Freezeout Merger of Alldicht, Inc. and Worldfood, Structure, and Machine Invest Legal Suit

Question 3 Alldicht, Inc. is a publicly traded Delaware firm active in the retail sector across Europe and North America. Alldicht owns 36% of WorldFood, a Delaware corporation also listed on the New York Stock Exchange. WorldFood operates a supermarket chain across the Northeastern United States. WorldFood's articles of incorporation include a §102(b)(7) waiver. Its stock has been trading at about $40 during the past two years. Ownership in the other 64% of WorldFood's stock is widely distributed in the market. After consulting with its lawyers and investment bankers, Alldicht's board chooses variant (It). Alldicht's investment bank, PP Truman & Partners, produces a confidential report for A's board that finds that $50 per share would be a good price for WorldFood (indicating that the company might be worth up to $65, in part because of synergies between the two companies). Alldicht's and WorldFood's boards begin negotiating the merger. Two out of six directors at WorldFood are officers of Alldicht, among them Alldicht's chief operating officer for North America, Wilma, who had access to the Truman report. The four other, unaffiliated directors convene separately as a "special negotiation committee" (SNC) to negotiate the merger with Alldicht. With the approval of Alldicht, it is announced that the merger will only take place only after a full negotiation of merger conditions and require the full approval of the SNC. The SNC hires its own legal counsel and another investment bank, which provides another report about WorldFood's value. After careful consideration and three months of negotiations, the SNC agrees to the merger at the proposed price of $50 per share. Both boards pass resolutions to approve the merger. It is expected that the majority of minority shareholders will approve the merger at its upcoming shareholder meeting. In its proxy statement, WorldFood's board recommends the merger to its shareholders and says that, in its considered opinion, $50 is a good price for WorldFood's stockholders. Machinelnvest is a hedge fund that holds 2% of WorldFood's stock. It is not persuaded that $50 is a good price and is considering various litigation strategies: b) Machinelnvest is considering bringing a lawsuit based on possible misstatements in the proxy statement. What is the legal basis for such a lawsuit, and what are the requirements? Is it likely to be successful? (3 points) c) Another option might be a claim based on fiduciary duties. Will such a suit likely be successful (comment on the possible liability of the WorldFood directors and of Alldicht) (4 points) Assume that Machinelnvest does not bring either of these lawsuits and instead requests appraisal rights. After the announcement of the merger, WorldFood's stock price jumped to $48. However, based on its own discounted cash flow computations, Machinelnvest believes that WorldFood is worth $57 per share. Machinelnvest does not have access to private information about WorldFood's value and synergies between WorldFood and Alldicht. d) To request appraisal, how must Machinelnvest proceed? Will the request be successful? How should the courts value WorldFood's stock? (4 points)