1
1 IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
2 IN RE J. CREW GROUP, INC. : SHAREHOLDERS LITIGATION : 3 : : 4 : Civil Action : No. 6043-CS 5 : : 6 :
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8 Chancery Courtroom No. 12A New Castle County Courthouse 9 Wilmington, Delaware Wednesday, December 14, 2011 10 10:10 a.m.
11 BEFORE: HON. LEO E. STRINE, JR., Chancellor. 12
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14 SETTLEMENT HEARING 15
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22 ------CHANCERY COURT REPORTERS 23 500 North King Street - Suite 11400 Wilmington, Delaware 19801-3759 24 (302) 255-0525
CHANCERY COURT REPORTERS 2
1 APPEARANCES:
2 STUART M. GRANT, ESQ. Grant & Eisenhofer, P.A. 3 -and- PAMELA S. TIKELLIS, ESQ. 4 Chimicles & Tikellis LLP -and- 5 MARK LEBOVITCH, ESQ. of the New York Bar 6 Bernstein Litowitz Berger & Grossmann LLP -and- 7 CARMELLA P. KEENER, ESQ. Rosenthal, Monhait & Goddess, P.A. 8 -and- CHRISTINE S. AZAR, ESQ. 9 Labaton Sucharow LLP -and- 10 IRA SCHOCHET, ESQ. of the New York Bar 11 Labaton Sucharow LLP For Plaintiffs 12 A. THOMAS BAYLISS, ESQ. 13 Abrams & Bayliss LLP -and- 14 RANDALL W. BODNER, ESQ. RODMAN FORTER, ESQ. 15 of the New York Bar Ropes & Gray LLP 16 -and- SARAH LIGHTDALE, ESQ. 17 of the New York Bar Latham & Watkins LLP 18 For Defendants TPG Capital, L.P., James Coulter, Chinos Holdings, Inc., and 19 Chinos Acquisition Corporation
20 WILLIAM M. LAFFERTY, ESQ. Morris, Nichols, Arsht & Tunnell LLP 21 -and- SAMEER AVANDI, ESQ. 22 of the New York Bar Willkie Farr & Gallagher LLP 23 For Defendant Millard Drexlar
24 Appearances (Cont'd)
CHANCERY COURT REPORTERS 3
1 APPEARANCES: (Cont'd)
2 LISA A. SCHMIDT, ESQ. RICHARDS, LAYTON & FINGER, P.A. 3 For Defendants Mary Ann Casati, David House, Stephen Squeri and 4 Josh Weston
5 MATTHEW FISCHER, ESQ. Potter Anderson & Corroon LLP 6 -and- LAUREN K. HANDELSMAN, ESQ. 7 of the New York Bar Cleary Gottlieb Steen & Hamilton 8 For Defendants J. Crew Group, Inc., Heather Reisman Stuart Sloan, Steven 9 Grand-Jean and James Scully
10 ALSO PRESENT:
11 HOWARD T. LONGMAN, ESQ. of the New York Bar 12 Stull, Stull & Brody For the Objector 13 MARK VOGEL 14 - - -
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CHANCERY COURT REPORTERS 4
1 MR. BAYLISS: Your Honor, just a brief
2 introduction. Tom Baylis on behalf of J. Crew Inc.,
3 TPG Capital, Leonard Green & Partners, James Coulter
4 and Chinos Holdings. With me today is Mr. Randy
5 Bodner, Mr. Rod Forter, and Miss Sarah Lightdale. And
6 Mr. Bodner will be making the argument on behalf of
7 the buyout group.
8 MR. GRANT: Good morning, Your Honor.
9 THE COURT: Good morning, Mr. Grant.
10 MR. GRANT: This is the time the Court
11 has set for the fairness hearing for the J. Crew
12 shareholder litigation. As Your Honor knows, there is
13 one objector. And as Your Honor knows, from the
14 letter I sent in late yesterday, although we will
15 argue about a fee later, it will be uncontested and
16 that we managed to reach agreement on it.
17 So let me focus on --
18 THE COURT: Is the objector here?
19 MR. GRANT: The objector is here.
20 THE COURT: You may sit down.
21 Mr. Grant and Mr. Bodner, what is your position? Is
22 the objector the stockholder?
23 MR. GRANT: Maybe we should let the
24 objector come up to the podium.
CHANCERY COURT REPORTERS 5
1 THE COURT: What is your
2 understanding? Honestly, I thought the stockholder
3 was someone else.
4 MR. GRANT: The stockholder, I
5 understand, is his father. I understand that he has a
6 power of attorney. I also understand that the power
7 of attorney may not be valid in New Jersey because it
8 is not authorized or witnessed by the appropriate
9 person.
10 THE COURT: Do we allow -- did anyone,
11 you or Mr. -- your colleagues on the defense side --
12 focus on -- I mean, honestly, you don't know that we
13 allow people to litigate cases, frankly, with power of
14 attorneys on behalf of other people. You are usually
15 supposed to get counsel. The power of attorneys,
16 frankly -- who has been acting as the plaintiff?
17 MR. GRANT: Well --
18 THE COURT: I understand there are
19 other plaintiffs. With respect to the Vogel shares --
20 MR. GRANT: Mark Vogel, son of the
21 stockholder, has articulated his views and has been
22 the one who has been active. Martin Vogel, the actual
23 stockholder, whose father has not been involved in
24 this at all --
CHANCERY COURT REPORTERS 6
1 THE COURT: How did he get to be one
2 of the named plaintiffs?
3 MR. GRANT: Well, Martin Vogel got to
4 become -- how he got to become, I must say, I don't
5 know.
6 THE COURT: Whose client is he?
7 MR. GRANT: Mr. Longman of Stull,
8 Stull & Brody.
9 THE COURT: Tell me about this,
10 Mr. Longman. I don't think it's good practice.
11 MR. LONGMAN: I'm sorry, Your Honor?
12 THE COURT: Do you not get the point?
13 Is it oblique why it wouldn't be good practice to have
14 someone be a named plaintiff who is, in fact, not
15 acting as the named plaintiff?
16 MR. LONGMAN: Well, Mr. Mark Vogel is
17 not the named plaintiff. His father, Martin Vogel --
18 THE COURT: Then why the heck -- why
19 is somebody who is not the named plaintiff
20 participating in discussions -- if the person needs a
21 power of attorney in the sense that -- this is a court
22 of equity, just in case Mr. Vogel is not aware of
23 that. This is a court of equity. We deal with
24 guardianships over the person and property all the
CHANCERY COURT REPORTERS 7
1 time over vulnerable people. The reason why someone
2 gets a guardianship over their person and property is
3 usually because they're not capable of dealing with
4 their own affairs.
5 Families do these odd power --
6 sometimes they're useful. They need to be very
7 limited. Frankly, if they're a general power of
8 attorney, it has none of the safeguards that come with
9 the guardianship process and the ability of everybody
10 to be heard. But named plaintiff here has somebody
11 acting for him as power of attorney. What's that
12 about?
13 MR. LONGMAN: Mr. Vogel, who is also a
14 lawyer -- and this is his father who is the named
15 plaintiff -- informed me that he had general power of
16 attorney, which apparently he does.
17 THE COURT: Informed you. Did you
18 look at the general power of attorney?
19 MR. LONGMAN: I asked him for it a few
20 times subsequently.
21 THE COURT: Have you ever gotten it?
22 MR. LONGMAN: It's in his papers now.
23 I did get it. Yes, Your Honor.
24 THE COURT: What's a general power of
CHANCERY COURT REPORTERS 8
1 attorney in New Jersey mean? You can do anything?
2 MR. LONGMAN: I believe that gives him
3 the right to act, to execute legal documents, to bring
4 lawsuits, to buy stock.
5 THE COURT: Never again in this court
6 do this. If that person is going to be making the
7 decision, then you better name him. You're purporting
8 to act on behalf of absent others. And the only way
9 that I knew about this power of attorney is because
10 Mr. Vogel's son showed up making an objection. If you
11 want to name him as Blank, subject to power of
12 attorney of his son, you're -- this person was
13 supposed to be an adequate class representative? I am
14 never, ever likely to certify someone as a class
15 representative who has given a general power of
16 attorney to someone else.
17 MR. LONGMAN: I understand, Your
18 Honor.
19 THE COURT: Do you think that that's
20 bad logic?
21 MR. LONGMAN: Your Honor, at the time
22 my thinking was this was his father. I did meet his
23 father.
24 THE COURT: You are in a fiduciary
CHANCERY COURT REPORTERS 9
1 position. Do you understand that, Mr. Longman?
2 MR. LONGMAN: Yes, Your Honor.
3 THE COURT: And the check on you is
4 supposed to be your client. And the person you name
5 is so out of touch with his own affairs, are incapable
6 of handling them, that he's given someone else a
7 general power of attorney. How would I have ever
8 known this, absent the objection?
9 MR. LONGMAN: Well, Your Honor, I
10 believe that Mr. Vogel, the son, was consulting with
11 his father.
12 THE COURT: How would I have known it,
13 had I certified him as a class representative?
14 MR. LONGMAN: Because it says on his
15 certification, when he filed the complaint. It says
16 Martin Vogel -- Mark Vogel, by power of attorney for
17 Martin Vogel. It says that on the certification.
18 There was no attempt to --
19 THE COURT: Don't do that in my court
20 again, unless you want to provide a full brief from a
21 trust and estates lawyer. Unless you want to plead in
22 everybody, it doesn't make any sense. And it also is,
23 you're having somebody who is not dealing with his own
24 shares, provides no credibility or accountability, and
CHANCERY COURT REPORTERS 10
1 it's a bizarre situation. I'll allow this just in the
2 interest of time. But I don't believe it's proper.
3 MR. LONGMAN: If it's improper, Your
4 Honor, I apologize.
5 THE COURT: As a person who sits in a
6 court of equity, the idea that a guardianship over
7 someone -- someone who is a guardian over someone
8 else's property and what they're going to do is engage
9 in litigation -- class litigation -- that's a very odd
10 fiduciary act, which would raise all kinds of eyebrows
11 on behalf of an ordinarily prudent trustee. If it's a
12 family business, that's different. And the family
13 business can be a partnership -- Vogel and Vogel. But
14 I'm very sensitive to the credibility of the
15 representative litigation process. We all have an
16 interest in it.
17 And when we have things like this,
18 honestly, it's what makes a lot of people raise
19 eyebrows in society and wonder whose bread is really
20 being buttered by this. And we have layers of people
21 who, instead of being real plaintiffs themselves --
22 they're what? --advisors to plaintiffs?
23 Look, I have sons. I love them. I
24 have a dad. I love him. It doesn't mean I can go run
CHANCERY COURT REPORTERS 11
1 around and do things for my dad all I want and do
2 things for my sons. Could my sons be class
3 representatives -- my minor sons? What do you think,
4 Mr. Longman?
5 MR. LONGMAN: I don't think your minor
6 sons would be representatives.
7 THE COURT: Why? Why?
8 MR. LONGMAN: In this case, Your
9 Honor, my thinking was --
10 THE COURT: Theoretically, why
11 couldn't they? Which is, if a disabled adult, who is
12 incapable of making his own decisions, can have his
13 son file lawsuits as his attorney in fact, or
14 whatever -- I always thought that term, "an attorney
15 in fact" -- is there an attorney in fiction? I
16 actually think it's closer to an attorney in fiction
17 when you call yourself an attorney in fact. By parity
18 of reason, someone who is incapable of making
19 decisions, it doesn't matter whether they're incapable
20 because my son James is 13, or my son Ben is ten. If
21 somebody's incapable when they're 70, why couldn't
22 they have a lawsuit filed in their name, because it
23 would violate the age of discrimination acts if you
24 couldn't? I don't think that that's what age of
CHANCERY COURT REPORTERS 12
1 discrimination acts is. By parity of reason, they're
2 disabled. And to name them as a fiduciary then
3 invites an inquiry into who is acting on their behalf.
4 I'm not saying it should never happen, but I'm saying
5 it should be extraordinarily rare.
6 It's not clear to me why the person
7 gets to come again and act for someone else. We have
8 to have a separate inquiry. I don't know whether I'm
9 actually allowed to let Mr. Vogel object. I think
10 there's a fairly nonfrivolous argument that he should
11 have engaged Delaware counsel on behalf of his father.
12 I don't know whether this general power of attorney
13 stands up in Delaware. But I appreciate the candor.
14 I think, let's be careful and follow
15 regular order in the future. It's important that
16 named representatives be capable and effective and
17 there not be questions about them. And this raises
18 them.
19 MR. LONGMAN: Your Honor, I will not
20 do that.
21 THE COURT: Thank you.
22 MR. GRANT: Unfortunately, when
23 plaintiffs' counsel organized at the beginning, not
24 all of this was readily apparent to all plaintiffs'
CHANCERY COURT REPORTERS 13
1 counsel. And I only say that because, through the
2 settlement process, I now kind of have a somewhat
3 awkward situation in that we have someone who has very
4 strong views -- the individual who is representing
5 another individual -- that differs dramatically from
6 the five institutions who are investment professionals
7 and/or counsel for -- general counsel for those
8 investment funds. But I do want to -- and I want to
9 treat Mr. Vogel with the utmost of respect, so I'm not
10 going to take on some of the accusations or some of
11 the he-said-she-said things.
12 THE COURT: I understand it's a
13 delicate situation.
14 MR. GRANT: And also, because there
15 are things that were said in meetings with clients
16 that I think are inherently privileged -- and one of
17 the things that we told Mr. Vogel was he has a right
18 to make an objection -- but that privilege is not just
19 his. It's shared with five others. And that one
20 needs to be careful what one says.
21 But I do want to take the merits of
22 his objection on. Even if it's not properly brought,
23 I want the Court to feel comfortable, if and when the
24 Court approves this, that we've really thought about
CHANCERY COURT REPORTERS 14
1 all of the issues.
2 So the first one -- it's not really
3 an objection but it's kind of implied that somehow
4 this is a club and it's everyone's benefit to just
5 settle things up. Because I have large institutional
6 clients and they come into these things and they want
7 to see a deal closed, that somehow that's -- the Court
8 should look with real suspicion on the settlement.
9 To say that this was one of the most
10 hard-fought, acrimonious,
11 counsel-taking-things-very-personally-on-all-sides
12 fight that I've been involved in --
13 THE COURT: Where is Miss Goldstein?
14 MR. BODNER: Couldn't talk her into
15 coming, Your Honor.
16 THE COURT: It's not the same without
17 her. I thought she would want to be here today.
18 MR. GRANT: Do you recall when the
19 President had his little beer summit to resolve those?
20 We actually had to summit like that to resolve my
21 differences.
22 THE COURT: It didn't work out?
23 MR. GRANT: It did not work out nearly
24 as well as the President's summit did. To say that
CHANCERY COURT REPORTERS 15
1 this could anyway be collusive or not hard fought
2 really is, you know, beyond the pale of
3 reasonableness.
4 So we know that this isn't a collusive
5 deal. Now we have to talk about the merits. To talk
6 about that, the only objection that came in is
7 Mr. Vogel, or Mark Vogel's. And his real belief is,
8 he believes that J. Crew was worth $12 billion, that
9 it only sold for 3 billion, and hence there is a
10 9 billion-dollar shortfall. And we settled for, among
11 other things, 16 million in cash. And 16 million was
12 not sufficient to bridge that 9 million-dollar gap.
13 To begin with, see what we can agree
14 upon. I agree, if there is a 9 billion-dollar gap,
15 that 16 million isn't sufficient to bridge it. I
16 think the defendants would probably agree with that
17 also. Of course, the problem is the axiom that
18 J. Crew is worth $12 billion. And for that he cites
19 to Graham & Dodd and quoted to us at length
20 Benjamin Graham. And you know, Benjamin Graham has
21 certainly made a big comeback, particularly with
22 Warren Buffett. But, first of all, you know,
23 Benjamin Graham is not the end-all to valuation
24 discussions; and, secondly, I don't know that
CHANCERY COURT REPORTERS 16
1 Mr. Vogel is an expert on applying Benjamin Graham's
2 theories to companies today. We did have experts do
3 that. And the experts' valuation was far, far closer
4 to $3 billion than $12 billion. J. Crew had experts
5 value them. While I have some issues with their
6 experts, they came up with $3 billion. Much closer to
7 12 billion.
8 But if Mr. Vogel is right, or was
9 right, and $12 billion was truly the value of J. Crew,
10 then actually he should have been a huge supporter of
11 this settlement because, clearly, if there was this
12 9 billion-dollar gap between price and value, then
13 what you would really expect is that there would be
14 flocks of buyers coming in, but for the fact that
15 there were structural impediments put in their way.
16 But what did the settlement do? It
17 extended the go-shop period by 31 days so these folks
18 could come on in. It eliminated TBC's contractual
19 information rights. It reduced the termination fee to
20 only $20 million. It eliminated TBC's match rights if
21 the superior proposal was $45.50 or more. And it also
22 provided $3 million in reimbursement expenses if a
23 superior proposal was between $44 and 45.49.
24 So we put cash on the table to say,
CHANCERY COURT REPORTERS 17
1 "Come on in. Take a look. Make a superior bid. You
2 don't have to be worried if you got outbid. Your
3 expenses will be covered." We said, "Don't worry
4 about it. They won't get, you know, kind of matching
5 rights if you bid more than two bucks a share above
6 where they are." We improved the terms of the
7 confidentiality agreement so that they -- any
8 perspective bidder would get all of the information
9 that TPG had gotten.
10 We had -- you know, the key to this
11 company was Mickey Drexler. Mickey started off by
12 saying, "I don't want to work for anyone else." Well,
13 one of the key things we did, we forced Mickey to sign
14 an agreement which said, "I will work on the same
15 terms for anyone else who wants to, you know, give me
16 those terms; and, if I don't, I am precluded from
17 working in the industry for two years." So we put
18 some real incentive that Mickey would work for whoever
19 put up the most dollars.
20 So you would think, with removing
21 almost all -- I wouldn't say removed every impediment,
22 but we sure removed the lion's share of those
23 impediments -- that it would be easy for someone to
24 walk in and say, "I'm on even footing. I just have to
CHANCERY COURT REPORTERS 18
1 have a topping bid. And really all I'm paying is
2 $20 million in a termination fee on a 3 billion-dollar
3 deal." It doesn't seem to be too much, both in
4 percentage, which is about .67 percent, and it doesn't
5 seem to be much in absolute dollars to preclude
6 someone from coming in. So you would think, if there
7 was $9 billion in value, that $20 million isn't a bad
8 investment to go in there and try to do something.
9 THE COURT: And you probably could
10 have offered Mr. Drexler a very nice compensation
11 package with that kind of delta.
12 MR. GRANT: Yes, you could have.
13 That's for sure. You would think this would be a
14 great settlement, if you truly believed there was that
15 much value.
16 THE COURT: I hear there's going to be
17 a wasp clothing resurgence. It's just all going to
18 come back.
19 MR. GRANT: You know --
20 THE COURT: Although I have to say,
21 one of the funniest things to me, for those of you who
22 are locals, is to now see Two Fat Guys right next to
23 Talbots. It's not necessarily the juxtaposition that
24 Talbots wants. The fat husband drops the wife off to
CHANCERY COURT REPORTERS 19
1 shop and then go get some ginormous burger, if she
2 buys very traditional wasp clothing and dreams of one
3 of the younger J. Crew models.
4 MR. GRANT: Then the question is: what
5 evidence is there that this is really worth the kind
6 of money that Mr. Vogel claims it's worth, for the
7 Court to really say I shouldn't accept the settlement?
8 The answer is: I think there is no evidence.
9 First of all, as I said, you have two
10 experts who may disagree but come to somewhere near
11 the same number. You know, ours says, "Gee, it's
12 just, you know, maybe slightly above, slightly below,
13 depending on how you look at the various numbers. The
14 deal price about fairness thinks, you know, you could
15 have gotten a few bucks more. But you were at least
16 in the neighborhood."
17 The defendants say, "No. We're really
18 in the mid to upper range of it. We really couldn't
19 get a couple bucks more."
20 You know, am I thrilled with the
21 process? No. Do I think that, you know, we went to
22 battle and came up with a fair compromise? Yes.
23 So what's -- other than actually what
24 the market did and what the experts say about it,
CHANCERY COURT REPORTERS 20
1 what's offered in return, and that's basically
2 Mr. Vogel, who I guess is by training a lawyer, and
3 claims to be a money manager of $12 million, but
4 doesn't necessarily have any academic credentials, or
5 accepted as an expert in court to say this is really
6 worth $12 billion. And so I think that part of the
7 objection has to be rejected.
8 The latter part of the objection is,
9 you know, I wasn't fully kept in the loop and I really
10 didn't have a say. And we've tried to put in some of
11 the factual corrections. I think there Vogel had well
12 more of a say -- or lets put it this way. He was
13 heard well more than anyone else. Now, he wasn't
14 listened to. And there's a difference between being
15 able to have your say, having people hear you, and
16 then thinking and therefore they should follow what I
17 say.
18 One of the things I made clear
19 personally to Mr. Vogel was, "Well, you can have
20 input. You do not get a veto right." And we had a
21 very long conversation before reaching the settlement
22 that's being presented to Your Honor with all of the
23 parties on about an hour and a half conference call.
24 And I have to chuckle a little bit because Mr. Vogel
CHANCERY COURT REPORTERS 21
1 pooh-poohs that call because he said, "Gee, for some
2 of these funds it was their lawyer on the phone and
3 not their investment person." But of course, the
4 standing that Mr. Vogel -- here's the irony -- the
5 standing that Mr. Vogel has is as the attorney in
6 fact, not as the investment advisor. So you know the
7 old story about throwing stones in glass houses. So
8 Mr. Vogel was the attorney in fact for the person who
9 actually owned the shares.
10 The other five lead plaintiffs,
11 Operating Engineers, Orlando Police, SEPTA,
12 Orlando Fire and New Orleans, and a few of them had
13 multiple people on -- either investment people or
14 their legal counsel on the phone -- and they all
15 understood it. They had asked questions. They not
16 only were involved in the individual group discussion
17 but were also involved in individual discussions with
18 each of their counsel, all of whom are sitting here
19 today. I know that Mr. Longman spoke to Mr. Vogel at
20 length, also.
21 Now, they had a difference in view.
22 And whether that's because of the institutional
23 investors versus the individual investors, or just
24 because of Mr. Vogel's true belief that this was worth
CHANCERY COURT REPORTERS 22
1 $12 billion, and everyone else's true belief that
2 nothing could really sell in the market for 3 billion
3 that's really worth 12 billion, I really don't know.
4 But five wanted to settle and one did not. I
5 shouldn't even say that because, actually following
6 that call, all six said that they would settle and
7 there was an agreement to do that.
8 Once we had that agreement, you know,
9 we reached out to defense counsel and said, "Yeah. We
10 can move forward with this." And we started
11 documenting that agreement. At some time later,
12 before we signed the final documents, but when they
13 were well into being drafted, Mr. Vogel had a change
14 of heart and said, "I'm feeling bad about having given
15 my okay," and started to back off.
16 THE COURT: Well, he may have also --
17 sometimes it's also difficult in a group dynamic when
18 you're the only one voicing a viewpoint.
19 MR. GRANT: That's true. And there is
20 that, you know, human dynamic. I agree. But given
21 the situation here, where we had one settlement that
22 fell apart, the idea that I got six clients to say
23 "Yes, we want to settle," and turned to Mr. Bodner and
24 some of the others and saying, "Yeah, we're on board,
CHANCERY COURT REPORTERS 23
1 let's start drafting papers," the idea that five days
2 later I'm going to come back to them and say, "Just
3 kidding, I'm not going to do this settlement, given
4 that scenario," that wasn't acceptable. So it was
5 explained to Mr. Vogel he could be part of the
6 drafting process. That to satisfy himself he could
7 attend the confirmatory depositions, he could review
8 any and all the documents he wanted to. Defense
9 counsel agreed to that. They said, "Yes, he can show
10 up. We have no problem. We would like him to sign
11 the confidentiality agreement. But he can show up and
12 be there." And so they didn't stand in the way.
13 So he was given all these
14 opportunities and he turned them all down. Although
15 he did send some questions that he wanted the
16 questioner to ask, and those questions were, in fact,
17 asked. They were asked in a professional manner. But
18 Mr. Vogel was unhappy about that and was very critical
19 of Mr. Schochet's deposition techniques. And while I
20 disagree with him -- we all like to use that now to
21 tease Ira about his deposition techniques and will
22 continue to do so for the foreseeable future. But the
23 material was covered. The transcript was sent to
24 Mr. Vogel so he could read it and see it. So he was
CHANCERY COURT REPORTERS 24
1 kept informed.
2 What he didn't get, which is what he
3 wanted, was a veto. You just, with six lead
4 plaintiffs, one lead plaintiff does not get a veto,
5 with one footnote. If there was one lead plaintiff
6 that had a million shares and the other four or five
7 had hundreds or thousands, or 10,000, maybe that lead
8 plaintiff might get a veto. Even then there's a
9 question: if class counsel thought that that plaintiff
10 was really going to harm the class by exercising that
11 veto and everyone else felt that way, would it get a
12 veto? That's not the situation. We had comparable
13 shares to the other folks within the same range. He
14 does not get a veto.
15 So that, I think, once you take out
16 the ad hominem attacks and other mischaracterizations,
17 really deals with the objection. I don't know if Your
18 Honor wants to focus on that and let the defendants
19 speak to that point, and let Mr. Vogel, or whether you
20 want me to go through the whole thing and discuss --
21 THE COURT: Do you want -- it may make
22 sense to hear Mr. Vogel and then you guys can respond
23 to him.
24 MR. GRANT: Okay.
CHANCERY COURT REPORTERS 25
1 THE COURT: Welcome, Mr. Vogel.
2 MR. MARK VOGEL: Your Honor, just on a
3 couple procedural matters. I did not have -- since
4 it's become a point, I did not have a general power of
5 attorney. I managed my father's money for probably
6 the last 15 years. He's had no involvement. He's not
7 incompetent. He's 85, but still drives and stuff.
8 But the power of attorney that I presented to the
9 Court is specific for the J. Crew litigation. And if
10 I had known that I should have gotten a Delaware
11 lawyer -- if somebody told me -- I would have gotten a
12 Delaware lawyer.
13 THE COURT: I'm not sure that that
14 sort of thing might allow to you deal with
15 investments. But I don't believe it allows you to be
16 an actual litigating attorney on behalf of people.
17 I also would say, I don't -- it's a
18 very -- you know, I'm going to hear you out today, but
19 I am dubious about this idea of layering conflicts in
20 the representation area when there's enough concern
21 about people who directly own shares.
22 MR. MARK VOGEL: Just so Your Honor
23 understands, I have a power of attorney over my
24 father's stocks in the Charles Schwab account, which
CHANCERY COURT REPORTERS 26
1 is a separate power of attorney, and then I've had
2 that for a number of years.
3 Then I also have this power of
4 attorney, which is made up for this litigation. I've
5 also done previous litigations with Mr. Longman, which
6 I know is of no concern to the Court. But it
7 specifically just says --
8 THE COURT: It kind of is, but --
9 MR. MARK VOGEL: And one other thing I
10 wanted to raise was the scheduling order called for
11 60-days' notice to shareholders. And it wasn't -- I'm
12 trying to find where I have it. But my copy is dated
13 on October 18th, and today is December 14th. And it
14 wasn't actually delivered to me -- it wasn't actually
15 delivered to me until November 10th. So I just wonder
16 how much opportunity the rest of the class has had to
17 respond.
18 Should I present the Court with my
19 scheduling order that I received?
20 THE COURT: No. I'm familiar with the
21 scheduling order.
22 MR. MARK VOGEL: Not the scheduling
23 order but the notice to shareholders.
24 THE COURT: You received it when?
CHANCERY COURT REPORTERS 27
1 MR. MARK VOGEL: I received it --
2 whatever I said in my paper -- I believe by
3 November 10th. It was a Saturday.
4 THE COURT: And when do you contend it
5 was mailed?
6 MR. MARK VOGEL: It was mailed
7 first-class mail. So I would imagine it was mailed
8 from Wisconsin to New Jersey. I imagine it was mailed
9 the seventh or eighth of November. Since I have other
10 clients, I got a number of copies that exact same day.
11 THE COURT: What do you mean you have
12 other clients?
13 MR. MARK VOGEL: I manage money for an
14 assortment of people, and some of them use my mailing
15 address to have --
16 THE COURT: Are you a registered
17 investment --
18 MR. MARK VOGEL: Yes, I am, Your
19 Honor. So I do have the notice to shareholders that's
20 dated October 18th. I know there's a previous one
21 that -- a draft copy that was dated October 3rd.
22 Obviously, if it was dated October 18th, there's no
23 way that it could have been done in time for 60 days'
24 notice.
CHANCERY COURT REPORTERS 28
1 I take it Your Honor does not want a
2 copy of that?
3 THE COURT: You can share with the
4 defendants. I'll take your word for it that that's
5 when you received it. They're going to have to
6 comment on when they mailed it.
7 MR. MARK VOGEL: Okay. I'm objecting
8 to the pro settlement because it confers no benefit on
9 the class. The go-shop extension currently cited by
10 plaintiffs' attorney as a reason for the settlement
11 has previously, in no uncertain terms, been dismissed
12 as worthless by no us in authority than plaintiffs'
13 attorneys. They took this stand initially in a letter
14 to the Court dated January 31st of this year, where
15 they announced that the bargained-for benefits to the
16 class had been fatally undermined by defendants'
17 actions.
18 As Mr. Grant stated at a case
19 management conference a couple weeks later, the
20 go-shop extension had been rendered a joke -- I
21 believe it's on page 49 -- by defendants' subsequent
22 actions. The only other benefit, the 16 million
23 payment to the class, is de minimis, in that it is one
24 half of 1 percent of the purchase price -- of the
CHANCERY COURT REPORTERS 29
1 merger price. If the go-shop is a joke, what would
2 one call the 16 million?
3 Also, while it may not be a concern to
4 this Court, this settlement in no way serves as a
5 deterrent to the lawless behavior documented by the
6 proxy statement, the complaint, and pointless briefs
7 currently before the Court as to defendants' actions.
8 The manner in which this case has been
9 prosecuted by lead attorneys is -- in many ways
10 explains the failure of the proposed settlement to
11 confer any benefits on the class. While I am aware
12 that the Court thinks very highly of plaintiffs'
13 attorneys, and I agree that in many respects they are
14 excellent lawyers, they are not entitled to direct the
15 class, the action, and, in so doing, it is my position
16 they have been violative of the rights and interests
17 of the class.
18 It is the class that does and should
19 have the right to direct the litigation. In this
20 case, however, every decision, big or small, was made
21 by the two main lawyers, perhaps sometimes with input
22 from what my lawyer called the junior leads. Their
23 clients were plaintiffs --
24 THE COURT: What your lawyer called
CHANCERY COURT REPORTERS 30
1 the what?
2 MR. MARK VOGEL: Junior leads. There
3 are clients where plaintiffs in name only. Far from
4 directing litigation, as acknowledged in their own
5 affidavits, their involvement was only as much as
6 occasionally receiving reports from their counsel.
7 Four of the five could not even be bothered to vote
8 against the merger. One of them even voted for the
9 merger.
10 In any class action there are always
11 going to be class members who are either indifferent
12 to or against the desires of the class as a whole.
13 Nevertheless, the class has a right to be represented
14 by members who take a personal informed concern with
15 the litigation and do not allow the litigation to
16 proceed rudderless.
17 My own experience as colead plaintiff
18 has been this. I have been told about decisions made
19 by counsel only after the fact. As stated in my
20 papers, I learned about the initial MOU three days
21 after it was assigned and agreed to. I had at that
22 time never, ever been in communication with lead
23 counsel -- any of lead counsel, directly or
24 indirectly. I acquiesced to their determination to
CHANCERY COURT REPORTERS 31
1 not make known the fact that I was never notified,
2 much less was wholly against the deal, because I was
3 led to believe that it was a one-time error on their
4 part and it was better for the class that I acted in
5 concert with the attorneys rather than against them.
6 However, the behavior of the leads, as good attorneys
7 as they are, proved serial. I was confined to my own
8 silo, allowed only to talk directly with my own
9 attorney, who is not a lead but had promised me at the
10 outset that I would have a seat at the negotiating
11 table.
12 I was told about this current
13 settlement -- proposed settlement -- only after the
14 decision had been made by attorneys to essentially
15 settle a named price, as shown in e-mails that they
16 were going to do it with me or without me. I believe
17 the word that I used there was steamrolled. And there
18 was no objection. That was a process. And contrary
19 to what Mr. Grant said, there was no point where it
20 was 6-0. They had already gone ahead. It was already
21 done. And then it was introduced to me, "Why don't
22 you be part of discovery and stuff?" At that point,
23 like the Court said, I wanted to go on as much as I
24 could.
CHANCERY COURT REPORTERS 32
1 I asked -- since everything I heard
2 was coming from attorneys, I asked to talk to other
3 plaintiffs, such as boards -- just as members on a
4 board of directors talk to each other and not through
5 attorneys. But just talk to the other plaintiffs and
6 see if this is really where they're at.
7 Plaintiffs arranged for a call but
8 there was no plaintiffs. Only their corporate counsel
9 made the time. And I would say, one of my first
10 questions was, "Does anybody know what the valuation
11 of this business was?" And the answer generally was,
12 "No." Somebody said, "You know, I do some investing
13 for myself." So I make the distinction: while we're
14 all acting as attorneys in fact for somebody else,
15 there was a different level of knowledge. I am in
16 this business. It's not quite the same. I mean, like
17 I said, there should be plaintiffs -- just like in
18 proper corporate governance --
19 THE COURT: So your full-time business
20 is investment, not being a lawyer?
21 MR. MARK VOGEL: No. It's 50-50, Your
22 Honor. I practice matrimonial law and I practice
23 investments. I'm a long-term holder of security. So
24 basically for my clients I invest and I have a
CHANCERY COURT REPORTERS 33
1 turnover of about once every five or six years. So I
2 do spend a lot of time on it. There's room for
3 something else. I enjoy practicing law.
4 Counsel makes the undocumented claim
5 that three people from the New Orleans fund were on
6 the call. If they were, they never announced
7 themselves. Also, it makes no sense that they would
8 make time for this call when the same individuals
9 voted for the merger.
10 Perhaps most galling of all, I nor
11 every member of the class was allowed a role in the
12 preparation of evaluation that could have shown
13 counsel and the Court the value of that which was
14 taken from shareholders. When I first discussed my
15 back-of-the-envelope valuation, I was ignored by
16 counsel. When I was told in July, August that the
17 decision had been made to settle, I again requested to
18 Mr. Grant to discuss the valuation with lead
19 attorneys. Mr. Grant told me that there had been no
20 valuation prepared, but they had talked to somebody
21 who had said that his calculation was too low to be of
22 value.
23 I was amazed that -- both -- that the
24 attorneys would seek an evaluation without the input
CHANCERY COURT REPORTERS 34
1 of the class, and that they were essentially too
2 uninformed about specifics to talk to me about it,
3 because I think at the least the class has a right to
4 examine that appraisal, just as I think on the other
5 side the defendants had -- did and probably had --
6 every right to look at their appraisals.
7 At a loss of how to proceed, it was
8 agreed between lead counsel, Mr. Grant and I, that I
9 would be allowed to contact the expert to find out how
10 he got his numbers. After a number of days of
11 e-mails, I was finally advised that it was Mr. Grant's
12 decision to make me pay $4000 to let me talk to the
13 valuation person. I was incredulous. And that was
14 before I realized how much they stood to make on the
15 deal. Moreover, I was and remain of the opinion that
16 the valuation expert should be chosen by the class and
17 should be by somebody -- and should be done by
18 somebody who has real world experience of what buyers
19 will pay for security, not necessarily a go-shop where
20 you have a month to go sell your house or something.
21 This is Christmas season. I know
22 there's a recession. But somebody who has real world
23 experience of what somebody will pay for it in various
24 junctures in the market, as opposed to what they got,
CHANCERY COURT REPORTERS 35
1 which was an academic MBA modeler consultant who tells
2 you how much is never proven and marginalized by the
3 day theories, tell you that the security should
4 theoretically be worth.
5 Most egregious of all is that
6 apparently, at some point after the settlement,
7 plaintiffs' attorneys took a hard look at the case and
8 decided they would indeed have a report made up and
9 submitted to the Court, as if it had been prepared and
10 presumably circulated before the settlement. In my
11 opposition papers I suggested that maybe they each
12 sign certifications saying they contested the report
13 prior to settlement. They have chosen not to deny
14 that at least a written report was ever prepared until
15 after the fact.
16 Also, even though it was made clear
17 that lead counsel would never take my call, as counsel
18 acknowledged in their briefs, they accepted the call
19 of arbitrageurs who had bought the stock after the
20 announcement. I was told by them that the reason for
21 the deal was at least in part because of the desire of
22 this group to get their $.15, which was the original
23 $10 million of payments on their books, preferably
24 before the end of the quarter, or right now before the
CHANCERY COURT REPORTERS 36
1 end of the year.
2 Plaintiffs argue that they are equally
3 responsible for all members of the class and that
4 differences in the class do not necessarily produce
5 conflicts requiring that the class lawyer not
6 represent some of the potential class. I would agree,
7 assuming that any tensions could be managed to the
8 satisfaction of all factions, as I believe could have
9 been the case here, since it seems clear the goal of
10 the litigation should have been to maximize the
11 corporate estate, net allowances for cost, and the
12 time value of money. Seemingly, by admission, that
13 did not happen here.
14 The short-term interests of the more
15 powerful arbitrageurs prevailed over the long-term
16 holders. If arbitrageurs are allowed to dominate
17 every class because they are involved in mergers and
18 acquisitions, corporate poachers would not have a
19 concern because they could always be bought for an
20 immediate return. Indeed, the interests of the
21 original class -- the long-term holders -- demand that
22 their lawyers remain faithful to their underlying
23 interests.
24 Probably the most significant break in
CHANCERY COURT REPORTERS 37
1 the cohesiveness of the lead class structure was the
2 countersuit filed by defendants. Lead counsel freely
3 concedes that this suit was a blatant attempt "to
4 intimidate colead plaintiffs and their counsels,
5 effectively placing colead plaintiffs and their
6 counsel at risk of personal judgment for not rolling
7 over and acceding to defendants' efforts to contort
8 the sales process." Brief at page six.
9 I know, from my own personal
10 experience, I got an e-mail from my Delaware counsel,
11 who is associated with Mr. Longman, and stated they
12 would not be defending me in the countersuit and I
13 should rely on lead plaintiffs. I find it hard to
14 believe that there weren't other parties, particularly
15 colead plaintiffs who were not too thrilled about
16 having to explain to their supervisors why they were
17 being sued. I was not privy to the inter-sanctum
18 where the lead plaintiffs decided on what to do about
19 the situation and the probable unhappiness of at least
20 some of their clients, but I do know the results.
21 Before the countersuit -- at least to
22 me and the Court -- lead counsel was rather gung ho
23 about seeking damages, especially after they were --
24 what Mr. Grant told the Court -- sucker-punched by
CHANCERY COURT REPORTERS 38
1 defendants.
2 Afterwards, after the countersuit,
3 literally all I ever heard of was "Need to settle at
4 any price." Lead counsel did not actually use the
5 term "rollover" to me, but that's what it was.
6 Naturally, with the multitude of
7 irregularities and violations of the rights of the
8 class, lead counsel, again, now is to discredit the
9 one actual class member who, for whatever reason, did
10 manage his way into their cozy docile club. Towards
11 his pursuit of all things, they chose to mock my
12 financial analysis in the reply brief by calling my
13 forecasted growth rate of 20 percent for J. Crew as
14 farcical. However, if they had even bothered to read
15 the transcript of the deposition of the special
16 committee's financial consultant, or the discovery
17 itself, they would have noted the exact same growth
18 rate was the one used by management itself, up through
19 the beginning of the merger negotiations in
20 September 2010. And the capital appropriations were
21 still the ones being used in October and November, I
22 believe. And presumably those projections are still
23 the ones being used by management.
24 Also, they claim to have asked
CHANCERY COURT REPORTERS 39
1 plaintiffs' counsel -- plaintiffs asked the questions
2 I requested, but nevertheless they never found out the
3 answers to such vital valuation concerns, as how much
4 money was made by the core of J. Crew stores before
5 one subtracted from it the expenses and the expected
6 losses on the startup concepts, such as Madewell, a
7 lower cost J. Crew, the J. Crew men's store, and the
8 bridle store, both of which I think had a couple
9 stores maybe in Chicago and New York. The result is a
10 failure to both fully value the core stores, since
11 they had subtracted from them their earnings the
12 losses -- the expected loss in the other stores, and a
13 complete value -- and a complete failure to value the
14 new stores -- the new concepts.
15 This is an absurd approach to anyone
16 who has ever listened in to any of the company's
17 investors conference calls. Most of these calls were
18 about how well these concepts were doing and how
19 excited management was about them. The reason that
20 management devoted so much time to the concept, both
21 in practice and on the calls, is that it was implicit
22 to the financial analysts that followed these calls
23 that these concept brands were the future of the
24 continued hypergrowth of the company. Management was
CHANCERY COURT REPORTERS 40
1 perfectly willing to lose money on a concept which
2 almost, by definition, is true, because the lack of
3 scale precludes profitability, given the high fixed
4 cost of product design and sourcing. Because once a
5 concept started to break even, as is about the case
6 with Madewell, right about the time of the merger
7 management was quite able, willing, and ready to blow
8 it out by adding dozens of stores with assured
9 profitability built in by the spread out of the fixed
10 cost.
11 According to both these valuations
12 prepared, concept -- the value of the concept brands
13 was zero -- technically less than zero -- since they
14 subtracted from the core earnings. But however, it is
15 clear to anybody who has ever followed the company
16 that it would take a whole lot more zeroes before you
17 ever pried these consents out of the hands of TPG,
18 Mr. Drexler, and the rest of the defendants.
19 In conclusion, the class --
20 THE COURT: How much more was it
21 worth?
22 MR. MARK VOGEL: The numbers -- I'm
23 being conservative by nine billion, because the
24 numbers were all downplayed.
CHANCERY COURT REPORTERS 41
1 THE COURT: If you're being
2 conservative and you could discern this value gap, why
3 could no one else?
4 MR. MARK VOGEL: I think we're talking
5 about trying to sell a company at the bottom of a
6 recession.
7 THE COURT: But there were deals
8 getting done in this window. And if you've got the
9 ability -- you're telling me that this was worth more
10 than double the deal price; right?
11 MR. MARK VOGEL: Yes, I am, Your
12 Honor. I've seen the lists, Your Honor.
13 THE COURT: There are all kinds of
14 like oil sheiks who buy soccer teams and pro teams
15 because it's really cool. Fashion labels have a lot
16 of the same attractions about them. And if you could
17 buy one and, like, be sure that you were a billion --
18 even if you were off by -- what you're saying is, even
19 if you were off by 4 billion, this is still a great
20 deal; right?
21 MR. MARK VOGEL: Yes, Your Honor.
22 Well, the one complication, Your Honor, and what makes
23 this different is that this company is worth
24 9 billion, 10 billion with Mickey Drexler as CEO.
CHANCERY COURT REPORTERS 42
1 THE COURT: I love that.
2 MR. MARK VOGEL: I love it, too.
3 THE COURT: I don't buy that. It
4 might be worth more with Mickey Drexler, but it's
5 still -- you don't get the 9 billion -- on that basis,
6 there's no unfairness; right? Anything that
7 Mr. Drexler did? Because it's really Mickey Drexler.
8 It's not -- he's like the Ralph Lifschitz of
9 Ralph Lauren; right?
10 MR. MARK VOGEL: Or Steve Jobs.
11 THE COURT: Well, Ralph Lifschitz was
12 Ralph Lauren's original name. I don't know if anybody
13 knew that.
14 So I think a lot of people say
15 Ralph Lauren's pretty darn valuable. Look what the
16 dude did. In fact, he created the whole brand.
17 Mickey Drexler has been successful. He must be hiding
18 a lot of value, only in the sense that, even for him
19 to turn into a decomp, one could think he could turn
20 it into $8 billion, or private valuation of
21 $8 billion, he would have a higher comp. He's done
22 the accordion thing. No doubt he's a smart guy.
23 You're talking about $9 billion.
24 There's no one in the fashion world --
CHANCERY COURT REPORTERS 43
1 Berkshire Hathaway, like they believe in fundamental
2 things, like chili dogs, Dairy Queen, insurance, other
3 things. Clothes is fairly fundamental. My sense is
4 Berkshire Hathaway could probably find a fancy -- you
5 know, I'm not sure Ralph Lauren for a couple billion
6 wouldn't run the J. Crew division of Ralph Lauren and
7 then you'd still have -- under your theory, if you
8 gave Ralph $2 billion to run J. Crew, you'd still have
9 4 billion profit for yourself if you were the buyer.
10 MR. MARK VOGEL: Yes.
11 THE COURT: As you may know -- you may
12 have done some research -- I'm not a believer that
13 markets get things so right all the time. I happen to
14 be kind of a skeptic about whether they value things.
15 They tend to value things rationally, more in terms of
16 whether they overvalue things than they undervalue
17 things. I think there's a lot of evidence that they
18 overvalue stuff that's manure, but not in the useful
19 sense that it would grow plants. But that it's pure
20 manure and then it's exposed to some rotting junk and
21 society picks up the pieces.
22 What you're telling me is that there
23 is -- look, I grew up -- I was shocked to be children
24 of row home kids who came to Delaware. And I remember
CHANCERY COURT REPORTERS 44
1 going to the old A.I. high school and then pulling up
2 to the mansions of people on the bus route, and it was
3 pretty disorienting for me, and when I first got
4 introduced to preppy clothing and all that kind of
5 stuff.
6 What you're telling me is, that kind
7 of preppy clothing, it's just going to go wild.
8 MR. MARK VOGEL: No. You made a
9 number of points. As to the last one, the core brand
10 of J. Crew over -- I'm sorry -- the core brand of
11 J. Crew, in the four years that it was public, grew at
12 20 percent. Was it because there was a great demand
13 for preppy? No. It was going through a recession.
14 When you compare it to the comp companies that both
15 sides use, Abercrombie & Fitch, Ann Taylor, Guess,
16 American Eagle, those companies all -- I just looked
17 at the period from 2007 to 2010. Those companies all
18 went down in earnings -- a collective $12 in
19 earnings -- $13 in earnings, to high 12s. This
20 company, J. Crew, throughout the recession, went up
21 by -- went up by basically 15, 20 percent -- by
22 20 percent a year.
23 THE COURT: So it was doing well.
24 MR. VOGEL: It's not a comparable
CHANCERY COURT REPORTERS 45
1 company. It's not necessarily because of --
2 THE COURT: You're trying to tell
3 me -- you believe it was valued at three times the
4 deal, which was a premium to the preannouncement
5 market price; right? Fairly substantial premium to
6 the preannouncement market price; right?
7 MR. MARK VOGEL: Can I make a comment?
8 THE COURT: Certainly.
9 MR. MARK VOGEL: I mean, you talk
10 about --
11 THE COURT: Just for comparative
12 purposes, you've spoken far longer than you would have
13 gotten for a plenary Supreme Court appeal.
14 MR. MARK VOGEL: Like I said, I've
15 been my own silo. I had nobody to talk to about this
16 for a long, long term. The reason this all probably
17 happened -- the reason why this merger happened --
18 because you're speaking to why doesn't Mickey Drexler
19 just pay himself more -- the market, in this
20 particular case, was being way irrational about the
21 low price of retail stocks. It just kept on going
22 lower and lower. My own guess is at some point he got
23 approached by who he got approached by saying, "Why
24 are you putting up with the public markets? Why don't
CHANCERY COURT REPORTERS 46
1 you just come with us?"
2 THE COURT: I understand that. What
3 you're saying to me is that there was a huge, huge
4 gain that could have been made by someone who was
5 willing to deploy their capital in a more patient
6 manner.
7 MR. MARK VOGEL: You brought up the
8 example of Berkshire. And I've been asked, would it
9 fall within the valuation parameters on Berkshire?
10 Yes, it would. Would it be the type of business that
11 Berkshire would have owned? Is it going to be a
12 business that's going to be there for 50 years? Yes.
13 He does have fashion names. The question is, he only
14 wants it, quite reasonably, with management attached.
15 Management was not attached, at least for the first 30
16 days. And he wants management --
17 THE COURT: I understand the barrier
18 point. It's just you're making the case that this was
19 just the best buying opportunity that was just
20 available in all of 2011 for somebody.
21 MR. MARK VOGEL: If you look through
22 my notes -- my investment notebook that I take -- you
23 would see that, well, yeah, I liked Google and Apple
24 back then. I also value J. Crew.
CHANCERY COURT REPORTERS 47
1 THE COURT: You're not saying the
2 public valuation -- and I could get Apple at -- I
3 could get Apple -- what was the premium to the
4 preannouncement price here that was actually paid?
5 MR. MARK VOGEL: They may be more
6 experts. It may have been 36 to 43. I don't know.
7 THE COURT: You're not saying that
8 you -- if you added 36 to 43 percent to the market
9 capitalization of Apple or Google that someone -- that
10 that would undervalue Apple or Google, that it would
11 essentially be a third of the intrinsic -- I hate that
12 word -- it's evocative of Van Gorkom which provides
13 warm feelings on the right side of the room. The
14 right side of you from my -- as viewed from my
15 perspective. The plaintiffs' side of the room.
16 Intrinsic values for the divine, not for me. The
17 fundamental value.
18 Google. What you do is take Apple,
19 plus 36 to 43 percent, then you triple it. That would
20 be the real value of Apple. You would say no, that's
21 not true. Whereas, with respect to J. Crew, that's
22 what you're saying that is true.
23 MR. MARK VOGEL: I'm saying that's
24 true of both Google and Apple. I think what's really
CHANCERY COURT REPORTERS 48
1 important --
2 THE COURT: It is?
3 MR. MARK VOGEL: Yes, Your Honor.
4 There was --
5 THE COURT: The market is
6 undervaluing.
7 MR. MARK VOGEL: There was a report
8 written by JPMorgan yesterday. I may have a copy of
9 it in my computer. The market is valuing Apple now as
10 if it's going to have 2 percent negative sales and
11 revenue growth.
12 THE COURT: If you add 40 percent to
13 the current market value of Apple and then multiply it
14 by three, you would have the actual value of Apple.
15 MR. MARK VOGEL: That would be the
16 discounted future returns. That would be the returns
17 discounted for the time value of money. And that
18 would be the exact formula --
19 THE COURT: No. The present value of
20 Apple is, take the market cap, plus 40, then multiply
21 it times three. That's the fundamental value of
22 Apple.
23 MR. MARK VOGEL: That is -- right now
24 Apple --
CHANCERY COURT REPORTERS 49
1 THE COURT: That's what you would pay
2 for it now?
3 MR. MARK VOGEL: Yes. It depends what
4 growth rates you assume to it and the earnings. Right
5 now the earnings are 45 and the growth rate is at
6 least 20 percent or something. And plus they're
7 able -- like J. Crew, they don't need to take their
8 earnings and reinvest it in ongoing capital needs.
9 My point, Your Honor, is the
10 Ben Graham formulas. It is a retail price. It is --
11 this is the price that you would pay. You're paying
12 an equivalent. When you're paying 100 percent in
13 Ben Graham terms, you're paying the equivalent of what
14 you would get back on a treasury bill at 4 percent or
15 something. You are gaining the same thing.
16 And the goal of investors like me, and
17 like most other people, is to find stuff cheap, to
18 find stuff for $.25. Very few things I could find
19 worth $.25 or 40 or $.50 on the dollar. What I object
20 to is the fact that these people can just walk in,
21 know a couple people -- it's hard work. That's why
22 they work for us, to find this $.40 in value. I
23 object to people walking in and taking my bargain.
24 First of all, there was a way for them
CHANCERY COURT REPORTERS 50
1 to buy it. They could have gone into the open market
2 and bought it. There's certainly a better way to a
3 approach the board. They could have started buying up
4 shares. Warren Buffett did that with IBM.
5 THE COURT: That's not -- the fact is
6 that if it's -- your point is that everybody misses
7 but you.
8 MR. MARK VOGEL: No. I'm not saying
9 everybody misses but me. I'm saying the Court has to
10 look at a lot of time what's in the stock market,
11 particularly these days at these low multiples is
12 discounted. It's basically wholesale. And the
13 question is, their clients, they're in wholesale.
14 They're wholesalers. Not Nordstrom's. They have a
15 couple really big stores. They have -- the question
16 is: do they have an entitlement to buy everything at
17 wholesale or should they pay the retail value --what
18 the future discounted earnings are? It's not that
19 hard a calculation to make.
20 But I suspect, very strongly, the
21 Court does not like to be in the position of valuing
22 companies. I'm in matrimonial court. We value stuff
23 every day: a house, a business, stock options. I
24 understand this Court doesn't want to be valuing how
CHANCERY COURT REPORTERS 51
1 much these companies are worth. But what's happened
2 here is, they could have gone to the open market, but
3 they decided they'll get a better deal here. The
4 reason they get a better deal here --
5 THE COURT: You didn't seek appraisal
6 on behalf of your father, did you?
7 MR. MARK VOGEL: Actually, I did. But
8 I misunderstood the record date. I got it -- it was
9 disqualified.
10 THE COURT: Okay. Thank you. I don't
11 know who wants to go next?
12 MR. BODNER: Your Honor, I'll jump up
13 very quickly. On the notice issue, Mr. Forter from my
14 office is on top of the details and excited to address
15 the notice issues, so he'll do that and I'll say a few
16 words and turn it over to him.
17 THE COURT: I'm glad he's excited
18 about it.
19 MR. BODNER: It's a big deal to be in
20 front of you, Your Honor.
21 MR. FORTER: It's not all exciting.
22 Your Honor has the affidavit of Michelle Lacount of
23 A.B. Data attesting to the proof of mailing in this
24 matter. Defendants hired A.B. Data to act as the
CHANCERY COURT REPORTERS 52
1 settlement administrator in this case. As set forth
2 in her affidavit on October 12th, in advance of the
3 deadline, A.B. Data caused 5,819 notices, including
4 111 to record holders to be mailed. Mr. Vogel is not
5 a record holder. He is a beneficial holder.
6 When the banks, brokers and nominees
7 asked for subsequent notices to mail to beneficial
8 holders, the reason his has an October 18th date is
9 the -- as set forth in the affidavit as well -- there
10 was Microsoft Word auto update function that updated
11 the date to October 18th. So his copy may well be
12 dated October 18th, however the mailing was done to
13 record holders on October 12th. And also set forth,
14 71,804 notices have been requested for delivery to
15 subsequent beneficial holders. All of those requests
16 have been responded to in a timely manner.
17 THE COURT: So it's just a question of
18 Mr. Vogel holding through an intermediary?
19 MR. FORTER: Correct.
20 THE COURT: Thank you.
21 MR. BODNER: Your Honor, I'll be very
22 brief. As far as the 9 billion-dollar value gap, I'd
23 like to think that my clients and TPG are good at what
24 they do, but I don't think they're that good. I don't
CHANCERY COURT REPORTERS 53
1 know much and I have faith in little. But I do have
2 faith and I do believe in the greed of the market.
3 And on this deal, given the relatively low deal
4 protection devices, particularly even after this
5 settlement, the fact that some topping bid would not
6 come in when there's a value gap of $9 billion, would
7 be absurd, with all due respect to Mr. Vogel.
8 Lastly, as to the conflict. I guess,
9 from the defense side of the table, or the potential
10 conflict that Mr. Vogel raised, our position is that
11 this settlement was fair and indeed more than fair.
12 And I agree with Mr. Grant's characterization. This
13 was a very hard fought, you know, hedgerow-by-hedgerow
14 litigation. And our view is that the deal was very
15 fair on January 15th, late at the night when we cut
16 it. And even a theoretical argument of conflict
17 didn't exist before then. And it's only gotten
18 better, unfortunately, for the plaintiffs. So we put
19 absolutely no credence on that argument.
20 And furthermore, just as a witness to
21 the process, I think it's safe to say that, even after
22 we filed the MOU enforcement action, we did not see a
23 falloff in the zealousness of the representation on
24 the plaintiffs' side.
CHANCERY COURT REPORTERS 54
1 THE COURT: Thank you. I applaud your
2 client for actually coming up with a code name for his
3 acquisition corp that has something related to the
4 target: Chinos. I guess if you get L.L. Bean, you'll
5 do duck shoes, or something like that.
6 MR. BODNER: No comment, Your Honor.
7 THE COURT: Camp Moccasins, Inc.
8 MR. GRANT: I may need defense counsel
9 for one moment to confirm something.
10 Your Honor asked about the appraisal
11 action. I believe no appraisal actions -- no requests
12 for appraisal were made.
13 MR. BODNER: None were perfected. I
14 believe that a couple steps were made in the beginning
15 which were then subsequently withdrawn.
16 MR. GRANT: So I guess that's the next
17 piece of evidence. Because for Mr. Vogel's father,
18 who has 6700 shares, the deal was at 43.50, valued at
19 $3 billion. If it was 9 billion -- I thought he was
20 saying 12, but maybe it's only 9 billion -- that would
21 have been -- $130.50 would have been what he said each
22 share's fairly valued at. That's an 87-dollar delta.
23 You don't even have to find someone to buy the whole
24 company. You just had to come forward and say, "I
CHANCERY COURT REPORTERS 55
1 want to put on an appraisal. I'll call Ben Graham to
2 the stand and we'll get 87 bucks on the 6700 shares."
3 If my math is right by hand, that was $582,900. Even
4 with the cost of prosecuting that -- a shareholder, as
5 small as 6700 shares -- it would still be economical
6 to do so. But you'd also think that all of these
7 folks out there, who I've now been told set up this
8 conflict -- all these arbs out there -- you know,
9 they're pretty good at finding a way to squeeze a
10 buck. And if they could have squeezed 67 bucks, and
11 some of them own 100,000 shares, 200,000 shares, that
12 was a pretty good appraisal proceeding. But none of
13 them came in. I think that's even more evidence that
14 that's not how the market valued.
15 THE COURT: What Mr. Vogel says, some
16 of the named plaintiffs voted for the deal.
17 MR. GRANT: I believe one named
18 plaintiff ultimately voted for the deal. Four did not
19 vote for the deal.
20 THE COURT: Well, I'm not -- you're
21 not proposing I certify someone that voted for a deal?
22 MR. GRANT: No, I don't think so.
23 When you do that, I think sometimes the proxy decision
24 and the investment decision -- unfortunately,
CHANCERY COURT REPORTERS 56
1 sometimes there's not great communication.
2 THE COURT: I understand. Some people
3 brag about them being separate, which I've never
4 understood why that's a source of pride.
5 MR. GRANT: I am in total agreement
6 with Your Honor that I think those things -- you know,
7 the investment people ought to be driving the proxy
8 and explaining what --
9 THE COURT: He's discussing it. How
10 else can someone be acting as a plaintiff challenging
11 a deal when they choose to vote for it?
12 MR. GRANT: Now, I will say that in
13 this situation, because of the timing of it --
14 remember, we actually reached the settlement before
15 the deal went through -- the original settlement.
16 THE COURT: I understand that. But
17 then before the deal, you reached a settlement before
18 the original deal went through. But some weeks before
19 the vote, I believe you all decided to -- I won't even
20 characterize -- whatever you did, whatever it is that
21 you all did with respect to the original settlement
22 you did, which meant that someone, who is a named
23 plaintiff -- and I'll assume in the discussions around
24 the decision to do whatever it is you call what you
CHANCERY COURT REPORTERS 57
1 did with respect to the original settlement -- knew
2 about that and would have changed its vote.
3 MR. GRANT: In a perfect world, I
4 agree with Your Honor. I think that we reached --
5 THE COURT: We don't even need to be
6 close to perfection. In a minimally good world, when
7 you're proposing to be a class representative,
8 representing a bunch of absent stockholders in a high
9 profile litigation, and you've now decided to change
10 your mind about a settlement and to continue to attack
11 the actions of the people proposing the deal as
12 breaches of fiduciary duty, one would cast a vote
13 against the deal.
14 MR. GRANT: Or not vote for the deal,
15 which would have the same effect.
16 THE COURT: At least not say --
17 MR. GRANT: Which would have the same
18 effect. Four out of the five did that. When I say in
19 a perfect world, I think that I'm referring to more of
20 the communication. So we reached the settlement.
21 THE COURT: My point is, when people
22 overcome the rational -- people have a rational
23 passivity, rational apathy of an institutional
24 investor, when they so overcome it, that they actually
CHANCERY COURT REPORTERS 58
1 file a lawsuit, that, you know, the touting that they
2 make is that they should be given credence in court,
3 they should be given credence when they seek to be
4 lead plaintiffs. They should do this because they're
5 an institution doing all this kind of stuff. I mean,
6 you know, frankly, there's a unique defense as to that
7 plaintiff.
8 MR. GRANT: I understand, Your Honor.
9 So we're not in disagreement: when I say in a perfect
10 world, look, there are funds who are externally
11 managed and, you know, the decision is made internally
12 to bring the lawsuit. Then the settlement is reached
13 and, you know, the information needs to go from the
14 client to the external manager -- from the external
15 money manager, who is the person with the
16 relationship, to the people who actually vote the
17 proxy and all the way down the road. And it ain't
18 perfect.
19 THE COURT: I understand it isn't
20 perfect. But people -- you try. It's a merger vote.
21 And you can turn your vote from yay to nay. Or yay to
22 not voting. It's not, you know, any level of surgery.
23 MR. GRANT: Your Honor is correct. As
24 I said, in a perfect world it would work. We went
CHANCERY COURT REPORTERS 59
1 four for five. For one of the five clients it didn't
2 work great.
3 THE COURT: Okay. My point is, I hope
4 you're not proposing any order where I'd be certifying
5 these people today, because they ain't going to be in
6 that order.
7 MR. GRANT: I think the order Your
8 Honor gets will not have Mr. Vogel in it and will not
9 have --
10 THE COURT: Who was the one that voted
11 yes?
12 MR. GRANT: I don't recall
13 immediately. I will make sure they're out and you
14 will have four lead plaintiffs.
15 THE COURT: We don't know who it is.
16 MR. SCHOECHT: Your Honor, it's New
17 Orleans.
18 THE COURT: Too many Sezeracs.
19 MR. GRANT: That could do it. You
20 know --
21 THE COURT: Historically, voting
22 issues have been a problem in New Orleans.
23 MR. GRANT: That is true.
24 I would just like to kind of give an
CHANCERY COURT REPORTERS 60
1 example, and then I'm just going to move on from this.
2 There were a lot of things said. Some of them were
3 inaccurate, some were offensive and inaccurate.
4 THE COURT: What about the $4000 to
5 talk to the expert.
6 MR. GRANT: That's the one I was going
7 to take on. We told Mr. Vogel -- and he disclosed it
8 to you in breach of attorney-client privilege -- that
9 no written valuation was prepared. And that is not
10 unusual where you ask an expert to take a look, do
11 back-of-the-envelope, don't prepare something, and let
12 me know what you think. He's right. We didn't think
13 it would be helpful. So we told him, "Don't spend the
14 money to write it up."
15 Mr. Vogel was not told that he would
16 have to pay to talk to the expert. He said, "I want
17 to see that expert report in writing." We said, "It
18 doesn't exist." He said, "How do you mean it exists?
19 You told me that it was going to be an issue." I
20 said, "Yeah. That's why it doesn't exist, because we
21 got a preliminary indication that it would not be
22 favorable and we didn't want to spend the rest of the
23 money on that. So that's why we chose not to have it
24 written."
CHANCERY COURT REPORTERS 61
1 He says, "Well, I want to see a
2 written report." I said, "If you want to see a
3 written report, then you're going to have to pay for
4 the expert to write up that report. And I will have
5 that done, but you're going to have to pay for it to
6 be written up because it's not written up." He said,
7 "I don't want to pay for it." So it wasn't written
8 up. That's what happened to that.
9 Unless Your Honor has any other
10 specific questions, I'd like to move on to discuss the
11 fee request.
12 THE COURT: Um-hum.
13 MR. GRANT: No. 1, I'm pleased to say
14 that there is no objection to the fee. No. 2, as Your
15 Honor knows, we reached agreement with defense
16 counsel --
17 THE COURT: There's no objection. I
18 think Mr. Vogel can be fairly seen as objecting to
19 both the settlement --
20 MR. GRANT: That's true. Since he
21 doesn't believe the settlement should go through, I
22 don't think he believes we should be paid.
23 MR. MARK VOGEL: Your Honor, I don't
24 have a position on that.
CHANCERY COURT REPORTERS 62
1 THE COURT: Okay.
2 MR. GRANT: Just to kind of briefly go
3 through -- we talked about the benefits. And while I
4 am probably of the view that --
5 THE COURT: If I tell you that I'm not
6 going to quibble with what you all agreed to and
7 explain why, will that shorten your presentation?
8 MR. GRANT: Your Honor, I have nothing
9 further.
10 MR. MARK VOGEL: Could I have a brief
11 opportunity to address a couple things that were just
12 said?
13 THE COURT: Yes.
14 MR. MARK VOGEL: I didn't bring up my
15 brief with me. First of all, it was told four to
16 $5000 -- $4000 for me to talk to the guy. And I have
17 it. It's in my brief. I could show that. But the
18 other thing was, Your Honor, when I was saying
19 9 billion, that was my back-of-the-envelope
20 calculation. What I'm really saying is that the class
21 deserves a chance to make its case. And that's what
22 upsets me. I'm not saying it's 9 billion or seven.
23 What would Warren Buffett do? What would Paulson be
24 doing? How come Paulson didn't do that? What the
CHANCERY COURT REPORTERS 63
1 class --
2 THE COURT: Which Paulson?
3 MR. MARK VOGEL: It would be John
4 Paulson. I get them confused.
5 THE COURT: Not Pat or Hank.
6 MR. MARK VOGEL: That became an issue.
7 All I'm saying is, I'm very frustrated that we were
8 not -- that the class is just estopped from saying,
9 "Here's our argument, for what it's worth. Here's our
10 expert. Please listen to us."
11 And also, Your Honor, whether I said
12 the stock price went up from 46 to 43, which is an
13 approximation, subject to correction, that was wasn't
14 46 percent to 43 percent. That was $7 on top of 36.
15 So that was like 19 percent. I think Your Honor was
16 using that in subsequent valuations -- in subsequent
17 calculations.
18 Thank you.
19 MR. GRANT: I would like to add one
20 interesting fact, Your Honor. Actually, I know
21 actually what John Paulson did because he was the
22 largest shareholder. Had he voted no, this deal would
23 have gone down. I had worked with him throughout the
24 week leading up to it to get him to withhold his vote
CHANCERY COURT REPORTERS 64
1 until the last possible minute so I could continue to
2 negotiate to try to get a higher price. In the end,
3 TPG held out to the end and Mr. Paulson decided to
4 vote his shares, which is what kicked them over the
5 top. I know exactly what Mr. Paulson would have done
6 in this situation, because that's what he did.
7 THE COURT: What I'm going to say is
8 this. This is a half hour longer than the Supreme
9 Court argument, and it's been perhaps unusual for
10 Chancery. I wouldn't say this is the warmest bench
11 anyone's ever confronted. So I've let everybody speak
12 for quite a long time.
13 And I wanted to be fair to the
14 objector. That's why, Mr. Vogel, I think the lawyers
15 in the room, who appear before the Supreme Court,
16 would say you got very deep into your written
17 presentation in a way that you would not have in our
18 fair capital.
19 I believe I have all three things to
20 do today -- right? --or has a class already been
21 certified, Mr. Grant?
22 MR. GRANT: No, Your Honor.
23 THE COURT: I will certify the class,
24 shorn of Mr. Vogel. I mean, in terms of certify the
CHANCERY COURT REPORTERS 65
1 representatives, shorn of Mr. Vogel, because he
2 obviously objects -- and I'll deal with his objection
3 in a minute -- and shorn of the party that voted yes.
4 MR. GRANT: That would be the City of
5 New Orleans.
6 THE COURT: A city that I love. But
7 whatever pension fund it is should get its act in
8 order. I believe they fairly regularly litigate cases
9 like this. So they ought to know, if you're objecting
10 on behalf of the class, you're supposed to object on
11 behalf of yourself. People who are parents, teachers,
12 coaches, realize that. Like I always refrain from
13 smoking cigarettes in front of my soccer team. I
14 refrain. That's true. I did refrain from smoking
15 cigarettes in front of my soccer team. It's easy for
16 me because I don't smoke.
17 What I'm saying is, it's kind of hard
18 to lead without setting the right example. And I
19 believe the other grounds for class certification are
20 met. And I think I am satisfied, after a reading of
21 the record, that the institutional investors who voted
22 no have a sufficient stake in the game in this kind of
23 a high profile thing to adequately represent the
24 class. And counsel are qualified and numerous.
CHANCERY COURT REPORTERS 66
1 It comes to approving the settlement.
2 You know, I think the difficulty in this type of
3 litigation -- and I talk to boards of directors at
4 directors colleges all the time about this -- I really
5 don't understand why it is not expected of all public
6 company boards that they have protocols in place to
7 deal with the nonunusual circumstance of whether the
8 chief executive officer decides that the best
9 strategic option for the company might be a sale.
10 Marty Lipton a long time ago gave everybody a takeover
11 checklist. Changes of control are often initiated by
12 chief executives officers. It is, in my view,
13 outrageous for a board of directors to be the last to
14 know when the chief executive officer of the company
15 changes the fundamental strategic direction in his own
16 mind. It is even more grotesque when CEOs are
17 confronted, you know, with people like me saying this
18 and mention a constitutional amendment between 12 and
19 14.
20 And my other suggestion is that anyone
21 grotesque enough to mention that amendment in
22 connection with their lucrative seven-figure-paying
23 salary as CEO of a public company should be fired on
24 the spot because of someone who is so morally callous
CHANCERY COURT REPORTERS 67
1 and economically obtuse they're not qualified to run a
2 public company.
3 Boards of directors all the time --
4 the company is managed by or under the direction of a
5 board. CEOs come with a strategic plan. Directors
6 are told all the time: if somebody makes an overture
7 to you, to say the company's not for sale and to refer
8 everything to the CEO."
9 CEOs know -- CEOs, they say, "Can we
10 have -- you mean we can't go to lunch at the
11 Four Seasons with the banker or a private equity
12 person? We can't listen to the ideas of the
13 marketplace?" Of course you can. Don't try to act
14 like the rest of us fell off vegetable trucks.
15 There's a difference between taking meetings and,
16 then, in your own mind, when you conclude that it's
17 real and when you start talking about financing terms,
18 you start talking about locking up other members of
19 management. You're talking about -- in your own mind,
20 as chief executive officer, you believe a real
21 strategic option for the company is a sale. You're
22 now using company assets. To the extent you're
23 sharing nonconfidential public information, to the
24 extent that you're tampering with employees and you're
CHANCERY COURT REPORTERS 68
1 doing it without telling your board of directors
2 first, icky kind of stuff.
3 Now, I never got to the merits of
4 whatever went on early, but I don't think it was
5 pretty. Put it this way. I won't cast it in the next
6 J. Crew ad if I were TPG. It wouldn't have a picture
7 of what went down, the aesthetically unpleasing early
8 dance. There's a reason. There's a few reasons to
9 get a room. But get a room particularly has a
10 resonance with people when it's unattractive. Not
11 only should they get a room because they're doing
12 something that should be done in private, but they're
13 ugly. And no one wants to see whatever is making them
14 happy.
15 I would say, in the paleness of deals,
16 this was "get a room" in a huge way. This was not
17 good corporate governance. The difficulty for
18 litigating this is: how do you undo the harm that's
19 done at the early stages of deals? Very, very
20 difficult. I think it was particularly true that
21 during the private equity bubble it was difficult,
22 because there's a lot of evidence that stockholders on
23 the sell side of these deals made out very well when
24 we had the cappuccino financing markets. But there's
CHANCERY COURT REPORTERS 69
1 probably evidence they could have done a little bit
2 more. I mean, a little bit more, which is: do you
3 lose a chance to get something three to 5 percent more
4 if you mess up a deal early, particularly when private
5 equity is the only game in town? I think that you can
6 because the equity financing models are pretty
7 similar.
8 These things were fairly fully priced.
9 But, you know, you get to the point where, you know,
10 the top -- if you had done the dance from the
11 beginning, you might have squeezed it out more. But
12 you're now -- you get a fairly plush price, but maybe
13 not the plushest. And so this is a difficult dynamic
14 for the plaintiff. I think they faced it somewhat
15 here. I think we were in different financing markets.
16 The advantage that private equity had in 2006, 2007
17 wasn't quite the same in 2011. It's not clear to me
18 why strategic couldn't have been in this game.
19 The other problem for Mr. Vogel
20 here -- and I thought about this -- is, you know,
21 look, I'm the kind of guy -- I'm pretty open. I
22 believe that there are deals tainted by CEOs messing
23 around early, boards not having policies in place.
24 It's inexcusable for companies to be doing this. I
CHANCERY COURT REPORTERS 70
1 don't get why all boards don't have policies to say,
2 "When the CEO changes in his own mind that it's a
3 viable option, the board hears first." The company's
4 advisors belong to the company. You don't talk to
5 employees. You don't share nonconfidential
6 information. You don't make promises to work for
7 anybody else, or anything like that, without talking
8 to us. And there are many defense lawyers and people
9 who advise boards in the room, and it's really not
10 really excusable. But you got to deal with the cases
11 that come to you.
12 Part of what you have here is,
13 honestly, the original configuration of deal
14 protections was hardly overwhelming. It was not a
15 large termination fee. There was matching rights.
16 People I respect, Professor Subramanian, my fellow
17 Hockessin man, believes you can't top them. I have a
18 hard time. I've been in many cases where there are
19 match rights and there was a top. But here the
20 termination fee was pretty low.
21 The difficult thing was this magic of
22 Mickey Drexler. I mean, this dudes' got a reputation.
23 It's incredible how he's not been able to turn it into
24 a big market cap. He's apparently indispensable in
CHANCERY COURT REPORTERS 71
1 the hallowed halls of wasp channel clothing.
2 Apparently not being -- is he a wasp? I don't know.
3 Is he an Episcopalian? Does anyone know for sure?
4 But, I mean, apparently there's going to be a huge
5 surge in this segment. For Delaware, that's kind of a
6 cool thing. I think we like to think of ourselves as
7 that. We were in the ten preppiest places in the
8 world. Greenville, Delaware was in the original
9 preppy handbook, if you recall back to the early
10 eighties, which I do. I had bangs then. That's why I
11 recall it.
12 When you look at what the plaintiffs
13 were attacking, you had to a attack the initial stages
14 of the deal. And then what could you do about that?
15 I don't know whether they were going to be able to
16 prove a breach of fiduciary duty that would have
17 supported an injunction on the part of the outside
18 directors. It appears, because of the way that the
19 deal protections were and their original
20 configuration, that there was some use by the
21 independent directors of some of the early
22 infelicities to get a deal protection package that
23 some would argue was below market, in terms of the
24 barriers to entry for or a later arising bidder. I
CHANCERY COURT REPORTERS 72
1 don't know that it was necessarily going to be easy
2 for the class to get an injunction.
3 And in terms of a damages action, this
4 is where it comes in. I understand Mickey -- I don't
5 want to insult Mickey Drexler. People think he's
6 special. I'm sorry. But if it's anywhere near the
7 valuation that Mr. Vogel thinks, he's not that
8 special. There's value in the brands. There's other
9 designers. It's not even clear he's really a
10 designer. Right? He's really kind of the CEO kind of
11 dude.
12 There are plenty of visionaries.
13 Can't get Paul McCartney's daughter? There's all
14 kinds of people who make a lot of money in fashion and
15 are very good about -- the woman out of Philadelphia.
16 Remember? What was her name? Tory Burch. There's
17 all kinds of people that made a lot of money, come up
18 very quick in the fashion industry.
19 When you got a kind of delta and
20 fundamental value that Mr. Vogel is talking about and
21 the original deal protection package, I don't think
22 would have deterred somebody who actually believed
23 that this was under -- you know, being undervalued by
24 a billion, much less billions. It's hard for me to
CHANCERY COURT REPORTERS 73
1 believe that the termination fee during the go-shop --
2 even if you look at the length of the original
3 go-shop, it's pretty long.
4 I admit. Mickey Drexler says he
5 doesn't want to work for anyone else. That's a big
6 thing for the TPG crowd. You know, this is where --
7 but even from private equity, I can't believe they'll
8 take a look at a go-shop differently than a no-shop.
9 Even with the club protocol, if it's a go-shop, you
10 know you can look at another deal. You didn't sign up
11 a no-shop. Is he really that special? And is this at
12 the market cap where you needed clubbing? This isn't
13 a huge deal. I'm just sorry. It's not the world's
14 biggest deal. There are plenty of private equity
15 firms that could afford this deal.
16 I understand Mr. Drexler has a long
17 time association with TPG. KKR, Bain, other reputable
18 private equity firms make him -- I mean, with what
19 Mr. Vogel is saying -- I'll have to speak directly to
20 Mr. Vogel here. With that kind of a gap, you can make
21 Mr. Drexler very happy. And private equity
22 competes -- right? --on the however much they love
23 you. "I'm going to love you just a little bit more."
24 That's the way they compete with each other with
CHANCERY COURT REPORTERS 74
1 management. It doesn't tend to be, like we're going
2 to cut you out. It tends to be, "We'll do something
3 more for you." So I'm not convinced, under the
4 original configuration, that it's undervalued. I have
5 to say, too, I'm a Judge and I have to deal with a
6 record.
7 I'm somewhat suspicious that the
8 world's going to go wacky crazy for J. Crew, such that
9 it is going to go gangbusters. I'm not saying it
10 can't be a solid value stock or do whatever. The idea
11 that it's undervalued, that this is the next thing
12 that J. Crew and Abercrombie & Fitch and all these
13 kinds of things, this sort of idealized world -- maybe
14 it will be. You know, we got Vineyard Vines. We got
15 all kinds of people in this little space. Because
16 every catalog you see in the mail, I get every one of
17 the catalogs. Whether I want it or not, they come my
18 way. I get them. You know, can I get another? You
19 know, Vineyard Vines ties, underwear. Whatever.
20 L.L. Bean? I get all the stuff. I'm a little
21 skeptical that the market is sort of undervaluing this
22 by half. And that if it was undervaluing it by half
23 that there aren't people who are willing to buy,
24 especially because it is fashion. Frankly, it's cool.
CHANCERY COURT REPORTERS 75
1 And that's when I mentioned the petro
2 sheik. People buy companies like this precisely
3 because they're cool. Right? I mean, if this was
4 like a solid waste company, do you think it would get
5 the same multiple? I'm not sure. But there are
6 people who will buy something like J. Crew because it
7 has models and designers, and you get invited to cool
8 things. It's kind of a cool company to be in. And so
9 it's hard for me to believe the world missed it.
10 Also, when you look at the
11 difficulties, there was a majority of the independent
12 board. There was other factors which can point to
13 fairness. To my mind, it's not the world's a perfect
14 market check because of what was done at the
15 beginning. But there's such a wide open buying
16 opportunity that the plaintiffs would have some
17 difficulty.
18 Then, when you look at what the
19 plaintiffs actually achieved, which is originally it
20 was 10 million, got another six -- I think they mostly
21 got another six because they made nuisances of
22 themselves. I have to say, I have to be fair to the
23 defendant here, which is the plaintiffs are now coming
24 to take credit for some achievements that they got
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1 which they trivialized, and they probably created some
2 confusion on the part of Mr. Vogel. They now
3 untrivialized them, which is sort of the lead counsel
4 has said, "We went back over the confirmatory
5 discovery and it turns out things, like the world knew
6 that there wasn't anyone else in, that that didn't
7 really matter so much and that there really was an
8 opportunity to kick the tires here, and the barriers
9 for entry were pretty low and we actually got some
10 real achievement." I have to say fairly to
11 defendants, that's what we said in the first place.
12 We're giving you $6 million more, not because we
13 should but because, frankly, litigation is a pain in
14 the butt and it's complicated and expensive, and we're
15 going to give you another $6 million.
16 I think, in fairness to the defendant,
17 I have to say that I had my own -- I'm not as sure --
18 I think it actually shows the vigor of plaintiffs'
19 counsel that they went through this. I think they
20 were -- had -- in my mind, they had -- I don't have
21 any reason to question their genuineness. I think
22 that they were concerned that they had struck a deal
23 on behalf of the class that wasn't as good as they
24 would have liked and they felt a bit like suckers.
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1 I'm not sure. I also think it might have had to deal
2 with the vigor between counsel.
3 Miss Goldstein, Mr. Grant and
4 Mr. Lebovitch seem to have a kind of chemistry that
5 I'm not sure that I wish to replicate any time soon,
6 and I'm not sure that people didn't get a little
7 hotheaded at times, and then, you know, people talked
8 themselves out on tree limbs and then they are too far
9 out to get back in.
10 I think it's fair to say to defendant,
11 there's something to what the defendants said about,
12 "Wait a minute. You're now blowing your horn about
13 all this stuff you said wasn't worth anything?" I
14 think some of it -- I would put it this way. I'm not
15 a scientific guy who goes about these things
16 scientifically. I'm still not buying into the
17 mathematical models of the probabilities of topping
18 bids and all this kind of stuff.
19 I will say this. I think the
20 probability, if there was a genuine bases for valuing
21 this company at $6 billion more than the deal, I think
22 the probability of the topping bid would have been
23 pretty darn high. But I think there was a relatively
24 low barrier to entry opposed to this, particularly for
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1 strategic buyers from the beginning, and that there
2 was a substantial lowering from that already lower
3 bid. You got 30 is more of a go-shop. The highest
4 termination fee is reduced to something less than
5 1 percent. The Mickey Drexler situation was addressed
6 in a meaningful way. And with the noncompete and with
7 some of the other assurances, the majority of the
8 minority has some benefit. I don't want to
9 overestimate that because, you know, the company's
10 stock was diversely held. But it has some benefit.
11 And so the panoply of benefits that
12 was got, I think, is more than fair compensation for
13 the release that's been granted. So I approve the
14 settlement.
15 In terms of the fee, some day I
16 won't -- we won't let Miss Goldstein hear about it
17 because she was not here to suffer with us. Some day
18 I'll tell you my number coming in. But I'm not going
19 to quibble with what was negotiated. I don't always
20 give a ton of weight to that. But here I have very
21 little doubt that what was agreed upon was done in an
22 adversarial manner, really wasn't tied to the approval
23 of the settlement itself. It's within a range of
24 reasonableness. And because of the unique
CHANCERY COURT REPORTERS 79
1 circumstances involved here, in terms of the genuine
2 adversarialness of the process around the fee -- and
3 I'll repeat that -- the genuine adversarialness of the
4 process of the fee -- I give substantial weight to the
5 negotiated number. So long as it's within what I
6 consider to be a range of reasonableness, in this
7 circumstance I'm going to give heavy weight to that.
8 I don't think, in terms of when you
9 look at it as a percentage of the benefit -- you know,
10 obviously you have $16 million in cash benefit to the
11 class that's solely attributable to litigation. You
12 have another -- an array of benefits that deal with
13 the reduction to barriers to entry. So I think the
14 $6-1/2 million -- I think, if you apply the
15 mathematical formulas and you hire experts, you could
16 certainly get to six and a half million.
17 If you did the more traditional
18 Sugarland, you know, Splenda factors, and looked at
19 the amount of hours that were expended, the benefit to
20 the class, the quality of counsel, it's easy to
21 justify a fee in that range. But I want -- because
22 there's this transcript lure out there, do not cite
23 back to me without the full thing. I mean, this is
24 basically a deference -- the overriding thing to me --
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1 I'm not saying this is the number I would have come
2 at. Some day we'll all have a beer and, if I can
3 remember what's on the page -- I had it all written
4 out. But I am giving heavy deference to the fact that
5 you all duked it out and negotiated it. I think you
6 can even look at it -- for example, if you simply did
7 20 percent of the 16 million, you'd be 3.2 for the
8 monetary benefit alone, even if you're using the
9 16 million. And then you'll be talking about another,
10 you know, equal amount for the deal protection
11 package, which again you can find precedent for that.
12 You can also do the higher increment for the cash
13 thing.
14 So I have said a lot. We've have gone
15 on for an hour and 50 minutes. I appreciate Mr. Vogel
16 taking the time.
17 Mr. Vogel, the Court takes these
18 things very seriously and appreciates people who are
19 meaningful participants and voice their views. My
20 disagreement with your position doesn't entail any
21 lack of respect for you. And I think I would actually
22 encourage the plaintiffs' side of the room to really
23 go over the transcript in full and to think about the
24 course of this case a little bit, because it's not --
CHANCERY COURT REPORTERS 81
1 I think there has to be more understanding promoted
2 among folks.
3 What does it mean to be a named
4 plaintiff and to be one of the people who is named as
5 the group of plaintiffs in the decision-making
6 process? How is that going to work? I talked to
7 Mr. Longman a little bit about this. I do have
8 concerns, Mr. Vogel, about the structure of your
9 relationship with your father. Having been basically
10 a broker, an investment advisor coming in and act as a
11 plaintiff for other people, it's just sort of odd to
12 me. It's not the same as a fund and a fiduciary over
13 a fund. There are legal structures and other kinds of
14 legal accountability things that put them in a
15 different class.
16 Even with the City of New Orleans.
17 They're repeat plaintiffs. There are people who do
18 this. I have no reason to disrespect them. The fact
19 that in a high profile situation they actually vote
20 for the deal, that's not something that makes them
21 look good. It casts doubts in the minds of people
22 that they're seeking to represent. So I think we can
23 all learn how to -- you know -- how to get this right.
24 So this unusual chapter of this particular preppy
CHANCERY COURT REPORTERS 82
1 clothing case -- as I said, I'm actually now in a
2 position -- I have some say over whether I do future
3 preppy clothing cases. I'm not sure I'm going to do
4 them. I think I had Talbots. I know I had Talbots,
5 J. Crew. I'm waiting for Vineyard Vines. I don't
6 think they're public. TPG may have already bought
7 them and we just don't know about it. Schiaparean?
8 Is that who it is? They're always on some boat
9 somewhere.
10 But thank you all for our pre holiday
11 gathering.
12 Thank you, Mr. Vogel, for coming in.
13 Mr. Grant, will you get a conforming
14 order that just has the named plaintiffs we talked
15 about? And you can check with your friends and fill
16 in the agreed-upon fee figure. If you just let us
17 know that it's approved as to form, we'll get it
18 entered.
19 MR. GRANT: Yes, sir.
20 THE COURT: Thank you.
21 (Court adjourned at 11:58 a.m.)
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1 CERTIFICATE
2 I, DIANE G. McGRELLIS, Official Court
3 Reporter of the Chancery Court, State of Delaware, do
4 hereby certify that the foregoing pages numbered 3
5 through 82 contain a true and correct transcription of
6 the proceedings as stenographically reported by me at
7 the hearing in the above cause before the Chancellor
8 of the State of Delaware, on the date therein
9 indicated.
10 IN WITNESS WHEREOF I have hereunto set
11 my hand at Wilmington, this 15th day of December,
12 2011.
13
14
15 /s/Diane G. McGrellis Official Court Reporter 16 of the Chancery Court State of Delaware 17
18 Certification Number: 108-PS 19 Expiration: Permanent
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