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RKS represents the lead stockholders in a hybrid Delaware fiduciary duty/appraisal rights class action arising from the $3.1 billion acquisition of Momentive Performance Materials by a consortium of foreign buyers. On January 13, 2022, the Delaware Chancery Court denied nearly every component of the defendants' motion to dismiss the complaint, allowing to proceed the vast majority of plaintiffs' claims against most of Momentive's directors and Apollo Global Management.
The vice chancellor ruled from the bench following argument, finding the plaintiffs sufficiently alleged that Apollo, with its 41% stake in Momentive stock, acted as controller of the company and that it engineered this take-under transaction while putting its own interests ahead of the company and its stockholders. Indeed, the merger price of $32.50 per share is substantially below the stock's $42 trading price at the time the merger was signed in September 2018.
Among Apollo's competing interests, as alleged in the complaint, Apollo sought to recover $168 million in performance fees that would have remained trapped and inaccessible until its position in Momentive was liquidated. In addition, Apollo faced exposure to bankruptcy litigation that had been ongoing for years as a result of Momentive's emergence from Chapter 11 in 2014. Moreover, Apollo also is alleged to have benefited from a settlement of that litigation funded by the company, in connection with which Apollo is alleged to have received some $113 million resulting from their participation in a total return swap that in effect gave Apollo economic ownership of Momentive’s senior debt, which was the beneficiary of that settlement payment made shortly before, and as a part of, closing of the merger in May 2019.
The court found the allegations added up and that the plaintiffs were entitled to an overarching inference that Apollo exercised control over the company and even indicated to the outside world, including the buyer, that in fact it had such control, despite its having less than a majority block of shares.
The case will now proceed towards trial as a blended appraisal and fiduciary duty action, seeking to recover for Momentive stockholders the fair value of their shares.