Document: In re Southern Peru Copper Corp. Shareholders Deriv. Litig, C.A. No. 961-CS (Del. Ch. Oct. 14, 2011)
In a post-trial decision, involving the acquisition by a publicly-traded, controlled corporation, Southern Peru Copper Corporation (“Southern Peru”), of its controller’s interest in a third party at the behest of such controller, the Court of Chancery found that the controlling stockholder, Grupo Mexico, S.A.B. de C.V. (“Grupo”), and Southern Peru’s inside directors breached their fiduciary duty of loyalty because the transaction was unfair to Southern Peru’s minority stockholders. The Court awarded Southern Peru $1.263 billion in damages and ordered that the award be paid in shares of Southern Peru stock—i.e., Grupo was required to return much of the $3.1 billion in shares of Southern Peru stock that it had received for its interest in the third party, Minera Mexico, S.A. de C.V (“Minera”), a private company, from Southern Peru. Although Southern Peru had formed a special committee of unaffiliated directors to consider the transaction with Grupo, the Court found that the special committee’s mandate and process, which did not include evaluating alternatives to Grupo’s proposed transaction were flawed. After Goldman Sachs, the special committee’s financial advisor, initially valued Minera at a maximum of $1.7 billion, the Special Committee did not go back to Grupo and make a fundamentally lower counteroffer. Instead, the Special Committee and Goldman Sachs went to extraordinary efforts to “recalculate” the value of Minera and Southern Peru to justify issuing to Grupo an amount of Southern Peru stock, which the market and Grupo were valuing at $3.1 million, for the Minera interest. These efforts included valuing Southern Peru at far less than its market price even though Grupo itself was valuing Southern Peru based on its stock price. The special committee also failed to ask for an updated fairness opinion in the five-month interval between signing and a stockholder vote on the transaction in the face of strong evidence that it had considerably undervalued Southern Peru. Having found the transaction unfair, the Court awarded damages to approximate the difference between what Southern Peru would have paid for Minera in an entirely fair transaction and the price actually paid.