McAfee's Board of Directors Obtains Victory in Shareholder Litigation
On November 2, 2012, Judge James P. Kleinberg of the California Superior Court, County of Santa Clara, issued an order granting the defendants' motion for summary judgment in a case brought by McAfee's former shareholders to challenge the board of directors' decision to sell McAfee to Intel Corporation in 2010. In re McAfee, Inc. Shareholders Litigation, Case No. 1-10-CV-180413 (Nov. 2, 2012). Wilson Sonsini Goodrich & Rosati represented the members of McAfee's board of directors in the matter.
On August 19, 2010, McAfee and Intel announced that they had entered into a merger agreement whereby Intel would acquire McAfee for $7.7 billion or $48 per share, a 60 percent premium over McAfee's pre-announcement stock price. The merger was unanimously approved by McAfee's board of directors, nine of whom (all but the company's chief executive officer) were outside, non-management, non-employee directors who obtained no role with Intel following the merger. As has become commonplace, the announcement of the merger provoked an immediate flurry of duplicative class action lawsuits against McAfee, its directors and officers, and Intel both in the Superior Court of California and in the Delaware Court of Chancery. These shareholders claimed that McAfee's board of directors had breached their fiduciary duties in entering into the merger agreement, and that McAfee and Intel had aided and abetted such breaches. Specifically, the plaintiffs alleged that the approved transaction price was "unfair," that the provisions in the merger agreement "discouraged competing proposals," and that the definitive proxy statement McAfee that filed with the U.S. Securities and Exchange Commission in connection with the merger suffered from a variety of material omissions. The Delaware plaintiffs voluntarily dismissed the Delaware lawsuits, and the lawsuit proceeded in California. Following a lengthy period of discovery, the defendants moved for summary judgment, arguing that the plaintiffs had no evidence sufficient to raise a triable issue of material fact regarding the defendants' alleged breaches of fiduciary duty.
On November 2, 2012, Judge Kleinberg granted the defendants' motion for summary judgment in full, terminating the plaintiffs' case. The court found that, pursuant to the exculpatory provision in McAfee's articles of incorporation, McAfee's outside directors could not be liable for monetary damages for breaches of the duty of care, and that the plaintiffs had failed to demonstrate that such directors breached their duty of good faith or duty of loyalty. The court noted that McAfee's directors were "highly-qualified and experienced outside, independent directors who retained financial and legal advisors, met multiple times during the nine-week period of negotiations, and already had a deep knowledge of McAfee, its industry, and other possible suitors." The court also noted that the board had rejected Intel's initial offer and eventually obtained a higher price per share for shareholders. The court rejected the plaintiffs' claims that McAfee's former CEO should not have been allowed to negotiate the transaction because it was known that he was likely to obtain post-merger employment with Intel. According to the court, this did not constitute a disqualifying conflict because he did not begin to negotiate his employment terms until after the McAfee board accepted the $48 price-per-share offer, and his potential interests in the merger were fully disclosed to the independent directors and shareholders.
Finally, the court found that because the individual defendants were entitled to summary judgment on the breach of fiduciary duty claims, McAfee and Intel could not be liable for aiding and abetting.
The Wilson Sonsini Goodrich & Rosati team that represented the members of McAfee's board of directors in the litigation consisted of Boris Feldman, Rod Strickland, Crystal Gaudette, Jasmine Owens, Isabelle James, and Virginia Guerrero.
For more information, please see the court's order.