M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Monday, May 3, 2010

Still No Duty to Disclose Merger Negotiations

Last month the second circuit affirmed the district court's opinion in Thesling v Bioenvision - holding that issuers have no duty to disclose merger negotiations.  Whether and when one has a duty to disclose merger negotiations is a regular question that comes up with students. Bioenvision provides a succinct summary of the law on this question.  

The plaintiffs claimed that when Bioenvision failed to disclose that it was engaging in merger negotiation with Genzyme that this failure to disclose caused several other statements to be materially misleading.  The court's opinion is very short and reads in relevant part: 

Thus, it is by now axiomatic that "a corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact." In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir. 1993). As the district court correctly observed, however, no express duty requires the disclosure of merger negotiations, as opposed to a definitive merger agreement.  Moreover, "[s]ilence, absent a duty to disclose, is not misleading . . . ."  Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988). For substantially similar reasons to those stated by the district court, we hold that plaintiff has not identified any part of the seven challenged statements that were rendered materially misleading by the alleged omissions relating to Bioenvision's merger negotiations.  This pleading deficiency is sufficient to warrant the affirmance of the entire portion of the district court's decision that is challenged in this appeal, including the dismissal of plaintiff's claims against defendants-appellees for control-person liability.  See ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 108 (2d Cir. 2007).



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