UPDATE 1-Rock-Tenn clears legal hurdle towards Smurfit deal
WILMINGTON, Del. May 20 (Reuters) - Rock-Tenn Co (RKT.N) cleared a legal hurdle in its drive to acquire larger paper and packaging rival Smurfit-Stone Container Corp SSCC.N for $3.5 billion after a judge refused on Friday to block the deal.
Shareholders sued arguing Smurfit-Stone's board improperly agreed to sell the company for less than it's worth.
They said conflicts of interest tainted the deal. Smurfit-Stone's board relied on the advice of the bank Lazard, which stood to make $23 million if the deal closed but only $3 million if it didn't, according to documents filed in Delaware's Chancery Court.
The board's "decision to retain and rely upon the work of Lazard was not unreasonable and, as such, is not likely to provide a predicate for a violation of its members' fiduciary duties," Vice Chancellor Donald F. Parsons said in his ruling.
In addition, Smurfit-Stone's chief, Patrick Moore, general counsel Craig Hunt and former president Steven Klinger stood to collect $38 million if the company reached a change of control agreement by April.
Shareholders of the two companies will vote on the deal on May 27.
Investment funds that own 9 percent of Smurfit-Stone's common stock have said they oppose the deal and plan to vote against it.
The case is In re Smurfit-Stone Container Corp Shareholder Litigation, Delaware Chancery Court, No. 6164. (Reporting by Tom Hals in Wilmington and Ernest Scheyder in New York; Editing by Gary Hill)