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Soueidan v. Breeze-Eastern Corp.

United States District Court, S.D. New York

February 15, 2017

MAJED SOUEIDAN, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
v.
BREEZE-EASTERN CORPORATION, BRAD PEDERSEN, ROBERT J. KELLY, NELSON OBUS, WILLIAM M. SCHOCKLEY, and SERGE DUPUIS, Defendants.

          OPINION AND ORDER

          Edgardo Ramos, U.S.D.J.

         Plaintiff Majed Soueidan brings this putative class action against Breeze-Eastern Corporation (“Breeze-Eastern” or the “Company”), and Individual Defendants Brad Pedersen, Robert J. Kelly, Nelson Obus, William M. Schockley, and Serge Dupuis (together, “Defendants”), alleging violations of Section 14(e) of the Securities Act of 1934 and breach of fiduciary duty. Before the Court is Defendants' joint motion[1] to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6).

         For the reasons stated below, Defendants' motion is GRANTED.

         I. Factual Background[2]

         Breeze-Eastern is a Delaware Corporation that designs, manufactures, and sells mission equipment for specialty aerospace and defense applications.[3] Complaint (“Compl.”) ¶ 2. Plaintiff Majed Soueidan is shareholder. Id. at ¶ 15. On November 18, 2015, the Company entered into a merger agreement (the “Merger Agreement”) with TransDigm Group Incorporated (“TransDigm”), a global designer, producer, and supplier of aircraft components and systems for use on commercial and military aircraft. Id. at ¶¶ 3-4. According to the Merger Agreement, the parties agreed that TransDigm would acquire all outstanding Breeze-Eastern shares by means of a cash tender offer (the “Tender Offer”) of $19.61 per share (the “Offer Price”), for a total transaction value of $206 million. Id. at ¶ 4. That same day, TransDigm also entered into two separate Tender and Support Agreements (“Support Agreements”)[4] with the Merger Sub, Tinicum Capital Partners II, L.P. and Wynnefield Partners Small Cap Value, L.P. Id. at ¶ 5. Plaintiff alleges that as a result of the Support Agreements, TransDigm had “the power” to cause up to 5, 421, 284 shares (or 54.7% of all outstanding shares) to support the merger, rendering the merger a “fait accompli.” Id. at ¶ 5. The next day, on November 19, 2015, Breeze-Eastern announced the Merger Agreement. Id. at ¶ 4.

         Plaintiff alleges that around the time the Merger Agreement was signed, Breeze-Eastern's “prospects were excellent.” Id. at ¶ 28. To support this proposition, Plaintiff points to Breeze-Eastern's October 28, 2015 announcement that during the first half of the fiscal year, its sales had increased by 23%, its net income had risen by $4.8 million, and its bookings had increased by 24%. Id. at ¶ 29. Plaintiff further claims that as a result of Breeze-Eastern's “consistently positive financial performance, ” its shares had risen by 73% in the prior twelve months. Id. at ¶ 31. On November 18, 2015, the day the Support Agreements were signed and one day before the announcement, Breeze-Eastern's stock closed at $21.00 - a 6.6% premium over the Offer Price. Id.

         Approximately two weeks later, on December 3, 2015, Breeze-Eastern filed a Schedule 14D-9 (the “14D-9”) with the Securities and Exchange Commission (“SEC”), providing the details of the Tender Offer. Id. at ¶ 7. The 14D-9 explained, in great detail, the process by which Breeze-Eastern's Board of Directors[5] (the “Board”) explored and ultimately agreed to the sale of the Company. Id. at ¶ 6. Specifically, it provided that discussions about Breeze-Eastern's potential sale began in March 2011. Id.; Martin Decl. Ex. 1, at 8. After TransDigm became interested in purchasing the Company, TransDigm and the Board engaged in numerous conversations regarding the appropriate valuation range for the Company. Id. at 8-9. The 14D-9 also highlighted that TransDigm expressed concern about the extent of Breeze-Eastern's environmental liabilities.[6]

         Additionally, the 14D-9 also detailed the several reasons for the Board's unanimous recommendation in favor of the Tender Offer. First, Breeze-Eastern's financial projections indicated that the per share price was fair. Breeze-Eastern's management prepared financial projections for fiscal years 2016-2021 (the “Forecasts”), which contained projected financial results such as revenue, EBITDA, and net income through 2021. Id. at 17-19. They also included actual financial figures for fiscal year 2015 (from April 30, 2014 to March 31, 2015) and for the twelve months preceding the Tender Offer (from October 1, 2014 to September 30, 2015) (the “9/30 LTM Performance”). Id. Though the 9/30 LTM Performance showed a considerable increase in revenue, the 14D-9 explained that the 9/30 LTM Performance was not “necessarily indicative of the potential future financial results of the Company” for the remainder of the 2016 fiscal year for several reasons due to the “unusual timing” of shipments of certain customer orders, a favorable “product mix, ” and a favorable “customer mix.”[7] Id. Therefore, both the Board and the Company's senior management team agreed that “the Forecasts, and not the 9/30 LTM Performance, was a more meaningful indicator of the Company's future results.” Id. at 19. The Company also considered the relationship between the Offer Price and the Company's historical market prices. It found that although the Offer Price represented a discount of 6.6% to the closing price on November 18, it represented a premium of “31.1% compared to the volume weighted average sales price of $14.96” over the previous six-month period, and “43.2% compared to the volume weighted average sales price of $13.69” over the previous year. Id. at 14.

         Second, Harris Williams & Co. (“HW&C”), the financial advisor Breeze-Eastern engaged, issued a fairness opinion, in which it found that the Offer Price per share price was fair to the shareholders. Id. Third, the Company considered, among other things, its extensive negotiations with TransDigm, the last of which made clear that $19.61 was the highest per share price TransDigm was willing to pay. Id. Lastly, the Company noted that it had not received any alternative proposals from any potential buyer as of the date of the 14D-9.[8] Id. at 13.

         On December 22, 2015, prior to the completion of the Tender Offer, Plaintiff filed a putative class action in Delaware Chancery Court (the “Delaware Complaint”) against Breeze-Eastern, TransDigm, Hook Acquisition Sub Inc., [9] and several corporate officers, [10] including the Individual Defendants. Id. at ¶ 9. In the Delaware Complaint, Plaintiff alleged that the corporate officers breached their fiduciary duties by (1) adopting a valuation methodology that did not accurately reflect Breeze-Eastern's financial performance (i.e. not relying on the 9/30 LTM Performance); and (2) not adequately disclosing their reasoning for the preferred valuation to the shareholders. Martin Decl. Ex. 6, at 2, 18. He argued that Breeze-Eastern's decision not to rely on the 9/30 LTM Performance undermined its statements in its 10Qs that claimed that the revenue for the 2015 fiscal year would be consistent with historical patterns, in that revenue for the second half of the fiscal year would exceed revenue in the first half. Id. at 9-12. Plaintiff sought a temporary injunction to allow Defendants to correct their disclosures. Id. at 4, 19. Without further explanation, Plaintiff alleges that the Delaware court did not grant the injunction “due primarily to [the defendants'] squeezing the transaction into the year-end holiday period.” Compl. at ¶ 9. The next day, on December 23, Breeze-Eastern filed an Amended 14D-9, disclosing the Delaware Complaint and confirming the accuracy of the disclosures in the initial 14D-9. Id. Despite the pending lawsuit, Plaintiff ultimately tendered his shares.

         On January 4, 2016, Breeze-Eastern and TransDigm announced the completion of the Tender Offer for all of Breeze-Eastern's outstanding shares. The next day, on January 5, Plaintiff voluntarily dismissed the Delaware Complaint.

         II. Procedural History

         Plaintiff filed the instant action on January 4, 2016.[11] (Doc. 1) Here, as in the Delaware Complaint, Plaintiff maintained that Defendants breached their fiduciary duties for failure to adequately disclose their reasoning for not relying on the 9/30 LTM Performance. He also asserted an additional claim, alleging a violation of Section 14(e) for misrepresentations in the 14D-9. Id. On March 23, 2016, Defendants requested a pre-motion conference to seek leave to file a motion to dismiss. (Doc. 14) The Court granted Defendants' request and held the pre- motion conference on May 6. At the conference, the Court granted Defendants' request for leave. Defendants filed the instant motion on May 27, 2016. (Doc. 29)

         III. Le ...


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