IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`
`IN RE SAUER-DANFOSS, INC.
`STOCKHOLDER LITIGATION
`
`
`
`) CONSOLIDATED
`) C.A. No. 8396-VCL
`
`
`
`
`
`DEFENDANTS’ BRIEF IN SUPPORT OF
`MOTION FOR SUMMARY JUDGMENT
`
`
`
`
`
`
`
`OF COUNSEL:
`
`Meredith E. Kotler
`Boaz S. Morag
`CLEARY GOTTLIEB STEEN
` & HAMILTON LLP
`One Liberty Plaza
`New York, New York 10006
`(212) 225-2000
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`Donald J. Wolfe, Jr. (# 285)
`Matthew E. Fischer (# 3092)
`T. Brad Davey (# 5094)
`Andrew H. Sauder (# 5560)
`POTTER ANDERSON & CORROON
`LLP
`Hercules Plaza – 6th Floor
`1313 N. Market Street
`P.O. Box 951
`Wilmington, Delaware 19899
`(302) 984-6000
`
`Attorneys for Defendants Danfoss A/S,
`Danfoss Acquisition Inc., Jørgen M.
`Clausen, Niels B. Christiansen, Eric
`Alstrom, Kim Fausing, Per Have,
`William E. Hoover, Jr., and Anders
`Stahlschmidt
`
`
`
`
`
`
`EFiled: Oct 02 2015 01:26PM EDT
`Transaction ID 57953881
`Case No. 8396-VCL
`
`
`
`
`
`
`
`

`

`TABLE OF CONTENTS
`
`Page
`
`TABLE OF AUTHORITIES ................................................................................. ixv
`
`TABLE OF DEFINITIONS AND CITATION FORMATS ................................... ix
`
`PRELIMINARY STATEMENT ............................................................................... 1
`
`NATURE AND STAGE OF THE PROCEEDINGS ................................................ 5
`
`STATEMENT OF FACTS ........................................................................................ 6
`
`A.
`
`The Formation of Sauer-Danfoss And Its Fiscal Peril
`During The Financial Crisis .................................................................. 6
`
`B. Danfoss’s 2010 Attempt To Acquire Sauer-Danfoss ............................ 7
`
`C. Danfoss Continues To Support Sauer-Danfoss ..................................... 8
`
`D. Danfoss Proposes Another Tender Offer And The SC
`Is Formed ............................................................................................... 9
`
`E.
`
`F.
`
`G.
`
`The Fully-Empowered SC Considers Danfoss’s Proposal
`And The Company’s Alternatives ....................................................... 12
`
`The SC Negotiates Aggressively......................................................... 15
`
`The Disinterested Board Members Unanimously Approve
`The Merger .......................................................................................... 16
`
`H.
`
`Sauer-Danfoss’s Post-Merger Financial Performance ...................... 188
`
`ARGUMENT ...........................................................................................................19
`
`I.
`
`DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT
`DISMISSING THE AC BECAUSE THE MERGER WAS
`ENTIRELY FAIR .......................................................................................... 19
`
`A.
`
`The Tender Offer Process Was Fair .................................................... 20
`
`1.
`
`The Tender Offer’s Timing Did Not Advantage
`Danfoss At The Expense Of The Minority ............................... 21
`
`i
`
`
`
`
`
`

`

`2.
`
`3.
`
`4.
`
`5.
`
`Danfoss Proceeded In A Consensual Manner And
`Engaged In Adversarial, Arm’s-Length Bargaining
`With The SC .............................................................................. 23
`
`The Acquisition’s Structure Provided Equal
`Consideration To All Stockholders ........................................... 28
`
`The Voting Directors Appropriately Approved The
`Merger Agreement .................................................................... 28
`
`There Was No Coercion In The Tender Offer And
`All Material Facts Were Accurately Disclosed ........................ 29
`
`B.
`
`The Tender Offer Price Was Fair ........................................................ 35
`
`1.
`
`Professor Jarrell’s Directly Measured Beta Should Be
`Used, Demonstrating Fair Price ................................................ 36
`
`a.
`
`Direct Beta Should Be Used Unless A Company’s
`Stock Does Not Trade In An Efficient Market ...............37
`
`b. Professor Jarrell’s Opinion That Sauer-Danfoss’s
`Stock Traded In An Efficient, Active, and Open
`Market Is Undisputed .....................................................39
`
`i. Professor Jarrell’s Tests Prove Market
`Efficiency ....................................................................... 40
`
`ii. Mr. Meinhart Relied On Irrelevant
`Information .................................................................... 46
`
`c.
`
`Any Concern With Trading Efficiency Could
`Have Been Addressed Without Abandoning
`Direct Beta And Would Have Biased Direct Beta
`Downward .......................................................................49
`
`d. Mr. Meinhart’s Use Of An Indirect Beta Also Fails
`Because There Are No Appropriate Comparables .........51
`
`e.
`
`Using A Directly Measured Beta, Fair Price Is
`Less Than The Tender Offer Price .................................54
`
`
`
`ii
`
`
`
`
`
`

`

`2.
`
`Professor Jarrell’s Leverage And Net Cash
`Assumptions Should Be Used, Further Demonstrating
`Fair Price ................................................................................... 55
`
`II. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT
`ON BURDEN SHIFTING ............................................................................. 59
`
`CONCLUSION ........................................................................................................60
`
`
`
`
`
`
`
`
`
`iii
`
`
`
`
`
`

`

`TABLE OF AUTHORITIES
`
`
`
`Page(s)
`
`Cases
`
`Burkhart v. Davies,
`602 A.2d 56 (Del. 1991) .......................................................................
`
`Cammer v. Bloom,
`711 F. Supp. 1264 (D.N.J. 1989) ..........................................................
`
`Cede & Co., Inc. v. MedPointe Healthcare, Inc.,
`2004 WL 2093967 (Del. Ch.) ...............................................................
`
`18
`
`39
`
`55
`
`Cede & Co. v. JRC Acquisition Corp.,
`2004 WL 286963 (Del. Ch.) ................................................................. 37, 44
`
`Cede & Co. v. Technicolor, Inc.,
`2003 WL 23700218 (Del. Ch.),
`aff’d in part, rev’d in part on other grounds,
`884 A.2d 26 (Del. 2005) .......................................................................
`
`34
`
`Cinerama, Inc. v. Technicolor, Inc.,
`663 A.2d 1134 (Del Ch. 1994) ............................................................. 19, 34
`
`Cinerama, Inc. v. Technicolor, Inc.,
`663 A.2d 1156 (Del. 1995) ................................................................... 23, 28, 29
`
`Cox v. Guzy,
`Del. Ch., C.A. No. 7529-CS (June 8, 2012) (Transcript) .....................
`
`Doft & Co. v. Travelocity.com Inc.,
`2004 WL 1152338 (Del. Ch.) ...............................................................
`
`Emerald Partners v. Berlin,
`2003 WL 21003437 (Del. Ch.),
`aff’d, 840 A.2d 641 (Del. 2003) ...........................................................
`
`
`
`Emerald Partners v. Berlin,
`787 A.2d 85 (Del. 2001) .......................................................................
`
`31
`
`57
`
`20
`
`19
`
`
`
`iv
`
`
`
`
`
`

`

`Frank v. Elgamal,
`2012 WL 1096090 (Del. Ch.) ...............................................................
`
`Freedman v. Rest. Assocs, Indus., Inc.,
`1990 WL 135923 (Del. Ch.) .................................................................
`
`Gearreald v. Just Care, Inc.,
`2012 WL 1569818 (Del. Ch.) ...............................................................
`
`Global GT LP v. Golden Telecom, Inc.,
`993 A.2d 497 (Del. Ch. 2010) ..............................................................
`
`Globis Partners, L.P. v. Plumtree Software, Inc.,
`2007 WL 4292024 (Del. Ch.) ...............................................................
`
`Haft v. Haft,
`671 A.2d 413 (Del. Ch. 1995) ..............................................................
`
`In re Answers Corp. S’holders Litig.,
`2011 WL 1366780 (Del. Ch.) ...............................................................
`
`In re Appraisal of Ancestry.com, Inc.,
`2015 WL 399726 (Del. Ch.) .................................................................
`
`In re CNX Gas Corp. S’holders Litig.,
`2010 WL 2291842 (Del. Ch.) ...............................................................
`
`21
`
`27
`
`49
`
`37
`
`32
`
`19
`
`31
`
`37
`
`30
`
`In re Cysive, Inc. S’holders Litig.,
`836 A.2d 531 (Del. Ch. 2003) .............................................................. 23, 26-27
`
`In re Dole Food Co., Inc. Stockholder Litig.,
`2015 WL 5052214 (Del. Ch.) .............................................................. 34-35
`
`In re Emerging Commc’ns, Inc. S’holders Litig.,
`2004 WL 1305745 (Del. Ch.) ............................................................... 37, 44
`
`In re John Q. Hammons Hotels Inc. S’holder Litig.,
`2011 WL 227634 (Del. Ch.) .................................................................
`
`23
`
`In re Marriott Hotel Properties II Ltd. P’ship,
`2000 WL 128875 (Del. Ch.) ................................................................. 29-30
`
`
`
`v
`
`
`
`
`
`

`

`In re Ocean Drilling & Exploration Co. Shareholders Litig.,
`1991 WL 70028 (Del. Ch.) ...................................................................
`
`In re Orchard Enters., Inc. Stockholder Litig.,
`
`88 A.3d 1 (Del. Ch. 2014) ....................................................................
`
`In re Plains Expl. & Prod. Co. Stockholder Litig.,
`2013 WL 1909124 (Del. Ch.) ...............................................................
`
`33
`
`32
`
`31
`
`In re Radiology Assocs. Inc. Litig.,
`611 A.2d 485 (Del. Ch. 1991) .............................................................. 55, 57
`
`In re Rural/Metro Corp. S’holders Litig.,
`102 A.3d 205 (Del. Ch. 2014) ..............................................................
`
`40
`
`In re Rural Metro Corp.,
`88 A.3d 54 (Del. Ch. 2014) ................................................................. 37, 40
`
`In re Siliconix Inc. S’holders Litig.,
`2001 WL 716787 (Del. Ch.) .................................................................
`
`30
`
`In re Trados Inc. S’holderLitig.,
`
`73 A.3d 17 (Del. Ch. 2013) .................................................................. 19, 35
`
`Jedwab v. MGM Grand Hotels, Inc.,
`509 A.2d 584 (Del. Ch. 1986) ..............................................................
`
`20
`
`Kahn v. Lynch Commc’n Sys., Inc.,
`669 A.2d 79 (Del. 1995) ....................................................................... 20, 21-22
`
`Kahn v. M & F Worldwide Corp.,
`88 A.3d 635 (Del. 2014) ....................................................................... 58-59
`
`Kleinwort Benson Ltd. v. Silgan Corp.,
`1995 WL 376911 (Del. Ch.) .................................................................
`
`Kumar v. Racing Corp. of Am., Inc.,
`1991 WL 67083 (Del. Ch.) ...................................................................
`
`57
`
`21
`
`Merion Capital, L.P. v 3M Cogent, Inc.,
`2013 WL 3793896 (Del. Ch.) ............................................................... 37, 52-53
`
`
`
`vi
`
`
`
`
`
`

`

`Next Level Commc’ns, Inc. v. Motorola, Inc.,
`834 A.2d 828 (Del. Ch. 2003) .............................................................. 22, 30
`
`Prescott Grp. Small Cap, L.P. v. Coleman Co.,
`2004 WL 2059515 (Del. Ch.) ...............................................................
`
`Rabkin v. Philip A. Hunt Chem. Corp.,
`498 A.2d 1099 (Del. 1985) ...................................................................
`
`37
`
`21
`
`Rosenblatt v. Getty Oil Co.,
`493 A.2d 929 (Del. 1985) ..................................................................... 19, 28, 58
`
`S. Muoio & Co. LLC v. Hallmark Entm’t Invs. Co.,
`2011 WL 863007 (Del. Ch.) ................................................................. passim
`
`Skeen v. Jo-Ann Stores, Inc.,
`
`1999 WL 803974 (Del. Ch.) .................................................................
`
`32
`
`Skeen v. Jo-Ann Stores, Inc.,
`750 A.2d 1170 (Del. 2000) ................................................................... 30-31
`
`Towerview LLC v. Cox Radio, Inc.,
`2013 WL 3316186 (Del. Ch.) ............................................................... 37, 44
`
`Weinberger v. UOP, Inc.,
`457 A.2d 701 (Del. 1983) .....................................................................
`
`57
`
`
`
`Rule
`
`Ch. Ct. R. 56(b), (c) ........................................................................................
`
`19
`
`
`
`Other Authorities
`
`Damodaran, Damodaran on Valuation (2006) ...............................................
`
`37
`
`Damodaran, Investment Valuation: Tools and Techniques
`for Determining the Value of Any Asset (2012)....................................
`37
`
`Ibbotson SBBI 2013 Valuation Yearbook (2013) ........................................... 48, 50, 51
`vii
`
`
`
`
`
`
`
`

`

`Koller et al., Valuation: Measuring and Managing the
`Valuation of Companies (2010) ............................................................
`
`51
`
`Pratt & Grabowski, Cost of Capital (2014) .................................................... 36-37, 48
`
`Pratt & Niculita, Valuing a Business: The Analysis and
`Appraisal of Closely Held Companies (2008) ...................................... 48, 50
`
`
`
`
`
`viii
`
`
`
`
`
`

`

`TABLE OF DEFINITIONS AND CITATION FORMATS
`
`Term
`
`AC
`
`Adjusted Management
`Case
`AlstromTr
`
`Audit Committee
`Board
`CAGR
`ChristensenTr
`
`ChristiansenTr
`
`Citi
`
`Company
`Danfoss
`Danfoss Board
`DCF
`Defendants
`
`Ex.
`
`Eaton
`EldridgeTr
`
`FawcettTr
`
`FreelandTr
`
`Definition
`
`Verified Consolidated Amended Class Action
`Complaint, filed April 25, 2013
`Adjusted Management Case used by the SC
`
`Transcript of Deposition of Eric Alstrom, dated
`December 16, 2014 (Ex.T)
`Audit Committee of the Board
`Board of Directors of Sauer-Danfoss
`Compound annual growth rate
`Transcript of Deposition of Jesper Christensen, dated
`January 21, 2015 (Ex.C)
`Transcript of Deposition of Niels Christiansen, dated
`December 18, 2014 (Ex.B)
`Citigroup Global Markets Inc., financial advisor to
`Danfoss
`Sauer-Danfoss
`Danfoss A/S
`Board of Directors of Danfoss
`Discounted cash flow
`Defendants Danfoss A/S, Danfoss Acquisition, Inc.,
`Jørgen M. Clausen, Niels B. Christiansen, Eric Alstrom,
`Kim Fausing, Per Have, William E. Hoover, Jr., and
`Anders Stahlschmidt
`Exhibits appended to Transmittal Affidavit of Andrew
`H. Sauder, dated September 25, 2015
`Eaton Corporation
`Transcript of Deposition of Nathan Eldridge, dated
`January 30, 2015 (Ex.GG)
`Transcript of Deposition of Donald Fawcett, dated
`February 4, 2015 (Ex.EE)
`Transcript of Deposition of Richard Freeland, dated
`January 8, 2015 (Ex.Q)
`
`ix
`
`
`
`
`
`
`
`
`
`

`

`Term
`
`JarrellAff
`
`JarrellEx 19
`
`JarrellRbtl
`
`JarrellRbtlEx
`JarrellRpt
`
`JarrellRptEx
`JarrellTr
`
`KirchhoffTr
`
`Kirkland
`Lazard
`Management Case
`
`MeinhartRbtl
`
`MeinhartRpt
`
`MeinhartRptEx
`MeinhartTr
`
`Merger
`
`Merger Agreement
`
`NYSE
`
`Definition
`
`Affidavit of Professor Gregg A. Jarrell, dated September
`23, 2015 (Ex.RRR)
`Jarrell Exhibit 19, provided to Plaintiff’s counsel on July
`30, 2015 (Ex.III).
`Rebuttal Report of Professor Gregg A. Jarrell, dated
`June 19, 2015 (Ex.BBB)
`Exhibits to JarrellRbtl (Ex.BBB)
`Expert Report of Professor Gregg A. Jarrell, dated May
`20, 2015 (Ex.NN)
`Exhibits to JarrellRpt (Ex.NN)
`Transcript of Deposition of Gregg A. Jarrell, dated
`August 6, 2015 (Ex.GGG)
`Transcript of Deposition of Johannes Kirchhoff, dated
`April 10, 2015 (Ex.S)
`Kirkland & Ellis LLP, counsel to the SC
`Lazard Frères & Co., financial advisor to the SC
`Five-year projections (2013-2017) prepared by Sauer-
`Danfoss management at the SC’s request in January
`2013
`Rebuttal Report of Timothy Meinhart, dated June 19,
`2015 (Ex.HHH)
`Expert Report of Timothy Meinhart, dated May 20,
`2015 (Ex.AAA)
`Exhibits to MeinhartRpt (Ex.AAA)
`Transcript of Deposition of Timothy Meinhart, dated
`August 12, 2015 (Ex.CCC)
`Acquisition by Danfoss of remaining shares of Sauer-
`Danfoss it did not already own pursuant to Merger
`Agreement
`Agreement and Plan of Merger among Danfoss, Danfoss
`Acquisition, Inc. and Sauer-Danfoss Inc., dated March
`1, 2013
`New York Stock Exchange
`
`
`
`x
`
`
`
`
`
`

`

`Term
`
`Oct. 23, 2013 Tr.
`
`One-Year Period
`
`Parker-Hannifin
`Plaintiff
`RiebelAff
`
`RiebelTr
`
`Sauer-Danfoss
`Sauer Holding
`SC
`
`SC Br.
`
`SC Defendants
`
`SchacherTr
`
`Schedule 14D-9
`
`Schedule TO
`
`Sun
`Tender Offer
`
`WACC
`WoodTr
`
`Definition
`
`Transcript, Oral Argument on Defendants’ Motion to
`Dismiss and Rulings of the Court, C.A. No. 8396-VCL
`(Oct. 23, 2013)
`One-year trading period leading up to the announcement
`of the proposed Tender Offer on November 28, 2012
`Parker-Hannifin Corporation
`Plaintiff C. David Schacher
`Affidavit of Michael Riebel, dated September 21, 2015
`(Ex.UUU)
`Transcript of Deposition of Michael Riebel, dated
`January 22, 2015 (Ex.K)
`Sauer-Danfoss, Inc.
`Sauer Holding GmbH
`Special Committee of the Board formed in 2012
`comprised of Steven Wood, Johannes Kirchhoff, and
`Richard Freeland
`SC Defendants’ Brief in Support of Their Motion for
`Summary Judgment, dated September 25, 2015
`Defendants Richard J. Freeland, Johannes F. Kirchhoff,
`and Steven H. Wood
`Transcript of Deposition of Colin D. Schacher, dated
`January 13, 2015 (Ex.TT)
`Schedule 14D-9 filed by Sauer-Danfoss with the SEC
`on March 15, 2013 (Ex.H)
`Schedule TO filed by Danfoss with the SEC on March
`15, 2013 (Ex.A)
`Sun Hydraulics Corporation
`Tender offer launched by Danfoss on March 15, 2013
`and closed on April 11, 2013
`Weighted average cost of capital
`Transcript of Deposition of Steven Wood, dated
`December 3, 2014 (Ex.R)
`
`
`
`xi
`
`
`
`
`
`

`

`PRELIMINARY STATEMENT
`
`Plaintiff challenges Danfoss’s acquisition, via tender offer and follow-
`
`up merger, of the 24.4% of Sauer-Danfoss shares that it did not already own. The
`
`Tender Offer price, at $58.50 per share, represented a 48.5% premium over the
`
`unaffected share price, and an improvement of approximately 20% upon the initial
`
`offer of $49.00. The price was also more than quadruple that offered by Danfoss
`
`just two years earlier. The transaction was subject to a non-waivable majority of
`
`the minority condition that was satisfied, with over 83% of the minority
`
`stockholders tendered.
`
`Even assuming the entire fairness test is the applicable standard of
`
`review here,1 the undisputed record demonstrates that the Merger meets that test.
`
`Indeed, this case is uniquely suited for summary judgment: Despite having
`
`conducted extensive discovery, Plaintiff cannot advance any serious process
`
`challenge, and there is no dispute of fact concerning price. Rather, applying
`
`correct valuation theory for publicly traded companies—specifically, a directly,
`
`rather than indirectly, measured beta because Sauer-Danfoss’s stock traded in an
`
`efficient market—it is undisputed that fair price is below the Tender Offer price.
`
`
`1
`In the event that this matter is not resolved on the instant motion, Defendants
`join with the SC Defendants in reserving the right to later argue at trial that the
`applicable standard is the business judgment rule. See SC Br. at 46-47.
`
`1
`
`
`
`
`
`

`

`There is no need for witness testimony, credibility assessments, or the burdens of
`
`full-blown trial.
`
`As to fair process, the undisputed record establishes that an
`
`independent, fully-empowered and fully-informed three-member SC negotiated
`
`aggressively against Danfoss, achieving no less than four price increases. And a
`
`majority of the outstanding minority shares were tendered by uncoerced and fully
`
`informed stockholders.
`
`As to fair price, even putting aside that the fair dealing here indicates
`
`fair price, the price dispute has proven an extremely narrow one on the developed
`
`record. Each side’s respective expert agrees that a DCF analysis is the only
`
`appropriate methodology here, given the lack of comparable companies. And both
`
`agree on all inputs for the DCF (including using the same set of projections)
`
`except: (i) beta, (ii) debt-to-total capitalization ratio, and (iii) net cash.
`
`Beta is dispositive. It is undisputed that if one uses the beta selected
`
`by Defendants’ expert in conjunction with all of the remaining DCF inputs
`
`proffered by Plaintiff’s expert, the calculation yields a fair price at $54.13, below
`
`the $58.50 Tender Offer price. Moreover, the difference with respect to beta is not
`
`a fact issue. Rather, it is one of proper valuation theory: whether beta should be
`
`directly measured based on the subject company’s historical stock returns, or
`
`indirectly measured based on “guideline” or other company betas.
`2
`
`
`
`
`
`
`
`

`

`Defendants’ expert, Professor Gregg Jarrell—an expert on both
`
`valuation and market efficiency—used a directly measured beta. Plaintiff’s expert,
`
`Mr. Timothy Meinhart—concededly not an expert on market efficiency—opted to
`
`disregard direct beta in favor of an indirectly derived beta. Following academics
`
`and valuation practitioners, this Court has routinely applied a direct beta so long as
`
`the market for trading in the target company’s stock is efficient.
`
`Professor Jarrell extensively tested and expressly opined that the
`
`market for Sauer-Danfoss stock was efficient. That opinion is unrebutted. Mr.
`
`Meinhart conceded that he rendered no opinion with regard to the efficiency of the
`
`market for Sauer-Danfoss’s stock. No less telling, Mr. Meinhart also conceded
`
`that he had no basis on which to dispute the exhaustive market efficiency testing
`
`that Professor Jarrell conducted. There simply is no “battle of the experts.”
`
`Indeed, Mr. Meinhart failed to point to any fact (let alone a disputed fact requiring
`
`trial) that would justify departing from the direct approach to beta. His observation
`
`that only 24% of Sauer-Danfoss’s outstanding shares were available for trading
`
`says nothing about the efficiency of the market for those shares.
`
`A separate reason the Court should reject Mr. Meinhart’s resort to an
`
`indirect beta based on other industrial companies—many of which had similar
`
`trading issues as Mr. Meinhart claimed for Sauer-Danfoss—is that there are no
`
`sufficiently comparable companies on which to base a reliable indirect beta
`3
`
`
`
`
`
`
`
`

`

`measurement. The two financial advisors to the merging parties used two different
`
`sets of comparables in connection with the sales process, and Mr. Meinhart used
`
`yet a third. Mr. Meinhart conceded that his selected peers were so different from
`
`Sauer-Danfoss that he expressly chose to place zero weight on his comparable
`
`companies analysis based on them. Mr. Meinhart’s patently inconsistent
`
`approach—basing beta on peers while expressly placing zero weight on his trading
`
`multiples analysis—is the final nail in the indirect beta coffin.
`
`Using a direct measurement, both experts generate beta of roughly
`
`1.68 (or higher), and a DCF value below the Tender Offer price. Indeed, fourteen
`
`of fifteen direct betas that Mr. Meinhart obtained (using daily, weekly, and monthly
`
`trading for one, two, three, four, and five year periods) result in a DCF value below
`
`$58.50. Accordingly, summary judgment dismissing the AC should be granted.
`
`Finally, even assuming that summary judgment dismissing the AC is
`
`not entered on the basis of the valuation analysis above, summary judgment
`
`shifting the burden of establishing unfairness to Plaintiff is nonetheless
`
`appropriate, given that there is no genuine factual dispute that the Merger was
`
`approved by the independent, fully-informed SC, and by a majority of fully-
`
`informed minority stockholders, free of coercion.
`
`
`
`
`
`
`
`4
`
`
`
`
`
`

`

`NATURE AND STAGE OF THE PROCEEDINGS2
`
`After the AC was filed, Defendants and the SC Defendants moved to
`
`dismiss the action, arguing for application of the business judgment rule because
`
`the Merger was subject to a majority of the minority provision and had been
`
`negotiated by the independent SC. The Court denied the motion in light of then-
`
`recent precedent, but stated that its ruling did not mean that at the summary
`
`judgment stage “there might not be a basis for establishing a burden shift,”3 or
`
`determining underlying liability issues.4
`
`The parties thereafter completed extensive discovery, including the
`
`production of over 60,000 pages of documents and the depositions of the three
`
`original plaintiffs and eleven witnesses. On April 8, 2015, class certification was
`
`granted with Plaintiff Schacher as the sole class representative.5
`
`
`
`
`
`Oct. 23, 2013 Tr. at 81:14-16.
`
`
`2
`Quotations from those cited transcripts and other sources denoted with an
`asterisk (*) are attached, organized by footnote number, at Annex A. Defendants
`have submitted excerpted transcripts and other sources, but would be pleased to
`provide the Court with complete copies should the Court direct.
`3
`4
`5
`Doc. No. 177. Mr. Schacher held 25 shares at the time of the Tender Offer;
`could not recall whether he tendered his shares; did not recall reviewing the
`Merger Agreement or SEC filings in connection therewith; and could not describe
`his duties as class representative. SchacherTr 34:14-17*, 37:5-14*, 40:5-18*,
`41:22-25*, 48:20-24*.
`
`Id. at 81:21-23.
`
`
`
`5
`
`
`
`
`
`

`

`
`
`STATEMENT OF FACTS
`
`A. The Formation of Sauer-Danfoss And Its Fiscal Peril During The
`Financial Crisis
`
`Danfoss is a Danish corporation that manufactures and services
`
`mechanical and electronic components for several industries.6 In 2000, Danfoss
`
`entered into a joint venture with Sauer Holding, with Danfoss contributing certain
`
`parts of its business to Sauer Holding’s subsidiary, Sauer Inc.7 The subsidiary, a
`
`publicly traded Delaware corporation that manufactured industrial hydraulic and
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`electric components, became Sauer-Danfoss, with Sauer Holding and Danfoss each
`
`holding approximately 38% of its outstanding common shares.8
`
`Although Sauer-Danfoss initially experienced several years of
`
`moderate growth, its business—cyclical and volatile9—severely deteriorated
`
`during the 2008 financial crisis, and by early 2009 the Company was on the “edge
`
`of bankruptcy.”10 To avoid a going concern opinion, the Company needed to
`
`obtain financing of some $490 million.11 Neither Sauer Holding nor others
`
`Ex.A at 4.
`
`Id.
`
`See infra nn.24, 45, 46.
`
`
`6
`AC ¶ 14.
`7
`8
`9
`10
`ChristiansenTr 20:9-12*, 20:18-21:10*; ChristensenTr 62:12-13*; Ex.D at
`1-2, 4-5*.
`11
`
`Ex.D at 1-2, 4-5; Ex.E at 3-4*.
`
`
`
`6
`
`
`
`
`
`

`

`approached by the Company were willing to provide the financing that it needed;
`
`only Danfoss was.12 The Company’s Audit Committee, comprised of three
`
`independent directors of Sauer-Danfoss’s Board (Messrs. Wood, Kirchhoff, and
`
`Loughrey), reviewed and approved the terms offered by Danfoss, which were
`
`better than the Company could have obtained in the market.13
`
`Sauer-Danfoss’s financial condition nevertheless continued to worsen
`
`and, by the end of 2009, the Company needed additional financing.14 A special
`
`committee (comprised of the same independent directors) considered available
`
`options. Danfoss again offered the best terms.15
`
`B. Danfoss’s 2010 Attempt To Acquire Sauer-Danfoss
`
`On December 21, 2009, Danfoss CEO Niels Christiansen sent an
`
`unsolicited letter to the Board proposing that Danfoss acquire all of the Company’s
`
`remaining outstanding shares for $10.10 per share, which at the time represented a
`
`20% premium to market.16 Danfoss believed that, particularly given Sauer-
`
`
`12
`ChristiansenTr 24:22-25:8*, 68:1-7*; ChristensenTr 109:1-5*. Indeed,
`Sauer Holding’s concern that Sauer-Danfoss was worthless led it to ask Danfoss to
`buy its shares, which Danfoss did (becoming the holder of 75.6% of Sauer-
`Danfoss’s shares). ChristiansenTr 38:2-21*, 41:2-4*; Ex.A at 4.
`13
`14
`15
`16
`
`Ex.G at 8-9.
`
`
`
`7
`
`
`
`
`
`Ex.D at 4-5; Ex.E at 3-5*.
`
`Ex.F at 1.
`
`Id. at 1-2.
`
`

`

`Danfoss’s reliance on Danfoss financing, it “could actually run the Company better
`
`by getting it together with [Danfoss] and utiliz[ing]” Danfoss’s operations.17
`
`A special committee of the Sauer-Danfoss Board reconvened and
`
`retained Kirkland and Lazard as advisors.18 During negotiations, Danfoss
`
`increased its offer to $14.00 per share to secure the special committee’s approval.19
`
`At the same time, Sauer-Danfoss management—including CFO Jesper
`
`Chistensen—twice revised projections upwards based on higher-than-expected
`
`results, leading the special committee to withdraw its recommendation to tender,
`
`and to demand from Danfoss a tender price of no less than $21.50 per share.20
`
`Danfoss declined, and the tender offer expired.21
`
`C. Danfoss Continues To Support Sauer-Danfoss
`
`Shortly thereafter, Sauer-Danfoss management began discussing
`
`options to refinance, including a longer loan term and the option to prepay before
`
`maturity to protect against cyclical swings in revenue and refinancing risk.22
`
`Danfoss ultimately agreed, and the Audit Committee reviewed and approved an
`
`Ex.G at 10-11.
`
`Ex.H at 13.
`
`Ex.G at 15-17; Ex.H at 13.
`
`Ex.H at 13.
`
`
`17
`ChristiansenTr 21:11-19*.
`18
`19
`20
`21
`22
`
`Ex.I; ChristiansenTr 82:3-24*; ChristensenTr 109:5-10*.
`
`
`
`8
`
`
`
`
`
`

`

`amended credit agreement (providing a revolver and term loan), again finding the
`
`terms better than otherwise available.23
`
`Sauer-Danfoss’s financial health continued to recover over the next
`
`two years as the global economy stabilized, though it remained subject to
`
`“unpredictable” fluctuations stemming from the “cyclical” nature of Sauer-
`
`Danfoss’s business that became the norm after the financial crisis.24
`
`D. Danfoss Proposes Another Tender Offer And The SC Is Formed
`
`On November 27, 2012, continuing to entertain the belief that it could
`
`better run Sauer-Danfoss from within Danfoss (including by achieving increased
`
`procurement savings and synergies), the Danfoss Board determined to pursue
`
`another tender offer.25
`
`
`23
`Ex.J at 1-3*; ChristiansenTr 81:25-83:4; ChristensenTr 112:7-14*.
`24
`RiebelTr 64:10-18*, 39:19-40:3*; ChristensenTr 24:20-25*. Sauer-Danfoss
`retired the revolver in 2012, Ex.H at 4, and it prepaid 10% of the term loan in
`September 2012 (the maximum amount on the earliest possible date), Ex.L. Sauer-
`Danfoss also sought ways to invest its surplus cash, and in April 2011, the Audit
`Committee approved a proposal by Sauer-Danfoss to make short-term deposits at
`Danfoss, which (i) provided an above-market return (by 25 bps), (ii) were liquid
`and thus allowed flexibility in asset allocation, and (iii) were essentially risk-free
`as they could be set off against the term loan from Danfoss. Ex.M at 2;
`ChristiansenTr 83:5-84:9.
`25
`ChristiansenTr 90:18-91:19*; Ex.N. Earlier in 2012, Danfoss considered
`acquiring a limited number of Sauer-Danfoss shares to bring Danfoss’s stake to
`80%, in order to reduce Sauer-Danfoss’s corporate tax rate. ChristiansenTr
`111:24-112:5; Ex.O*. That potential path was abandoned when Danfoss decided
`to proceed with the Tender Offer.
`
`
`
`9
`
`
`
`
`
`

`

`At a regularly-scheduled Sauer-Danfoss Board meeting the next day,
`
`the Board reviewed and approved the 2013 budget.26 Danfoss Chairman Jørgen
`
`Clausen then announced for the first time27 Danfoss’s intention to acquire Sauer-
`
`Danfoss’s outstanding shares at $49 per share,28 which at the time represented a
`
`24% premium to market.29
`
`Mr. Clausen delivered a letter from Mr. Christiansen setting forth the
`
`proposal. The letter expressed Danfoss’s desire to engage in “productive and
`
`friendly” discussions with Sauer-Danfoss (through a special committee) that would
`
`result in a “mutually beneficial negotiated transaction” by “year end” 2012.30 The
`
`letter noted that Danfoss would “dedicate the resources necessary to meet this
`
`timeline and [was] open to any sugges