Successful Opposition to Preliminary Injunction Motion in Yongye International Merger Action

Cleary Gottlieb, on behalf of the Special Committee of the Board of Directors of Yongye International, successfully defended a motion before the Clark County District Court in Las Vegas, Nevada to preliminarily enjoin a special meeting of the shareholders of Yongye to vote on a proposed all-cash “going-private” merger.

This was the plaintiffs’ second attempt to block shareholder consideration of the merger. Plaintiffs’ first attempt to block the merger vote was rejected in February. As before, the plaintiffs claimed that members of Yongye’s Board of Directors, including those on the Special Committee, and certain shareholders participating in the proposed buyout breached fiduciary duties to the company’s other shareholders. The plaintiffs alleged, among other things, that the offer price was unfairly low, that a change in the merger agreement’s vote requirement was improper, and that Yongye’s proxy materials failed to disclose material facts related to an investment bank’s valuation of the company.

These allegations were either insufficient as a matter of law or negated by the record, and so, following a hearing on June 3, the court denied the plaintiffs’ motion. At the June 3 hearing, the Court specifically focused on the “majority of the minority” vote condition in the merger agreement. The original merger agreement provided that stockholders who did not vote their shares, or who marked abstain on their proxies, would be deemed votes against the merger. For that reason, while a majority of the outstanding shares approved the original merger agreement, it was defeated because a very substantial number of stockholders unaffiliated with the buyer group did not vote, and since their non-votes were deemed votes against the merger, the original merger agreement did not obtain a “majority of the minority.” After analyzing various reports from advisors on stockholder demographics and voting patterns in connection with the vote on the original merger, the Special Committee agreed to change the vote count metric for the “majority of the minority” condition to focus exclusively on those stockholders who actually voted “for” or “against”; abstentions and other non-votes were simply not counted for purposes of this condition. The hearing focused on whether this change was protected by the business judgment rule and if so whether the plaintiffs had overcome the presumptions of that rule. The Court concluded that the business judgment rule did apply, and that the plaintiffs had not succeeded in overcoming it. Accordingly, the motion to enjoin the stockholder meeting was denied.

That meeting went forward on June 6, where the amended merger agreement was approved by stockholders. The proposed merger was recently consummated.