Canoo, an electric vehicle company, went public in a de-SPAC transaction in December 2020. However, after the stock price dropped, a stockholder who chose not to redeem his stock sued the SPAC board and its controller for breaching their fiduciary duties. In a surprising turn of events, the Delaware Court of Chancery granted the defendants’ motion to dismiss the case. The court ruled that even though the transaction was subject to entire fairness review, the plaintiff had failed to prove that the defendants had impaired his right to choose whether or not to redeem his stock.

The merger between Hennessy Capital Acquisition Corp. IV and Canoo was approved overwhelmingly by stockholders, with almost no one choosing to redeem their stock. However, three months after the merger closed, Canoo announced a change in its business model, causing the stock price to plummet. This led to a stockholder filing a lawsuit against the directors and controlling stockholder, alleging a breach of fiduciary duties.

The plaintiff argued that the directors and controlling stockholder had failed to make adequate disclosures in the proxy statement regarding Canoo’s business plan. The court, however, ruled that there was no evidence of a change in Canoo’s business plan before the merger closed, and the acquiror was not aware of any such facts. The court emphasized that the proxy statement provided sufficient information for stockholders to make an informed decision about whether to redeem their stock or remain investors in the post-merger entity.

While the entire fairness standard applied to the plaintiff’s claims due to conflicts in the de-SPAC transaction, the court dismissed the case because the plaintiff did not sufficiently prove that the transaction was unfair. This decision is significant as it is rare for the Court of Chancery to dismiss a suit alleging a direct non-exculpated claim of breach of fiduciary duty subject to the entire fairness standard.

The ruling highlights the importance of providing complete and non-misleading disclosures in proxy statements. It also supports the principle that when stockholders have access to all relevant material information when making an investment decision, they may be prevented from bringing a lawsuit later, even if conflicts were known to them. This decision serves as a reminder that stockholder plaintiffs challenging transactions must plead a viable non-exculpated claim, regardless of the standard of review.

In conclusion, the Hennessy case sheds light on the importance of transparency and disclosure in corporate transactions. It also emphasizes the need for stockholders to have access to all material information to make informed decisions about their investments. This ruling sets a precedent for future cases involving fiduciary duties and entire fairness review, underscoring the significance of thorough and accurate disclosures in proxy statements.