Mercier v. Inter-Tel (Delaware), Inc.

OPINION

I.

In this decision based on a preliminary injunction record, I conclude that well-motivated, independent directors may reschedule an imminent special meeting at which the stockholders are to consider an all cash, all shares offer from a third-party acquiror when the directors: (1) believe that the merger is in the best interests of the stockholders; (2) know that if the meeting proceeds the stockholders will vote down the merger; (3) reasonably fear that in the wake of the merger’s rejection, the acquiror will walk away from the deal and the corporation’s stock price will plummet; (4) want more time to communicate with and provide information to the stockholders before the stockholders vote on the merger and risk the irrevocable loss of the pending offer; and (5) reschedule the meeting within a reasonable time period and do not preclude or coerce the stock *788 holders from freely deciding to reject the merger.

In the course of so deciding, I conclude that, consistent with the directional teaching of cases like MM Companies, Inc. v. Liquid Audio, Inc., 1 In re MONY Group, Inc. S’holder Litig., 2 and Chesapeake Corp. v. Shore, 3 the Blasius standard should be reformulated in a manner consistent with using it as a genuine standard of review that is useful for the determination of cases, rather than as an after-the-fact label placed on a result. Such a reformulation would be consistent with prior decisions recognizing the substantial overlap between and redundancy of the Blasi-us and Unocal standards, 4 and would have the added benefit of creating a less prolix list of standards of review. Recognizing, however, that the Supreme Court’s recent decision in Liquid Audio continued to employ the “compelling justification” language of Blasius within the context of an appropriate Unocal review of director conduct that affects a corporate election touching on corporate control, I also find that directors fearing that stockholders are about to make an unwise decision that poses the threat that the stockholders will irrevocably lose a unique opportunity to receive a premium for their shares have a compelling justification — the protection of their stockholders’ financial best interests — for a short postponement in the merger voting process to allow more time for deliberation.

Therefore, the plaintiffs request for a preliminary injunction application based on the contrary assumption — that directors have no discretion as fiduciaries to reschedule a vote once a stockholder meeting is imminent and the directors know that the vote won’t go their way if it is held as originally scheduled — is denied.

II.

A.

The plaintiff, Vernon Mercier, in this class action seeks to preliminarily enjoin the consummation of a stockholder approved merger in which Inter-Tel, Inc. will sell itself to Mitel Networks Corporation in an all cash, all shares merger for $25.60 a share (the “Mitel Merger”). Mer-cier owns 100 shares of Inter-Tel, which he has held since 1999. 5

Inter-Tel describes itself as a:

single-point-of-contact, full-service provider of IP and converged voice, video and data business communications platforms, multi-media contact center applications, remote control software to provide real-time communications and instantaneous, browser-to-browser Web conferencing and help desk support solutions. Inter-Tel also provides a wide range of managed services, including voice and data network design and traffic provisioning, local and long distance calling services, custom application development, maintenance, leasing, and support services for its products. 6

As I grasp it, this essentially means that Inter-Tel sells high-tech phone systems *789 and provides communications services to businesses and government agencies. Inter-Tel was founded over thirty-five years ago by Steven G. Mihaylo. Mihaylo remains Inter-Tel’s largest stockholder, owning 19% of its shares. Although the plaintiffs arguments often echo those made by Mihaylo, Mihaylo himself is not a plaintiff in this or any other lawsuit involving Inter-Tel. Mihaylo has not been deposed in the case and has not submitted affidavit testimony.

For the past several years, Inter-Tel has been the subject of a tumultuous struggle between Mihaylo and Inter-Tel’s independent board majority. The parties have not burdened the court in their injunction papers with an explanation of why and how the waters first became roiled.

What is clear is that since 2005, Inter-Tel’s future has been up for grabs. During 2005 itself, Inter-Tel received several soft overtures from potential buyers. These included Mitel, one of Inter-Tel’s leading competitors, which could expect to capture synergistic gains if it merged with Inter-Tel. The Mitel contact was not new, as Inter-Tel and Mitel had discussed the possibility of merging two years before.

Among the other parties that contacted Inter-Tel during 2005 was the private equity firm Francisco Partners. In autumn 2005, a special committee of independent directors was formed to consider the various expressions of interest Inter-Tel had received. Eventually, things got serious with one bidder. But, at the same time, the Inter-Tel board was internally riven, with a majority of the board wanting Mi-haylo, who had served as Inter-Tel’s CEO since its founding, to retire from that position. Eventually, both the interested bidder and Mihaylo went away, but only one did so permanently.

In February 2006, Mihaylo resigned as CEO. In early March, he resigned as a director. By that time, the interested bidder had ultimately decided not to make a firm offer. Whether the obvious strife between the corporation’s founder and the board majority had an effect, the record does not reveal.

But what transpired is suggestive of that possibility. Upon resigning as director, Mihaylo filed a Schedule 13D indicating that he was considering his alternatives regarding his investment in Inter-Tel. Because of that, the Inter-Tel Special Committee remained active, given the possibility that Mihaylo himself might propose a strategic alternative. On the heels of Mihaylo’s filing, another party made an expression of interest.

Mihaylo soon sought re-election to the Inter-Tel board, indicating his intent to elect a slate of three directors, including himself, to Inter-Tel’s board, at the 2006 annual meeting. 7 He also proposed a nonbinding resolution calling on the board to sell Inter-Tel to the highest bidder.

In May 2006, the Inter-Tel board reached a settlement with Mihaylo. Mi-haylo’s proposed slate was seated on the board, and the board was expanded from 10 to 11 members. Mihaylo was also guaranteed the right to have his advisors and financial sponsors obtain access to reasonable due diligence in order to facilitate his ability to make an acquisition proposal. Furthermore, the settlement agreement provided that Inter-Tel would convene a special meeting at Mihaylo’s request if he wished to have a stockholder vote on a *790 proposal calling for the board to sell the company.

Importantly, the agreement permitted the board to exclude Mihaylo and his nominees, Kenneth L. Urish and Anil K. Puri,

from any discussions, and from receipt of any materials regarding, Inter-Tel’s value and the strategic plan upon which such value would in part be based, Inter-Tel’s relationship with Mr. Mihaylo, and the consideration of any proposal to acquire Inter-Tel from Mr. Mihaylo or any other person, in each case until Mr. Mihaylo filed a Schedule 13D disclosing that he no longer had an intent to increase his shareholdings or otherwise acquire Inter-Tel. 8

Consistent with that agreement, the board constituted a new “Special Committee,” which was comprised of the other eight directors. The Special Committee’s Chairman was Alexander Cappello, who was also the Chairman of the Board. The executive who succeeded Mihaylo as CEO, Norman Stout, also served on the Special Committee. The remaining six members of the Special Committee were and remain non-employee, outside directors whose independence has not been challenged by the plaintiff. The Special Committee retained UBS, which had been advising the board majority before the settlement, as its financial advisor.

Throughout the late spring and summer of 2006, the Special Committee fielded acquisition inquiries from a variety of sources. Most notable was a formal expression of interest that Mihaylo, along with a partner, Vector Capital, made on June 14, proposing to buy all of Inter-Tel’s shares for $22.50 a piece. After more due diligence, Mihaylo and Vector reiterated this bid on July 28. On August 11, the Special Committee rejected the bid as inadequate.

Mihaylo and Vector then offered to raise their bid to $23.25 per share if the Special Committee committed to selling Inter-Tel to the highest bidder who emerged during a 30-day sale process. The Special Committee again rejected the bid as inadequate financially, and also opined that the 30 day process was not value-maximizing because other bidders would be disadvantaged by Mihaylo’s much greater opportunity for due diligence.

Soon thereafter, Mitel came sniffing around again, as did some other parties. But no firm bids were made.

Mihaylo, however, did put something on the table — a precatory resolution calling on the Inter-Tel board to sell the company in an auction. At a special meeting of stockholders held on October 24, 2006, over 50% of the Inter-Tel stockholders present voted against the resolution. After this defeat, Mihaylo and Vector withdrew their proposal to acquire Inter-Tel while reserving the right to change their minds.

This showdown did little to calm the roiled waters. Interested parties kept coming forward and the Special Committee essentially continued to operate. By late 2006, both Mitel and Francisco Partners were again expressing interest. By January 2007, the two had paired up, with Francisco Partners being prepared to act as a financial partner for Mitel in acquiring Inter-Tel.

Mihaylo, meanwhile, was threatening another proxy contest. In a public communication to the board, Mihaylo outlined his own ideas for increasing Inter-Tel’s profits and his suggestions for avoiding another electoral contest. According to the Inter-Tel board majority, Mihaylo’s non-public *791 strategy involved his desire to have Inter-Tel buy his shares at a premium to the prevailing market price. By early March, Mihaylo formally indicated his intention to run another proxy contest, and announced that he had terminated his alliance with Vector Capital.

In the same general time period, Mitel and Francisco Partners had indicated a willingness to purchase Inter-Tel for $25 per share, subject to their receipt of due diligence. The Special Committee decided that the price was attractive enough to justify granting such access, and a confidentiality agreement was executed with Mitel authorizing such due diligence.

Throughout March and April, extensive due diligence and negotiations were conducted between Mitel and Inter-Tel. The Special Committee told Mitel that $25 per share was insufficient. Mitel eventually countered with $25.50. The Special Committee rejected that price and Mitel threw in another dime per share, raising the bid to $25.60.

In the final stages of deciding whether to accept Mitel’s last bid, the Special Committee received a letter from Vector Capital indicating that Vector had heard rumors 9 that Inter-Tel was about to enter a deal. Vector Capital suggested it would pay $26.50 per share after due diligence and that Mihaylo was not part of its proposal. Of course, Vector Capital had received extensive due diligence regarding Inter-Tel in the summer of 2006 when it was in partnership with Mihaylo. On the morning of April 26, the day the Special Committee and full board were to vote on whether to enter a merger agreement with Mitel, Vector Capital sent e-mail messages, floating the tantalizing prospect of a bid of over $27 if it could receive due diligence and indicating its likely unwillingness to present a topping bid if a merger agreement with another party was signed up.

Considering a variety of factors — including Mihaylo’s prior bid of $23.25, the lengthy period during which various parties had expressed an interest in buying Inter-Tel, and a fairness presentation from its financial advisor, UBS — the Special Committee voted to recommend approval of a “Merger Agreement” with Mi-tel. A full meeting of the Inter-Tel board was held, and the board voted the same way, with Mihaylo dissenting, and his two nominees Puri and Urish abstaining. The same day, Inter-Tel announced approval of the Mitel Merger Agreement as well as its earnings for the first quarter of FY 2007.

The Merger Agreement contained a no-shop provision that was subject to a fiduciary out permitting the Inter-Tel board to consider an unsolicited alternative proposal that was reasonably likely to lead to a superior proposal. The fiduciary out soon came in handy.

On May 9, Vector Capital sent an unsolicited letter to Inter-Tel expressing interest in purchasing it for $26.50. The Special Committee promptly made the required determination necessary to facilitate Vector Capital’s access to due diligence. But Vector Capital then withdrew its expression of interest.

Ever fickle, Vector Capital then sent another letter renewing its interest at the price of $26.50 per share. The Special Committee again made the required finding, and entered into a confidentiality order granting Vector Capital access to nonpublic information. Vector Capital’s interest was made public, prompting the market price of Inter-Tel’s shares to rise *792 above $27 a piece on hopes of a higher-priced deal.

On May 29, 2007, Inter-Tel gave notice that a meeting to consider the Mitel Merger would be held on June 29. May 25 was set as the record date.

Inter-Tel’s proxy materials also indicated that the stockholders would vote on a second ballot item, which involved a “proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes in favor of the adoption of the Merger Agreement at the special meeting....” 10 Apparently, the second ballot item was included as a result of a general practice of the SEC that encourages issuers to seek stockholder pre-ap-proval for an adjournment. 11

After Inter-Tel set the meeting date, Mihaylo entered the game again, this time proposing an alternative to his former partner Vector Capital’s expression of interest. On June 4, Mihaylo sent a public letter to the Inter-Tel stockholders. In that letter, Mihaylo complained that the Special Committee had been secretly considering acquisition proposals and had not asked him to bid or conducted a full auction. He expressed his opposition to the Mitel Merger and proposed an alternative transaction whereby Inter-Tel would engage in a leveraged recapitalization. The Mihaylo “Recap Proposal” involved the company using a 50-50% combination of cash on hand and new debt to acquire up to 60% of its shares for $28 a piece. Mi-haylo contended that the remaining shares would trade close to $30 a piece based on the corporation’s expected earnings. Mi-haylo premised his assumptions on a use of Inter-Tel’s own projections (which had not been prepared for use in concert with a leveraged recapitalization), while simultaneously disclaiming their reliability. Mi-haylo also claimed that he remained open to a sale of Inter-Tel, so long as the sale resulted from a process Mihaylo found acceptable.

Mihaylo concluded by promising that he would be filing more details about his Recap Proposal with the SEC and sending stockholders a proxy card that they could use to vote no on the Mitel Merger.

The very next day, Vector Capital announced that it would not make an offer for Inter-Tel after all, attributing its reticence in part to Mihaylo’s Recap Proposal. From then on, it was game on between Inter-Tel’s board majority and Mihaylo.

B.

In June, Inter-Tel and Mihaylo tangled about what vision of Inter-Tel’s future was the most attractive. On June 8, Mihaylo disclosed his intention to seek control of the board at the next annual meeting if the Mitel Merger were defeated. 12 Inter-Tel made counterarguments, touting the certainty of the value the Mitel Merger promised to deliver over what Inter-Tel believed would flow from Mihaylo’s Recap Proposal, a proposal that Inter-Tel argued was imprudent, excessively contingent, and less valuable.

Inter-Tel took its argument to regulators, stockholders, and its proxy voting advisors. To the SEC, Inter-Tel argued that Mihaylo had misused Inter-Tel’s pro *793 jections in presenting his Recap Proposal by, among other things, failing to adjust those projections for the changes in the business that would flow from the Recap Proposal itself and for failing to acknowledge that the company’s projections were not guarantees and might not be achieved. To its stockholders, Inter-Tel made similar arguments. It coupled them with reminders of Mihaylo’s own offer to buy the company for only $23.25 per share several months back, an offer that Mihaylo had supported with the argument that Inter-Tel’s stock price would drop markedly if his $23.25 offer went away. Given that argument, Inter-Tel said Mihaylo was in no credible position to argue either $25.60 per share was too low or that Inter-Tel’s remaining shares would likely trade above $30 after the first step of Mihaylo’s Recap Proposal was consummated.

But Inter-Tel suffered body blows in mid-June. Mihaylo’s argument that his Recap Proposal promised a blended value above $29 was gaining some traction, in two respects. For starters, there was the possibility that the Recap Proposal might be more valuable. But equally important seems to have been the pressure institutional investors believed it put on Mitel to make a higher bid, especially given that the Recap Proposal was sponsored by Inter-Tel’s largest stockholder.

On June 13, Millennium Management L.L.C. — which the plaintiff touted as a significant institutional stockholder in originally moving to press an injunction motion against closing of the Merger — announced that it was seriously considering opposing the Mitel Merger. It cited in part the possibility that the Recap Proposal promised more value.

Then, on June 19, Inter-Tel suffered a crippling injury when Institutional Shareholder Services recommended that stockholders vote against the Mitel Merger. 13 ISS based its recommendation in part on its dissatisfaction with Inter-Tel’s failure to run a full-blown auction in advance of signing up with Mitel, a philosophical stance toward the appropriate method of value maximization that ISS seeks to advance through voting recommendations. More important, however, seemed to be ISS’s intuition that more value could be extracted from Mitel if Mitel felt the pressure of a “no” recommendation. In other situations, including one very recent one, an ISS no vote recommendation had caused an offeror to come out of pocket with a higher bid. Although it disclaims wielding power, ISS was believed by Inter-Tel, and its highly experienced proxy solicitors, Innisfree M & A Incorporated, to be very influential as to its clients’ voting decisions. By recommending a “no” vote on June 19, ISS could aid its clients in their goal of value maximization by exerting pressure on Mitel to up its offer. That motivation was supported by ISS’s sense that the Mitel offer was not at an optimal price. In reaching that determination, ISS took into account Inter-Tel management’s statements that the company’s projections might be overly optimistic.

As it should have been, the Inter-Tel Special Committee had been using the uncertainty of approval and Mihaylo’s opposition to the Merger as a lever to try to get Mitel to increase the Merger consideration. But, on June 21, Mitel pushed back, trying to make clear to Inter-Tel’s stockholders that negotiations had closed and that they could take $25.60 or retain their shares. Mitel stressed that Inter-Tel’s *794 first quarter performance was below par, that Inter-Tel’s two years of internal strife were taking their toll, that its offer was far higher than any other party, including Mi-haylo, had actually bid to buy the whole company, and that Mitel was already taking on material risks in buying Inter-Tel at the existing price. A press release making this announcement was released on June 22.

By this point, Inter-Tel knew that its prospects for getting an affirmative vote on the Merger at the June 29 meeting were slim, absent some change in circumstances. As the plaintiff points out, serious conversations also began among key Special Committee advisors and top management about the possibility of postponing the June 29 meeting to allow more time for Inter-Tel to make its case.

But Inter-Tel also continued to press its case, pursuing an angle that it realized could be particularly influential — Mihaylo’s opposition to the Mitel Merger and the possibility of getting Mitel to sweeten the deal if Mihaylo signed on. If Mitel could be assured of Mihaylo’s support, and an end to his status as a potentially very large appraisal petitioner, that would have real economic value in the sense that it would generate both an increased certainty of closing and eliminate a future risk. An effort was made to bring Mitel and Mihay-lo together around a revised Merger Agreement providing for an increase in the Merger consideration to $26 per share and a reduced break-up fee, among other things. Care was apparently taken to ensure that Mihaylo was approached in the most diplomatic and respectful manner, and Mitel itself reached out to him. But Mihaylo was not amenable, and raised a number of issues (such as concerns about the future of certain employees and of a company campus near his home) that reflected his unique (and understandable) perspective as a founder, rather than a focus on maximizing value for stockholders. 14

Without Mihaylo’s support, Inter-Tel lacked any real sweetener to offer Mitel. One important factor in that dynamic was the reality that Mitel was not financing its offer with internal resources. As noted, it had a financial partner, Francisco Partners, that was a private equity firm. Although Mitel as a strategic acquirer faced the usual temptations to stretch in order to make an acquisition of a competitor, Francisco had different interests. Repricing the deal would require Mitel to deal with Francisco at a time when it was becoming clear that the favorable debt financing markets that had been supporting a wave of private equity deals were heading south. From Francisco’s perspective, the prospect that the Inter-Tel transaction might go away may not have been sleep-disturbing. Although it doubtless had reputational reasons not to pull out on Mitel, Francisco was under no obligation to agree to different terms simply because its strategic partner was tempted to move higher, especially if such a move did not obviate Mihaylo’s objection.

As of at least five days before June 29, the Special Committee began seriously considering the possibility of a postponement of the vote. By that time, they *795 realized that the Merger would almost certainly go down to defeat absent a change in the deal. By June 28, it was clear that no such change would happen.

C.

Within the last week leading up the scheduled June 29 special meeting, a list of factors began to emerge that the Special Committee and its advisors had identified as potentially justifying rescheduling the special meeting. In putting it that way, I do not mean to imply that these factors were makeweight excuses for a postponement. But I do find, as the plaintiff urges, that the Special Committee and its advis-ors had a keen eye out for circumstances that might, when taken together, plausibly justify a delay in the vote. Unlike the plaintiff, however, I find nothing in the record that suggests that the Special Committee had an improper motivation to delay the vote. None of the Special Committee members, including Stout, had been promised any position with Mitel after the Merger, and each expected to lose his board seat upon approval. Put simply, the Special Committee, on this record, must be viewed as supporting the Merger because they thought it was in the best interests of the Inter-Tel stockholders.

In support of that conclusion is the un-contradicted record that the Special Committee had been open to overtures from a variety of bidders, including ones whose previous overtures (such as Vector Capital and Mihaylo) generated reason for suspicion. Given the lack of any prospect of a higher-priced deal, the Special Committee feared that an attractive takeover bid could be lost if the stockholders voted no and gave Mitel and Francisco a contractual right to depart.

As the proxy fight continued in the last week, Inter-Tel began to assemble a case for postponement. The factors that went into that case were several.

For starters, Inter-Tel’s proxy solicitor, Alan Miller, and its CEO, Stout, had heard from several Inter-Tel stockholders that they favored a postponement. Some of these stockholders now owned more shares than they had at the May 25 record date, and could not vote those newly-bought shares on June 29. Some stockholders had positions that consisted entirely of shares bought after the record date. As the plaintiff notes, many of these investors were arbitrageurs and hedge funds. Miller detected sentiment in support of the Merger from many of them and a desire on their part for the vote to be had when they could participate. Because the Vector Capital overture had sent Inter-Tel’s stock price above $27, and because the price had subsequently dropped to the $24 range, Miller also believed that arbitrageurs would continue to buy shares if the meeting was postponed and a new, later record date was set. Because they could buy at a price below what Mitel was offering, they would have an incentive to see the Merger approved and lock in a gain.

But, in contrast to the plaintiff, I find that Inter-Tel also picked up on another kind of sentiment. The ISS “no” recommendation had started a high-stakes game of chicken. Mitel had not blinked. As June 29 approached, some Inter-Tel stockholders who were disinclined to favor the Merger when they believed a higher bid could be achieved began to get nervous. Millennium, one of Inter-Tel’s largest institutional stockholders, for example, was interested in a delay. ISS also indicated that its recommendation could change, but only if the vote were postponed and there was public information suggesting that the company’s financial circumstances had worsened in a manner that warranted reconsideration of its previous determina *796 tion. If a vote actually went forward on June 29 and the Inter-Tel stockholders acted on ISS’s recommendation, there was a growing sense that Mitel might just walk away, leaving Inter-Tel’s stockholders to enjoy the future benefits of their pro-rata share of the corporation’s value as a going concern.

Of course, the Mihaylo Recap Proposal was also in the air, in a way that the Special Committee believed had caused confusion. The Special Committee continued to believe that the Recap Proposal was not a sound or firmly financed one and that Mihaylo had premised it on an untenable use of the corporation’s projections. As the vote loomed, the Special Committee began to focus on the fact that Inter-Tel’s second quarter results would be available in early July, as the quarter would close on June 30. As things were trending, Inter-Tel’s internal tracking reports indicated that the company was likely to fall short of its expected earnings for the quarter, a second consecutive miss. Based on the same trends, Inter-Tel management believed it was also unlikely that Inter-Tel would achieve the projections in the remaining two quarters of FY 2007. Once that information became public, the Special Committee and its advisors thought it might be influential to ISS and stockholders, because it would suggest that there was no compelling reason for Mitel to increase its bid and that Mihaylo’s argument that he could use the company’s funds to buy up 60% of the shares at $28 and cause the remaining shares to trade at $30 was fallacious.

Similarly, on June 28, the Wall Street Journal published three articles prominently raising concerns whether the M & A market was going to lose its froth, due to tightening in the credit markets. Although the plaintiff lampoons this development, the record does indicate that the June 29 vote coincided with the period when players in the financial markets began to have a real appreciation — due to the termination and repricing of some big deals — that the favorable tide was reversing. The Special Committee and its advis-ors thought this factor, when taken together with Mitel’s failure to raise its bid and Inter-Tel’s performance, might be given weight by ISS and investors if they had additional time.

Two related considerations also came into play. It was not until June 27, two days before the scheduled meeting, that Mihaylo’s proxy materials were finalized. His final materials included some changes required by the SEC, including forcing him to caveat his prediction that Inter-Tel’s shares would trade at $30 after a $28 buyback. Thus, the Special Committee viewed it as appropriate to premise a delay in part on the need to allow the stockholders to consider its proxy rival’s final materials before making a final voting decision.

Less substantively, the Special Committee and its advisors picked up on some minor confusion caused by Mihaylo’s late-approved materials. Once Mihaylo’s materials became final, that had the effect of making the Mitel Merger vote a “contested election” in the system operated by Broad-view — formerly ADP — a crucial component in the voting system for corporate America. This changeover, so close to a scheduled vote, was highly unusual and created some confusion. Inter-Tel had heard that at least one large stockholder had difficulty giving a proxy as a result. In Mihaylo’s own materials, he had adverted to a possibility of a delay in the special meeting. This, along with the changeover and the widespread chatter among investors and the contending proxy solicitors, apparently caused ISS and some others to believe the meeting was being rescheduled.

*797 D.

As June 29 approached, the Special Committee knew with virtual certainty that the Merger would be defeated if the special meeting was held as scheduled. By June 25, Innisfree was already reporting that every large holder who had voted had opposed the Merger. On June 26, ISS’s West Coast rival Glass Lewis also recommended a no vote on the Merger.

The next day Innisfree reported that over 73% of the shares had been voted, and that 49.6% of Inter-Tel’s outstanding shares were already voted against the Merger. The vote was running even heavier against authorizing an adjournment in the event there were not enough votes to approve the Merger.

By this stage, the Special Committee was fatalistic. Stout viewed the Merger as “DOA,” but he and others on the Special Committee team continued to try to make the vote closer, in part because, as its Chairman Cappello noted, a close vote would “help later when [Mihaylo] goes to dump the board.” 15 It was at this stage that Innisfree received indications from ISS that it might reconsider its position if there was a postponement. 16 Innisfree also advised Stout and Cappello that “a short move in the record date would get the arbs fairly heavy in the stock.” 17

In the afternoon of June 28, Stout called a Special Committee for that evening to discuss whether to postpone the special meeting. That day Stout also sought Mi-tel and Francisco Partners’ support for a postponement. Francisco Partners did not warm to the idea at all. Mitel’s CEO appears to have supported the move, being hungry for the deal, but did not give any formal consent.

At a lengthy meeting, the Special Committee deliberated on whether to postpone the meeting. The meeting was clearly and thoroughly “advised,” shall we say, and the meeting minutes do not reflect the obvious reality driving the need for the meeting: the Merger was going down to defeat the next day. Instead, the minutes concentrate on the various factors outlined above that supposedly justified a postponement. 18 The Special Committee ultimately decided to sleep on it. They reconvened early the next morning and decided to reschedule the meeting. One member of the Special Committee dissented. He favored the Merger but was uncomfortable rescheduling the vote.

The Special Committee believed that the special meeting should be rescheduled so that the stockholders would have the benefit of the company’s second quarter results and more time to deliberate on the other factors outlined before rejecting the Merger. The Special Committee thought it was in the stockholders’ best interests for them to think about it more. Although the minutes do not put it this way, the Special Committee believed the stockholders were about to make a huge mistake.

In voting to reschedule, the Special Committee was aware that if the vote were held that day, the Merger would be soundly defeated. In fact, as of that time, it was clear that an absolute majority of the outstanding shares, almost 15.5 million shares, were going to vote against the Merger, and that only around 5 million shares favored the Merger. 19

*798 The Special Committee delayed the vote precisely so that it could have more time to convince the stockholders to support the Merger. In fact, Stout, the company’s CEO, has admitted that he would not have favored postponing the meeting if the stockholders were poised to approve the Merger. 20

The Special Committee announced the rescheduling via a press release, indicating that the “new date, time and location for the meeting will be announced early next week.” 21 The press release contained these lengthy statements from its Chairman Cappello:

After careful consideration, the Special Committee has decided to postpone the vote on the Mitel merger so that all Inter-Tel stockholders can evaluate recent developments when deciding how to vote their shares. We believe stockholders should have the opportunity to consider the significant recent changes in the debt capital markets adversely affecting the availability and cost of financing for acquisition or recapitalization transactions and the disclosure in Steven G. Mihaylo’s definitive proxy statement, which has only recently become available. In addition, given that the second quarter is concluding, the Special Committee believes that Inter-Tel stockholders should have the benefit of an update regarding the Company’s preliminary second quarter sales results, which the Company expects to announce at the end of next week.

We also believe it is vital that stockholders consider the letter we recently received from Mitel Networks Corporation informing us that Mitel cannot increase the purchase price in its merger agreement, and the reasons they stated for that decision. In addition, the Special Committee believes it is important to note that there have been significant changes in Inter-Tel’s stockholder base since the record date for the special meeting, and that no other bidder has made a proposal to acquire the Company. 22

As the plaintiff points out, the press release did not indicate that as of the time the Special Committee decided to postpone the meeting, a majority of the outstanding shares had (subject to the right to change their vote before the polls closed) registered opposition to the Merger, and had voted to oppose an adjournment. Nor does the press release note that the Special Committee had been advised by its proxy solicitors that a move in the record date would encourage arbitrageurs to buy more shares that could be voted at the rescheduled meeting.

But contrary to the plaintiffs arguments, the Special Committee’s failure to spell out the fact that the Merger would have faced certain defeat had the June 29 vote gone forward did not obscure that obvious reality, and it did not deceive any reasonable market participant. In announcements made after the postponement, Mihaylo did everything he could to impugn the Special Committee’s motivations for postponing the special meeting, accusing the Special Committee members of engaging in “delay tactics,” suggesting that if the directors had the vote they wouldn’t have postponed the meeting by calling the postponement a “desperate attempt ... to salvage [an] undervalued *799 buyout deal.” 23 Mihaylo “urge[d] stockholders who [had] already voted against the merger to remain resolute” in their opposition. 24 The plaintiff himself, an individual who holds only 100 shares of Inter-Tel, testified at his deposition: “It is my understanding that they didn’t have enough yes votes ... that’s why they can-celled it.... Basically, if they had enough yes votes, they would have gone forward with the meeting.” 25

On June 30, the full Inter-Tel board met and ratified the rescheduling of the meeting. The new meeting date was set for July 23, and a new record date of July 9 was adopted. The board also determined to hold an annual meeting on September 12 if the Merger was not approved.

As one might expect, Mihaylo and his nominees on the board opposed the ratification vote, with Mihaylo generally arguing that the rescheduling was an unfair attempt to get the Merger approved by, among other things, allowing “ ‘hot money’ into the stock.” 26 At the meeting, Mihaylo read an argumentative memorandum that contained this and a variety of other charges. Among them was to indicate that he had heard a rumor that company management had purposely encouraged a slow down in sales to influence the Merger vote. Neither at the meeting, nor in any other forum, has Mihaylo backed up that inflammatory charge of gross disloyalty with reliable evidence of any kind, for example, with a sworn affidavit.

At that meeting, Mihaylo also complained that he had not been given a chance to outbid Mitel and wanted 90 days to formulate a topping bid. Cappello, the Special Committee Chairman, retorted by accurately referring to the opportunity Mi-haylo had had to conduct due diligence for more than a year. To that point, the Chairman noted that Mihaylo had been permitted to have the respected firm of McKinsey & Co. receive due diligence about Inter-Tel, due diligence that it could use to help Mihaylo put together an alliance to make a fully-financed offer for all shares. Cappello also noted that the board had the contractual flexibility to accept a firm offer from Mihaylo that was higher than Mitel’s bid. Mihaylo was also asked to provide the Special Committee with a copy of his financing commitments for the Recap Proposal and guarantees regarding the price at which Inter-Tel shares would trade after a $28 buyback. Mihaylo gave only unsatisfactory, noncommittal responses to these requests.

E.

On July 2, Inter-Tel announced the date of the rescheduled meeting and the new record date. Because the record date was more than a week after the announcement, additional time was given to arbitrageurs as well as all other investors to buy Inter-Tel stock that could be voted at the meeting. After concerns were raised about whether the new meeting date of July 23 complied with the minimum notice requirements of § 251(c) of the DGCL, the meeting was moved to August 2.

During this period, Inter-Tel and Mi-haylo kept up their battle. On July 6, Inter-Tel announced preliminary results for the second quarter of FY 2007. It indicated that those results had fallen short of the projections contained in the Merger proxy statement and that “we also expect to be well below projected net sales for the second half of 2007 and the full *800 year 2007, based on the current sales trends and trajectory.” 27 The press release did not contain any revised projections, just that management expected not to meet the level previously estimated.

During the following weeks, Inter-Tel compiled information to buttress its case for the Merger, trying to show why the product and M & A market dynamics in July 2007 justified a different position regarding the advisability of a sale of the company than the board had taken in autumn 2006. On July 23, Inter-Tel issued a press release indicating revised projections for the third and fourth quarters of 2007 and that it expected total 2007 net sales of $448 to $459 million, which was 8% to 10% lower than the previous projected level of $498 million. The company also issued its final second quarter results, which were in line with the results announced on July 6.

As the plaintiff points out, Inter-Tel did not base its third and fourth quarter projections on any precise mathematical or scientific analysis of Inter-Tel’s sales prospects for the coming months. In response to discovery requests from the plaintiff, Inter-Tel essentially admitted that no written analysis reflecting revisions to Inter-Tel’s third and fourth quarter 2007 projections existed. But then again, the Special Committee did not lead stockholders to believe that the revised projections were based on a detailed study. Rather, they were simply management’s revised estimates of the company’s likely full year performance. The July 23 press release stated that “the Company’s actual first and second quarter 2007 results [and] the current sales trends and trajectory reflected in those first-half results.” 28 In terms of number of systems sold, sales for the first half of 2007 lagged sales from the same period in the previous year by more than 14%. 29

The revised third and fourth quarter projections released on July 23 did not reflect monumental changes to Inter-Tel’s previously expected performance, as the projected third and fourth quarter figures largely stem from the fact that the company was unable to achieve the optimistic growth that it had hoped for in the first half of the year, and on which the original third and fourth quarter numbers were, to an extent, premised. Historically, Inter-Tel’s combined third and fourth quarter sales were substantially similar to its first half sales. But in order to reach the originally projected figures, Inter-Tel needed an increase of 35% in the number of systems sold in the third quarter over second quarter sales. Inter-Tel had not recently experienced that kind of quarter-over-quarter growth, and its management believed no reason existed in July to support a reasonable expectation that that kind of extraordinary growth would be forthcoming.

Mihaylo took the position that the Special Committee was low-balling Inter-Tel’s prospects and that Inter-Tel was more valuable. Inter-Tel responded that interested buyers (including Mihaylo) had had plenty of chance to make a better bid, that there was no prospect Mitel was moving up its bid in view of the company’s performance and internal strife and the realities of the current debt markets.

The plaintiff claims that the battle wore down institutional investors. He also claims that the move in the record date enabled investors to alter their portfolios in ways that motivated a change in posi *801 tion. In particular, the plaintiff points to Millennium (a previous favorite of his), which had filed a 13D on June 14 opposing the Merger. On July 19, Millennium changed its mind and announced its intent to support the Merger for the following reasons:

Given the preannounced second quarter earnings short fall at the Issuer, as well as the deteriorating credit markets, [Millennium] believe[s] that the immediate and fixed consideration being offered in the [Mitel Merger] outweigh the risks associated with the implementation of the Mr. Mihaylo’s recapitalization plan. At this juncture, [Millennium] has concluded that on a risk adjusted basis, consummation of the transaction at the current price is the best outcome for our investors. 30

The plaintiff claims that Millennium’s position was motivated by its desire to reap short-term profits it made on shares bought in June, after the original record date. Notably, Millennium only owned 400,313 shares on the original record date of May 25, 2007, but had increased its ownership to double that amount on June 14, when it first opposed the Merger, having bought shares at a price below Mitel’s offer. On the revised reco