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Unusual ruling ends class action vs. Merrill Lynch over Zale deal


(Reuters) — A Delaware judge on Thursday dismissed a shareholder class action against Merrill Lynch for its role in the buyout of the Zale Corp. jewelry chain, reversing a ruling from just four weeks earlier.

Donald Parsons of the Court of Chancery ruled on Oct. 1 that Merrill Lynch had to defend its role in the sale of Zale. But the following day, he said the Delaware Supreme Court issued an opinion that clarified the standard of review in such cases.

Given the Supreme Court ruling, Merrill asked for Parsons to reconsider, which led to the unusual ruling reversing his four-week-old opinion.

Seth Rigrodsky, the attorney for the Zale shareholders, did not immediately respond to a request for comment.

The Zale case and several similar class actions have garnered attention on Wall Street for the way Delaware judges have found financial advisers like Merrill Lynch may be exposed to millions of dollars in damages in merger deals.

Zale agreed in 2014 to be acquired by rival Signet Jewelers for $21 per share, or $690 million. TIG Advisors, which held nearly 10% of Zale stock, called the deal grossly unfair, and shareholders only narrowly approved the sale.

Soon after the deal was announced, shareholders filed a class action challenging the deal price and named as defendants Zale’s board, Signet and Merrill, a unit of Bank of America .

Parsons dismissed the other defendants but on Oct. 1 ruled that Merrill could be liable to shareholders because the bank failed to disclose potential conflicts.

Merrill Lynch never told Zale’s board that a month before it was hired by the board the bank made a presentation to Signet’s chief financial officer about acquiring Zale for $17 to $21 a share.

Last year, shareholders of ambulance company Rural/Metro won $76 million in damages against RBC Capital Markets, a unit of Royal Bank of Canada. Like Merrill with Zale, RBC was alleged to have aided the Rural/Metro board in breaching its duty to shareholders.

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