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Hussey v. Ruckus Wireless, Inc.

United States District Court, N.D. California

June 29, 2017

MIGUEL HUSSEY, et al., Plaintiffs,
v.
RUCKUS WIRELESS, INC., et al., Defendants.

          ORDER GRANTING DEFENDANTS' MOTION TO DISMISS SECOND AMENDED COMPLAINT DOCKET NO. 75

          EDWARD M. CHEN, UNITED STATES DISTRICT JUDGE

         This is a securities fraud class action relating to the acquisition of Ruckus Wireless Inc. (“Ruckus”) by Brocade Communications Systems, Inc. (“Brocade”) in May 2016. Lead Plaintiff is the City of Pontiac General Employees' Retirement System, one of the shareholders of Ruckus. Defendants are as follows:

• Ruckus;
• Ruckus's Board of Directors (consisting of Selina Y. Lo (also President and CEO of Ruckus), Georges Antoun, Barton Burstein, Gaurav Garg, Stewart Grierson, Mohan Gyani, and Richard Lynch);
• Seamus Hennessy (Ruckus's CFO);
• Brocade;
• Stallion Merger Sub Inc. (“Merger Sub”) (a wholly owned subsidiary of Brocade and the entity set up as the formal purchaser of Ruckus stock); and
• Morgan Stanley & Co. LLC (“Morgan Stanley”) (Ruckus's financial advisor for the merger).

         Previously, the Court granted a motion to dismiss filed by a majority of the defendants named above, but with leave to amend. Lead Plaintiff thus filed a second amended complaint (“SAC”). All Defendants named above now move for dismissal of the SAC.

         Having considered the parties' briefs and accompanying submissions, as well as the oral argument of counsel, the Court hereby GRANTS Defendants motion.

         I. FACTUAL & PROCEDURAL BACKGROUND

         In the SAC, Lead Plaintiff alleges as follows.

         Before the merger with Brocade, “Ruckus was a global supplier of advanced Wi-Fi solutions.” SAC ¶ 43. At the end of December 2015, Ruckus's financial performance was strong and had exceeded the prior year's financial performance. See SAC ¶ 47. “Despite Ruckus' improving metrics and strong prospects, the Board was concurrently pursuing a sale of the Company.” SAC ¶ 50.

         Ruckus and Brocade first entered into merger discussions in or about August 2015. See SAC ¶ 54. (Prior to that, the companies had worked together with apparent success. See, e.g., SAC ¶ 53.) Discussions continued through March 2016.

         “On March 9, 2016, Brocade gave Ruckus its best and final offer . . . of $6.45 in cash and 0.75 shares of Brocade common stock (valued at the time of the offer at $14.06 per Ruckus share).” SAC ¶ 65 (emphasis added). The Ruckus Board accepted the offer on the same day. See SAC ¶ 65.

         On April 6, 2016, the companies announced the merger agreement. The proposed merger would be effected through a tender offer. See SAC ¶¶ 2, 68.

         The Ruckus Board recommended that shareholders tender their shares in a 14D-9 filed with the SEC. See SAC ¶ 3. In the 14D-9, Ruckus stated that the implied value of the merger consideration was $14.43 per Ruckus share “(based on the closing price of [Brocade] Common Stock on . . . the last trading day prior to the approval by the [Ruckus] Board of the Merger Agreement).” Defs.' RJN, Ex. 1 (14D-9, at 29). The closing price of Brocade stock at that point in time was $10.64. See Defs.' RJN, Ex. 1 (14D-9, at 34). The $14.43 merger consideration[1] was “an approximate premium of 44% based on the closing price per [Ruckus] Share of $10.00 on April 1, 2016.” Defs.' RJN, Ex. 1 (14D-9, at 29); see also SAC ¶ 4.

         The tender offer launched on April 29, 2016, and ended on May 27, 2016. Because enough shares were tendered (a majority), [2] the merger was completed on May 27, 2016, or shortly thereafter. See SAC ¶¶ 2, 69; see also RJN, Ex. 1 (14D-9, at 2) (providing that a majority of shares must be tendered).

         As indicated above, at the time the parties entered into the merger agreement (March 9, 2016), the merger consideration for each Ruckus share had an implied valued of $14.06. See SAC ¶ 65. In the 14D-9 that Ruckus filed with the SEC, Ruckus stated that the implied value of the merger consideration was $14.43 per Ruckus share. See SAC ¶ 4. However, by the closing date of the tender offer (May 27, 2016), the merger consideration value had declined to $12.90 per Ruckus share. See SAC ¶ 65.

         In its SAC, Lead Plaintiff has asserted both federal and state claims. With respect to the federal claims, the main claim is a violation of § 14(e) of the 1934 Securities Exchange Act.[3]Section 14(e) covers an untrue statement of material fact or omission of fact with respect to a tender offer. Section 14(e) provides in relevant part as follows:

It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any ...

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