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Sauer-Danfoss Investors Settle $700M Take-Private Bid Suit

Industrial manufacturer Sauer-Danfoss Inc. shareholders who challenged Danfoss A/S’ $700 million take-private bid in 2013 have settled their putative class action alleging Danfoss got a sweetheart deal when Sauer-Danfoss lowered its financial projections ahead of the transaction’s agreement.

According to a letter filed in Delaware Chancery Court Friday, the investors have reached an undisclosed agreement in principle to end their objections to the acquisition in which majority shareholder Danfoss scooped up the remaining public units of Sauer-Danfoss it didn’t already own. The suit filed in March 2013 alleged Danfoss should have paid $60.05 to $69.07 for each of the company's remaining shares — not the $58.50 price that Sauer-Danfoss' board of directors offered after lowering company financial projections.

The acquisition was completed in 2013, according to Danfoss’ website. Sauer-Danfoss, which made joysticks, displays, sensors and other electrical components, now operates as Danfoss Power Solutions, a new business segment in Danfoss, according to the website. Danfoss develops and sells mechanical and electronic components, and is one of the largest industrial companies in Denmark.

At the time of the deal’s 2013 announcement, Danfoss already owned a 75.6-percent stake in the target company and thus had a hold on Sauer-Danfoss’ board of directors, the shareholders said.

Vice Chancellor J. Travis Laster ruled in January that the deal should be evaluated at trial under the heightened entire fairness standard, which is a strict standard used to evaluate deals complicated by potential conflicts of interest in the target company’s board of directors. This contrasts with the more lax, board-deferential business judgment standard, which presumes board members acted in good faith or believed their decisions were in the best interests of their companies.

Vice Chancellor Laster said the acquisition didn’t qualify for consideration under the business judgment standard because it didn’t follow the playbook for take-private transactions spelled out in the Chancery’s seminal MFW decision from 2013.

The MFW case, decided by then-Chancellor Leo E. Strine Jr. and upheld by the Delaware Supreme Court in March 2014, allowed controlling-party buyout deals to face the laxer standard so long as they are evaluated by a strong committee of independent directors and are approved by a majority of the minority shareholders.

But increased scrutiny was necessary because Danfoss did not “expressly condition” the deal on approval by a special committee and the initial draft of the merger agreement did not include a majority-of-the-minority provision, the court ruled in January.

Entire fairness review under Delaware law can shift the burden onto the defendant to show the deal was fair in both price and process, but in this instance the vice chancellor still kept the burden with the suing shareholders to show the deal wasn’t fair.

Counsel for both sides and the companies did not immediately respond Monday to a request for comment.

The suing shareholders are represented by Donald J. Enright, Elizabeth K. Tripodi and Sarah Myers Mutschall of Levi & Korsinsky LLP; Robert M. Kornreich, Chet B. Waldman and Joshua W. Ruthizer of Wolf Popper LLP; James S. Notis, Jennifer Sarnelli and Charles A. Germershausen of Gardy & Notis LLP; Seth D. Rigrodsky, Brian D. Long and Gina M. Serra of Rigrodsky & Long PA; and Carmella P. Keener of Rosenthal Monhait & Goddess PA.

The defendants are represented by Meredith E. Kotler and Boaz S. Morag of Cleary Gottlieb Steen & Hamilton LLP; Yosef J. Riemer and Matthew Solum of Kirkland & Ellis LLP; Donald J. Wolfe Jr., Matthew E. Fischer, T. Brad Davey and Andrew E. Cunningham of Potter Anderson & Corroon LLP; and Gregory P. Williams and Scott W. Perkins of Richards Layton & Finger PA.

The case is In re Sauer-Danfoss Stockholder Litigation, case number 8396, in the Delaware Court of Chancery.