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MONTH-IN-BRIEF (Aug 2020)

M&A Law

Delaware Chancery Court Declines to Dismiss Coty Inc. Stockholder Litigation

By John Adgent

On August 17, 2020, the Delaware Court of Chancery (the “Court”) denied all of defendants’ motions to dismiss stockholder litigation stemming from JAB Holding Company S.à.r.l.’s, a German long-term investment conglomerate (“JAB”), 2019 partial tender offer to increase its ownership in Coty Inc., one of the world’s largest beauty companies (“Coty”), from around 40% to 60%. Coty stockholders (“Plaintiffs”) brought four claims, two of which asserted that Coty’s directors breached their fiduciary duties by initiating and approving the tender offer at an unfair price and through an unfair process.

Coty’s former CEO, Pierre Laubies, argued to dismiss the claims brought against him as a director on the grounds that Coty’s charter contained an exculpatory provision and that the Plaintiffs failed to assert a non-exculpated claim. Though Laubies implicitly conceded his lack of independence from JAB, he countered that the claim was exculpable because the Plaintiffs did not allege that he acted to advance the self-interest of JAB in connection with the tender offer. To the contrary, the Court found sufficient facts to support that Laubies acted in such a manner by recommending that the stockholders tender their shares to JAB and, allegedly, ensuring that projections shared with the special committee evaluating the offer were understated and kept the market in the dark. The Court determined that these allegations demonstrated a plan to create uncertainty to benefit JAB to acquire a majority ownership at the expense of Coty’s stockholders. Thus, because the Plaintiffs’ allegations supported a rational inference that Laubies could have breached his duties as an officer, he was not entitled to the protections of the exculpatory provision.

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