Golub v. Gigamon Inc.

372 F.Supp.3d 1033

John E. GOLUB, Plaintiff,

v.GIGAMON INC., et al., Defendants.

Case No. 17-cv-06653-WHO

United States District Court, N.D. California.

Signed March 12, 2019

Danielle Suzanne Myers, David Todd Wissbroecker, Maxwell R. Huffman, Robbins Geller Rudman & Dowd LLP, San Diego, CA, Shawn A. Williams, Robbins Geller Rudman & Dowd LLP, San Francisco, CA, for Plaintiff.

Jerome F. Birn, Jr., Joni L. Ostler, David J. Berger, Elizabeth Rose Gavin, Wilson Sonsini Goodrich & Rosati Professional Corporation, Palo Alto, CA, for Defendants Gigamon Inc., Corey M. Mulloy, Paul A. Hooper, Arthur W. Coviello, Jr., Joan Dempsey, Ted C. Ho, John H. Kispert, Paul E. Milbury, Michael C. Ruettgers, Robert E. Switz, Dario Zamarian.

Brian Michael Lutz, Gibson, Dunn & Crutcher LLP, San Francisco, CA, Colin B. Davis, Gibson, Dunn and Crutcher LLP, Irvine, CA, Michael James Kahn, Gibson, Dunn and Crutcher LLP, Palo Alto, CA, for Defendants Elliott Management Corporation, Elliott Associates, L.P., Elliott International, L.P., Evergreen Coast Capital, Ginsberg Holdco, Inc., Ginsberg Merger Sub, Inc.

ORDER GRANTING MOTION TO DISMISS

Re: Dkt. No. 69

William H. Orrick, United States District Judge

Plaintiff John E. Golub, a former shareholder of Gigamon Inc. ("Gigamon"), brings suit individually and on behalf of a putative class of shareholders against the company, Gigamon Chief Executive Officer Paul A. Hooper, Gigamon's directors (collectively, these related parties are the "Gigamon Defendants"), and the Elliott Defendants arising from the allegedly materially false and misleading proxy statement issued in relation to Elliott's acquisition of Gigamon (the "Acquisition").¹ Consolidated Complaint ("Compl.") at ¶¶ 1, 18 [Dkt No. 56]. Golub alleges that the proxy statement misled shareholders into voting to approve the Acquisition at an unfair price per share, violating § 14(a) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 14a-9. Id. at ¶ 6. The defendants move to dismiss because the allegedly false and misleading portions of the proxy statement are subject to a statutory safe harbor and are not objectively false. I agree and grant defendants' motion to dismiss with leave to amend.

BACKGROUND²

I. GIGAMON'S OUTLOOK PRIOR TO ACQUISITION DISCUSSIONS

Gigamon provides traffic visibility solutions that enable companies to see data traversing networks, enabling stronger security and enhancing network performance. Id. at ¶¶ 2, 49. Gigamon's business model was successful at converting initial customers into repeat customers. Id. at ¶ 51. Throughout 2017, it had more than two times the market share of revenue than its next closest competitor. Id. at ¶ 2. Prior to the Acquisition, Gigamon announced that it was partnering with the three largest cloud-based providers and that this would dramatically expand its potential customer base. Id. at ¶ 53.

In early 2017, Gigamon pre-released its preliminary Q4 2016 results, showing only 27% growth.³ Id. at ¶ 57. Despite underperforming analyst expectations, 2016 was still Gigamon's second consecutive year of 40% growth. Id. at ¶ 56. At a February 2, 2017 conference call, Hooper stated that the company expected Q2 2017 to create a glide path to the back half of the year that would still allow Gigamon to achieve a growth rate in the 20%-25% range. Id. at ¶ 59-61. On April 27, 2017, Gigamon announced that the company recorded $ 2.2 million loss for Q1 2017. Id. at ¶ 64. It attributed the swing from the previous year's net income of $ 2.9 million to an uptick in spending on research and development, sales, and marketing. Id. Despite this drop, Hooper continued to express confidence in the fundamentals of the business and that interest in upcoming products would allow Gigamon to meet its end of the year growth targets. Id. at ¶¶ 65-69.

II. ELLIOTT AND POTENTIAL BUYERS BEGIN TO COURT GIGAMON

On March 14, 2017, an entity referred to in the Proxy Statement as "Party A" expressed interest in acquiring Gigamon. Id. at ¶ 71. Hooper informed Party A that Gigamon was not for sale and asked Party A to refrain from submitting an acquisition proposal until he was able to discuss the matter with Gigamon's Board of Directors. Id. On April 25, 2017, the Board and Gigamon's financial advisor, Goldman Sachs, met to discuss Party A's offer and determined to take no action. Id.

On March 9, 2017, roughly a week before Party A approached Gigamon, Elliott began purchasing Gigamon stock for between $ 30.88 and $ 36.30 per share. Id. at ¶ 70. At this point, Elliott's acquisition of Gigamon stock was not yet public. Id. On May 8, 2017, a few weeks after Gigamon's Board decided to take no action as to Party A, an Elliott representative contacted Hooper to inform him that Elliott would be disclosing that it had accumulated an equity stake in Gigamon and that it would seek to discuss strategic options, including a potential sale of Gigamon via a going-private transaction in which Elliott might participate as a buyer. Id. at ¶ 72. Although the Elliott representative stated that Elliott would not make any public statements beyond information in its Schedule 13D disclosure, Gigamon regarded Elliott as an aggressive activist investor and feared a public fight. Id. Later that day, Elliott filed its Schedule 13D disclosing that it had acquired a 15.3% stake in Gigamon and that it believed the stock was "significantly undervalued and represent[ed] an attractive investment opportunity.⁴ Id. at ¶ 73. On that day, Gigamon's common stock closed at $ 41.20, up from the previous day's closing price of $ 35. A few days later, an entity referred to in the Proxy Statement as Party B also expressed interest in acquiring Gigamon. Id. at ¶ 76.

On May 12, 2017, Gigamon's Board and Goldman Sachs met to discuss Elliott's outreach. Id. at ¶ 77. The next day, Gigamon met with Elliott representatives who stated that, in their view, Gigamon was ill-suited to be a public company, that the Board should initiate a sales process, and that Elliott was interested in being the buyer. Id. at ¶ 79. On May 14, 2017, the Board met again and decided to defer a formal sales process until Gigamon released its Q2 2017 results. Id. at ¶ 80. The Board met again on May 22, 2017, and Chief Financial Officer Rex S. Jackson stated that work was underway to prepare management's long-term financial projections. Id. at ¶ 81. At some point in the following weeks Elliott again reached out to reiterate its interest in buying Gigamon. Id. at ¶ 82. During this same time period, Hooper spoke with a representative of Party A to update it on issues raised by Elliott's 13D filling. Id. Elliott reiterated its interest throughout June. Id. at ¶ 87.

On May 30, 2017, Jackson presented three scenarios of management's long-term financial projections: a base-case stand-alone business plan ("Case B"), an upside case ("Case A"), and a downside case ("Case C"). Id. at ¶ 83. A few days later, on June 2, 2017, Reuters reported that Gigamon was preparing to hold talks with potential acquirers. Id. at ¶ 84. After two trading days, on June 5, 2017, Gigamon's stock price rose 9%, closing at $ 42.85 per share. Id. On June 6, 2017, the Board met again to discuss management's projections and instructed Goldman Sachs to focus on Case B when conducting its financial analysis of Gigamon. Id. at ¶ 86.

III. SECOND QUARTER FINANCIAL RESULTS AND THE START OF ACQUISITION DISCUSSIONS

On July 2, 2017, the Board met to discuss Gigamon's preliminary Q2 2017 results and decided to initiate sale of the company. Id. at ¶ 88. Later that day, Hooper contacted an Elliott representative to invite Elliott to participate in an exploratory sale process. Id. at ¶ 89. Goldman Sachs, at the Board's behest, also began to contact various potential buyers. Id. Gigamon eventually entered into confidentiality agreements with certain parties and management met with a handful of potential buyers. Id. The Board also established a Transaction Committee. Id. In public statements on July 27, 2018 and August 8, 2017, Hooper and Jackson stated that Gigamon was continuing to have success with its new products and expressed optimism that the company would hit its year end growth. Id. at ¶¶ 91-95, 99.

On July 31, 2017, Gigamon received indications of interest from Elliott, Party A, and Party B to acquire Gigamon for a price range of $ 44 to 46 per share, $ 42 to $ 43 per share, and $ 40 to $ 41 per share respectively. Id. at ¶ 98. Based on Party B's low bid, the Board instructed Goldman Sachs to terminate discussions with Party B. Id. The Board also instructed Goldman Sachs to inform Elliott and Party A that their offers were inadequate and needed to be increased. Id. Throughout August, Elliott met with members with Gigamon's management and conducted extensive due diligence. Id. Party A met once with Hooper and conducted less due diligence. Id.

On August 31, 2017, the Board met again to discuss the status of the sale process and observed that only Elliott was actively exploring a purchase of Gigamon. Id. at ¶ 101. Since there were not likely to be multiple potential buyers, the Board noted that Goldman Sachs's fairness opinion on any eventual deal price would rely on having financial projections that yielded a range of values encompassing the eventual deal price. Id.

On September 7, 2017, an Elliott representative contacted director Kispert, who was not a member of the Transaction Committee, to "better understand the Board's expectations on value." Kispert told Elliott to "stretch on price." Id. at ¶ 102. The next day, Elliott offered to buy Gigamon for $ 42 per share. Id. at ¶ 103. Party A did not submit a revised bid. Id. On September 10, 2017, the Transaction Committee met with Goldman Sachs to discuss the sale process, the status of the company's business, and the preliminary financial analysis, focusing on Case B. Id. at ¶ 104. The Board concluded that if Gigamon achieved its Q3 2017 and full year 2017 targets, it should be valued higher than...