(CN) – The Delaware Chancery Court allowed shareholders to pursue a class action over Merrill Lynch’s hasty merger with Bank of America last September. Shareholders said Merrill Lynch decided in one weekend to enter into a stock-for-stock merger with Bank of America without telling investors the names of two other firms vying for the merger.
Merrill Lynch’s directors also left out the details of the company’s exposure to the turbulent market, failing to mention the risk of bankruptcy without the merger.
Plaintiffs accused the directors of holding hasty weekend negotiations without “adequately informing themselves” of the company’s value or other bids.
“While such speed might be suspicious, it is not dispositive,” Vice Chancellor Noble wrote, acknowledging that the impending credit crisis may have prompted the quick merger, along with its deal protections.
The court granted the plaintiffs’ motion to expedite discovery and found no disclosure violations related to Merrill Lynch’s choice to have its subsidiary act as financial advisor on the merger.
The plaintiffs’ claims that Chairman of the Board John Thain’s negotiations with Bank of America for a lucrative post-merger position and payouts for other directors did not prove self-interest, because Merrill Lynch disclosed the chairman’s pay package and other personal financial interests.
The court also refused to delve into Merrill Lynch’s financial status before the merger, saying the court’s role was to determine if the plaintiffs had a “colorable claim,” not to decide the merits.
The court granted the plaintiffs’ motion for expedited discovery and denied Merrill Lynch’s motion to dismiss.