The Delaware Court of Chancery found in favor of our client, a private equity firm, after a ten-day trial.
Retained by Paul, Weiss, Rifkind, Wharton & Garrison
Oak Hill Capital Partners, a private equity firm, was an investor in internet company Oversee.net (later called ODN). During the relevant period, Oak Hill held the majority of the company’s common stock. The plaintiff, one of Oversee’s founders, sued Oak Hill alleging that it made certain business decisions that prevented the owners of common stock from realizing any value. Defense counsel retained Cornerstone Research to support Professor David Smith of the University of Virginia in rebutting the plaintiff’s claims.
Professor Smith’s analysis showed that there was no evidence that Oversee failed to make any investments that could have reasonably been expected to generate additional value for the common stock.
The plaintiff contended that Oak Hill prioritized redeeming its preferred stock, which it held in addition to common stock, and therefore behaved in a way that was against the best interest of the owners of the common stock. Professor Smith’s analysis showed that there was no evidence that Oversee failed to make any investments that could have reasonably been expected to generate additional value for the common stock. He opined that Oversee failed because of general industry challenges, including shifts in the competitive landscape.
Vice Chancellor Laster agreed that “Smith’s analysis showed that investing in Oversee’s business would not have generated value for the common stock.” The court further concluded that “Oak Hill had an incentive to enhance the value of the common stock” and “inflicted no harm on the common stockholders, who are in at least as good a position now as they would have been if the Company had followed a different course.” Finding in favor of the defendants, Vice Chancellor Laster concluded, “The defendants proved that their conduct was entirely fair. Judgment will be entered in their favor.”