                                      COURT OF CHANCERY
                                             OF THE
                                      STATE OF DELAWARE

ANDRE G. BOUCHARD                                                Leonard L. Williams Justice Center
       CHANCELLOR                                                 500 N. King Street, Suite 11400
                                                                 Wilmington, Delaware 19801-3734


                                Date Submitted: March 21, 2017
                                 Date Decided: March 22, 2017

  Peter B. Andrews, Esquire                      S. Mark Hurd, Esquire
  Craig J. Springer, Esquire                     Coleen W. Hill, Esquire
  Andrews & Springer LLC                         Morris, Nichols, Arsht & Tunnell LLP
  3801 Kennett Pike                              1201 N. Market Street
  Building C, Suite 305                          Wilmington, DE 19801
  Wilmington, DE 19807

           RE:      Richard Vento v. Robert J. Curry, et al.
                    Civil Action No. 2017-0157-AGB
  Dear Counsel:

           This letter decision resolves plaintiff’s motion to preliminarily enjoin a vote

  of      the    stockholders    of   Consolidated    Communications       Holdings,       Inc.

  (“Consolidated”) scheduled for March 28, 2017, until certain information

  concerning the financial interests of Consolidated’s financial advisor in the

  proposed transaction is fully disclosed. For the reasons explained below, the

  motion is granted.

  I.       Background

           This action arises out of a proposed transaction whereby Consolidated

  intends to acquire FairPoint Communications, Inc. (“FairPoint”) in a stock-for-
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
March 22, 2017
Page 2 of 12

stock merger pursuant to a merger agreement they entered into on December 3,

2016. The transaction is expected to close in mid-2017.1

         Morgan Stanley & Co. LLC (“Morgan Stanley”) served as Consolidated’s

lead financial advisor and provided the only fairness opinion Consolidated

received in connection with the transaction.     An affiliate of Morgan Stanley,

Morgan Stanley Senior Funding, Inc. (“MSSF”), committed to provide part of

$935 million in debt financing for the merger.

         Under the merger agreement, Consolidated is required to issue

approximately 24.2 million shares of Consolidated common stock to FairPoint

stockholders, who would hold approximately 28.7% of the issued and outstanding

common stock of the combined company if the merger is approved.             As a

NASDAQ listed company, Consolidated is required by NASDAQ listing rules to

secure stockholder approval before issuing 20% or more of its outstanding

common stock. Therefore, the merger can be completed only if Consolidated

stockholders vote to approve the proposed share issuance.

         On January 26, 2017, Consolidated filed a Form S-4 Registration Statement

with the Securities and Exchange Commission, which it amended on February 24,

2017 (the “Amended Registration Statement”).          The Amended Registration

1
    Verified Class Action Complaint ¶ 21.
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
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Statement announced that a special meeting of Consolidated’s stockholders would

be held on March 28, 2017, to consider approving the proposed share issuance.

       On March 3, 2017, plaintiff Richard Vento, a Consolidated stockholder,

filed the complaint in this action against the current members of the Consolidated

board of directors alleging a single claim for breach of fiduciary duties in

connection with the merger.           Specifically, plaintiff alleges that defendants

breached their fiduciary duties by failing to disclose certain information relating to

Morgan Stanley’s conflicts of interest with respect to the proposed transaction.

       To his credit, plaintiff seeks relief to correct the alleged disclosure

deficiencies in advance of the pending stockholder vote, which is the appropriate

time to do so if a stockholder representative truly believes the disclosure claims

have merit and truly wishes to obtain meaningful relief for the benefit of the

putative class of stockholders he represents.2          That said, plaintiff waited an


2
  See In re Transkaryotic Therapies, Inc., 954 A.2d 346, 360 (Del. Ch. 2008) (noting the
Court’s preference to have disclosure claims “brought as [motions] for a preliminary
injunction before the shareholder vote, as opposed to many months after”) (quoting
Globis P’rs, L.P. v. Plumtree Software, Inc., 2007 WL 4292024, at *10 (Del. Ch. Nov.
30, 2007)). See also In re Staples, Inc. S’holders Litig., 792 A.2d 934, 960 (Del. Ch.
2001) (Strine, V.C.) (“Delaware case law recognizes that an after-the-fact damages case
is not a precise or efficient method by which to remedy disclosure deficiencies. A post-
hoc evaluation will necessarily require the court to speculate about the effect that certain
deficiencies may have had on a stockholder vote and to award some less-than-
scientifically quantified amount of money damages to rectify any perceived harm. . . . An
injunctive remedy . . . specifically vindicates the stockholder right . . . to receive fair
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
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Page 4 of 12

inordinate amount of time, until March 14, 2017, eighteen days after the

stockholder meeting was scheduled, to file his motion for a preliminary injunction.

Because the issue presented on this motion is narrow and defendants thus cannot

legitimately claim to have been prejudiced by the delay, the motion will not be

barred by laches. The reality, however, is that the Court has been pressed into

dealing with this matter on an unnecessarily compressed timeframe.

II.   Analysis

      To obtain a preliminary injunction, plaintiff must demonstrate: “(1) a

reasonable probability of success on the merits; (2) irreparable harm if the action is

not enjoined; and (3) that the need for protection outweighs any harm that can

reasonably be expected to befall the defendants if the injunction is granted.”3

      The Amended Registration Statement contains the following disclosure

concerning Morgan Stanley’s financial interests in the proposed transaction:

      Morgan Stanley provided the Consolidated Board with financial
      advisory services and a financial opinion . . . in connection with the
      Merger and Consolidated has agreed to pay Morgan Stanley a
      transaction fee of $13 million, which is payable upon and is
      contingent upon the consummation of the Merger. . . . Morgan Stanley

disclosure of the material facts necessary to cast a fully informed vote—in a manner that
later monetary damages cannot and is therefore the preferred remedy, where
practicable.”).
3
 Arnold v. Soc’y for Sav. Bancorp, Inc., 1993 WL 183698, at *4 (Del. Ch. May 29,
1993).
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
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         or one or more of its affiliates is providing to Consolidated a portion
         of the financing required in connection with the Merger, for which
         Morgan Stanley will receive additional fees from Consolidated. In the
         two years prior to the date of Morgan Stanley’s opinion, in addition to
         the services provided in connection with the Merger and the opinion,
         Morgan Stanley has provided financial advisory and financing
         services to Consolidated and its affiliates and received aggregate fees
         of between $3.0 million and $4.0 million in connection with such
         services. During the same period, Morgan Stanley has provided
         financing services to FairPoint and its affiliates, including as a lender
         and administrative agent with respect to FairPoint’s senior secured
         credit facilities, and received aggregate fees of less than $1.0 million
         in connection with such services. Morgan Stanley may seek to
         provide financial advisory and financing services to Consolidated and
         FairPoint and their affiliates in the future and would expect to receive
         fees for the rendering of those services.4

         Plaintiff’s primary grievance is that the Amended Registration Statement

fails to disclose any details concerning the amount of compensation Morgan

Stanley expects to earn in connection with the financing of the merger.5 Instead, as

the above quote reflects, the Amended Registration Statement simply states,

without providing any quantification, that Morgan Stanley or one or more of its

affiliates “will receive additional fees from Consolidated” for providing a portion

of the financing required for the merger.


4
    Answering Br. Ex. A (Am. Registration Statement) at 84.
5
  In its opening brief, plaintiff also challenged the lack of disclosure concerning when
Morgan Stanley was first considered and then ultimately selected to finance the merger,
and what alternatives, if any, the Consolidated board considered. Plaintiff did not pursue
this issue further in his reply brief, and appeared to abandon the issue.
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
March 22, 2017
Page 6 of 12

          It is well established under Delaware law that “[b]ecause of the central role

played by investment banks in the evaluation, exploration, selection, and

implementation of strategic alternatives, this Court has required full disclosure of

investment banker compensation and potential conflicts.”6 In David P. Simonetti

Rollover IRA v. Margolis, the Court was faced with a similar challenge to the

adequacy of disclosures relating to a financial advisor’s separate financial interest

in a proposed transaction. The Court held that the resolution of the disclosure

claim depended on whether the financial advisor’s interest in the transaction was

material and, if so, whether that interest was quantifiable.7 The Court further

explained that “it is imperative for the stockholders to be able to understand what

factors might influence the financial advisor’s analytical efforts . . . A financial

advisor’s own proprietary financial interest in a proposed transaction must be

carefully considered in assessing how much credence to give its analysis.”8

          As an initial matter, although plaintiff confusingly refers to MSSF as

Morgan Stanley in his papers, the difference is immaterial for this decision. That

MSSF is a separate entity from Morgan Stanley does not change the reality that



6
    In re Del Monte Foods Co. S’holders Litig., 25 A.3d 813, 832 (Del. Ch. 2011).
7
    David P. Simonetti Rollover IRA v. Margolis, 2008 WL 5048692, at *8 (June 27, 2008).
8
    Id.
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
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they are affiliates and that the financing fees MSSF stands to receive in connection

with the transaction create a potential conflict of interest for Morgan Stanley.

      In their opposition papers, defendants did not seriously dispute the

materiality of the financing fees MSSF might be entitled to as a result of the

merger.     Indeed, because the magnitude of such fees would affect a voting

stockholder’s assessment of the independence of the financial advisor, whose

“opinion of fairness for a proposed transaction is one of the most important

process-based underpinnings of a board’s recommendation of a transaction to its

stockholders,”9 I find that information related to the amount of fees Morgan

Stanley or its affiliates expect to receive in connection with financing the merger is

material.

      Nor did defendants argue in their papers that the relevant fees are not

quantifiable. Instead, they contended that the range of financing fees MSSF might

receive as a result of the transaction already could be determined by piecing

together information from publicly available documents.

      Specifically, defendants point to a section in the Amended Registration

Statement entitled “Pro Forma Adjustments—Balance Sheet,” which lays out

certain pro forma adjustments to Consolidated’s balance sheet as of September 30,
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
March 22, 2017
Page 8 of 12

2016, as if the merger had occurred on that date.10 A table in that section contains

a preliminary estimate of the net cash to be used in the merger. The fourth line

item in the table is $14.025 million for “financing commitment fees.”11 From this

data point, defendants next point to a Form 8-K that Consolidated filed on

December 5, 2016. About 100 pages into that filing, in an attachment entitled

“Project Yankee Commitment Letter,” MSSF is identified as contributing 40% of

the aggregate principal amount of the debt financing.12 According to defendants,

“[a]rmed with these disclosed figures, a stockholder can reasonably conclude that

MSSF stands to receive approximately 40% of the $14.025 million financing

commitment fees,”13 which works out to about $5.6 million.

          In Weingarden v. Meenan Oil Co., this Court held that “[d]isclosure is

inadequate if the disclosed information is ‘buried’ in the proxy materials.” 14 The

“buried facts” doctrine is particularly applicable here. One reasonably would

expect that all material facts concerning a financial advisor’s potential conflicts of


9
    Id.
10
     Answering Br. Ex. A (Am. Registration Statement) at 128.
11
  Id. This information also could be found on page 129 of the Amended Registration
Statement in a table containing pro forma adjustments to stockholders’ equity.
12
     Andrews Aff. Ex. A.
13
     Answering Br. 10-11.
14
     Weingarden v. Meenan Oil Co., 1985 WL 44705, at *3 (Del. Ch. Jan. 2, 1985).
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
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interest would be disclosed in plain English in one place, such as in the portion of

the Amended Registration Statement block-quoted above.

      Although that part of the Amended Registration Statement disclosed (1) the

$13 million advisory fee Morgan Stanley stands to receive if the merger is

approved and (2) the amount of fees Morgan Stanley received during the prior two

years from Consolidated and its affiliates (between $3 million to $4 million) and

from FairPoint and its affiliates (less than $1.0 million) for financial advisory and

financing services, it fails to disclose any facts concerning the magnitude of the

financing fees Morgan Stanley and its affiliates stand to receive if the merger is

approved. Instead, a stockholder can only make a guess about this information by

attempting (with great difficulty) to piece together the answer from information

buried in a 248-page Amended Registration Statement and an equally lengthy

Form 8-K filed more than ten weeks before the Amended Registration Statement.

I say “guess” because, even if a stockholder could successfully dig up the two

pieces of information discussed above, the stockholder still would not know for

sure the amount of the financing commitment fees MSSF stands to receive because

that amount would not necessarily be commensurate with the percentage of

MSSF’s financing commitment. Given Morgan Stanley’s lead advisory role in the
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
March 22, 2017
Page 10 of 12

transaction, for example, it may have been able to extract a higher percentage of

the aggregate commitment fees relative to its financing commitment.

      A stockholder should not have to go on a scavenger hunt to try to obtain a

complete and accurate picture of a financial advisor’s financial interests in a

transaction. The amount of fees Morgan Stanley and/or its affiliates stand to

receive for providing financing in connection with the proposed merger is material

and quantifiable, and there is simply no excuse for Consolidated’s failure to

disclose that information in a clear and transparent manner along with related

information bearing on its financial advisor’s potential conflicts of interest.15

Accordingly, I find under the present circumstances that it is reasonably probable

that plaintiff will succeed on the merits in demonstrating that Consolidated’s

disclosures relating to Morgan Stanley’s potential financial interests in the merger

are inadequate.

      I also find that the second and third elements of the standard for issuing a

preliminary injunction weigh in favor of granting such a relief. This Court has

held on numerous occasions that “the threat of an uninformed stockholder vote


15
  Adding to the confusion is the fact that the commitment letter attached to the
December 5, 2016, Form 8-K is the original credit agreement between the lenders and
Consolidated. This agreement was later amended twice on December 14, 2016, and
December 21, 2016.
Richard Vento v. Robert J. Currey, et al.
C.A. No. 2017-0157-AGB
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constitutes irreparable harm.”16 In addition, although the preliminary injunction

potentially could affect the current stockholder meeting date, the potential burden

caused by a limited delay is outweighed by the benefit of the added disclosure,

which is necessary for the stockholders to cast an informed vote. Therefore, the

balance of equities favors the issuance of a preliminary injunction as well.

      In view of the above, I will preliminarily enjoin the special meeting of the

stockholders of Consolidated, scheduled to take place on March 28, 2017, until

five days17 after Consolidated has supplemented its disclosures to include a clear

and direct explanation of the amount of financing-related fees that Morgan Stanley

or any of its affiliates stands to receive in connection with the merger if it is

approved.18 This information should be disclosed in a filing that provides it along



16
   ODS Techs. L.P. v. Marshall, 832 A.2d 1254, 1262 (Del. Ch. 2003). See also In re
MONY Group Inc., S’holder Litig., 852 A.2d 9, 18 (Del. Ch. 2008) (“This disclosure
violation threatens irreparable harm because stockholders may vote ‘yes’ on a transaction
they would have voted ‘no’ on if they had access to full or nonmisleading disclosures
regarding the [transaction].”).
17
   Plaintiff’s counsel indicated during argument that five days would be sufficient for
dissemination of the supplemental information. Thus, if the supplemental disclosures are
made promptly, it should not be necessary to delay the scheduled meeting date.
18
   As used above, the term “financing-related fees” refers to any commitment fee or other
forms of fees that Morgan Stanley or its affiliates will receive in connection with
arranging financing for the merger, including syndication fees. It is undisputed that the
interest rate terms of the $935 million term loan, which are disclosed on page 118 of the
Amended Registration Statement, reflect market rates, and defendants’ counsel has
represented that MSSF syndicated that portion of the term loan ($375 million) for which
Richard Vento v. Robert J. Currey, et al.
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with the other information from the Amended Registration Statement concerning

Morgan Stanley’s financial interests in the merger, quoted above, so that the

stockholders have a complete picture of the facts in one place. Plaintiff’s counsel

is directed to confer with defense counsel and to submit a form of order

implementing this ruling by 3:00 p.m. today.

                                            Sincerely,

                                            /s/ Andre G. Bouchard

                                            Chancellor

AGB/gm




it provided a commitment. Thus, no further disclosure is necessary concerning the
possible range of interest payments or ticking fees that could accrue on the term loan.
