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Tibco Says Shareholders Can't Change Price Of PE Buyout

Tibco Software Inc. urged a Delaware Chancery judge Thursday to toss a putative shareholder class action over the tech company's $4 billion-plus buyout by private equity firm Vista Equity Partners, saying the merger agreement should not be rewritten to reflect an announcement that accidentally inflated its value by $100 million.

At a hearing in Wilmington, Tibco, its board and Vista told Chancellor Andre G. Bouchard that the shareholders' bid to reform the merger agreement must fail because the deal was based on a per-share price that did not change when the announced $4.24 billion equity value was reduced once it was discovered that there were fewer outstanding shares than previously believed.

Tibco and Vista couched the acquisition price as $24 per share in the merger agreement, and that contract represents the terms agreed upon by the parties, said Vista attorney Yosef J. Riemer of Kirkland & Ellis LLP.

The merger agreement isn't subject to reformation, Riemer said, because although the parties initially understood $4.24 billion was the total value, they never agreed that was the merger price no matter what.

“Reformation requires an antecedent agreement,” Riemer told the court.

Tibco and Vista announced the $24-per-share buyout Sept. 29, saying the proposed transaction had an enterprise value of about $4.3 billion and equity value of about $4.244 billion.

In October, Tibco disclosed that a presentation made by financial adviser Goldman Sachs Group Inc. had overstated the number of shares to be acquired under the deal, a mistake that meant the previously announced values were inflated by roughly $100 million.

Tibco's board then met Oct. 23 and decided to continue its recommendation of the deal, according to the court documents. Investor Paul Hudelson, named lead plaintiff after the Chancery Court consolidated several complaints, moved to block to a December shareholder vote.

Chancellor Bouchard ruled in November that a preliminary injunction based on the reformation claim — which asked the court to adjust the offer price to $24.58 per share so it would jibe with the announced equity value that supposedly formed the heart of the deal — was inappropriate given the record.

The judge said the plaintiff demonstrated two prongs required for reformation, that Tibco and Vista believed the deal would be consummated for $4.244 billion, but failed to demonstrate that the parties specifically agreed to that figure.

On Thursday, Vista said the plaintiff has had added nothing to record that should affect that finding.

“There is more of what wasn't enough,” Riemer said.

Shareholders, as nonbeneficiary third party, had no grounds to press for reformation, especially of a deal that has already been consummated, said attorney Matthew Solum of Kirkland & Ellis.

Tibco's directors could have sought reformation if they wished, Solum said, but opted to stick with the price laid out in the merger agreement.

“The contract is the deal,” Solum said.

Moreover, said David J. Berger of Wilson Sonsini Goodrich & Rosati PC, breach of fiduciary duty claims against the Tibco board must fail because its members exculpated against all but bad faith actions, of which there are no plausible allegations.

“It isn't even a close call when it comes to bad faith, there just isn't anything here,” Berger said.

 The suing shareholders argued that reformation is indeed on the table, since the $24 per-share offer derived from the agreed-upon $4.24 billion value.

After the announcement that fewer shares existed, the per-share price should have been adjusted upward to reflect the stated value, said Mark Lebovitch of Bernstein Litowitz Berger & Grossmann LLP.

“The compelling and inescapable inference is that the per-share bid was based on the share count,” Lebovitch told the court.

As a result, he said, the effect of merger agreement was inconsistent with what the deal actually meant.

And Tibco's board should be held liable, Lebovitch said, saying it demonstrated an absence of good faith by meekly agreeing to keep the original terms in October after learning of the share-count change.

“Is it just a lack of care that they sat there like potted plants instead of asking explosive questions?” Lebovitch said.

Chancellor Bouchard said he would take the matter under advisement.

The lead plaintiff is represented by Grant & Eisenhofer PA and Bernstein Litowitz Berger & Grossmann LLP.

Tibco and its board are represented by Wilson Sonsini Goodrich & Rosati PC.

Vista is represented by Richards Layton & Finger PA and Kirkland & Ellis LLP.

Goldman is represented by Abrams & Bayliss LLP and Wachtell Lipton Rosen & Katz.

The case is In re: Tibco Software Inc. Stockholders Litigation, case number 10319, in the Delaware Court of Chancery.