the other.

On March 21, 2016, Thermo made an initial, non-binding proposal of an acquisition price of $96.00 per share in cash. The same day, the Board determined that the proposal was "insufficient in comparison to the value embodied in the Company's standalone plan." Again, no Board member took the view that the Higher Projection was less realistic than the Lower Projection. On April 15, 2016, Thermo sent FEI a revised non-binding indication of interest proposing to acquire FEI at a price of $103.00 per share in cash. The Board held a meeting to discuss the proposal the next day and decided to explore whether FEI could obtain a better price from a different party.

Between April 16, 2016 and April 18, 2016, Goldman Sachs contacted three parties to explore their interest in a potential acquisition. One of the parties declined. Two of the parties executed confidentiality agreements containing standstill provisions. On April 28, the Board authorized Goldman Sachs to engage in transaction discussions with Thermo and the other two parties.

On April 20, 2016, Kania told Casper that Thermo's offer of $103.00 per share was insufficient. In an effort to "convey the intrinsic value of FEI" to Thermo, FEI provided Thermo with the Higher Projections. On April 29, Kania and FEI's CFO met with Thermo's senior management and made presentations on FEI's business, products, ongoing strategy and vision, financials and outlook. On May 5th, one of the other parties engaged in transaction discussions informed FEI that they were no longer interested in continuing discussions.

On May 12, 2016, Thermo raised its offer to acquire FEI to $105.00 per share. The same day, the second party that had engaged in transaction discussions informed FEI that they were no longer interested in continuing discussions. The Board met to discuss Thermo's offer the next day. At this point, the Board began calling...