Here To Help Clients To A Better Future

Complex Business Litigation: sued by Shareholders for Breach of Fiduciary Duty

On Behalf of | Jan 8, 2013 | Articles

In some recent complex business litigation, Inc. (ACOM) is ­­facing a shareholder lawsuit after executives approved a $1.6 billion buyout by European private equity firm Permira.  The terms of the merger call for stockholders to be bought out of their interest in the company for $32 per share. The complaint alleges that chief executive officer Timothy Sullivan and other executives breached their fiduciary duty to investors in accepting a deal that allowed executives to maintain their equity interest in the company and keep their current positions on the board.

The shareholders bringing suit claim that the company has a positive future outlook, and that the proposed deal protects company insiders while buying out holders of common stock.  Among the named defendants is Spectrum Equity Investors, Ancestry’s largest shareholder with 30% ownership. The proposed merger allowed Spectrum to similarly maintain its equity interest in the company while receiving a “nearly 600% gain through the proposed merger based on its approximately $113 million outlay in Ancestry’s pre-IPO predecessors.” The plaintiffs claim that the deal allows the defendants to enjoy the benefits of the company’s expected revenue while depriving other shareholders of the value of their investment. The plaintiffs are trying to block the merger, or seek damages in the event that it takes place.

A corporation’s executives have a fiduciary duty to act in the best interest of the corporation’s stockholders, and acting in their own self-interest is a breach of this duty. According to the complaint, multiple analysts have set target prices above the $32.00 agreed upon by Ancestry’s board of directors and Permira. The complaint alleges that due to the inherent conflicts of interest in the merger, “the Individual Defendants and Spectrum are acting in their own best interests to take the Company private on terms wherein they reap a huge profit based upon their existing investments in the Company while also rolling over their equity interests into the post-Proposed Merger company.” Also at issue to the plaintiffs is a provision in the merger agreement that serves to deter other offers, including a “no-solicitation” provision preventing Ancestry from encouraging other bids, a requirement that Ancestry notify Permira about other bids, and a $75 million termination fee if Ancestry terminates the merger agreement to pursue another proposal.

The law office of Makarem & Associates is comprised of experienced attorneys who are dedicated to representing the rights of shareholders in complex business litigation. In 2008, Mr. Makarem sued Nokia on behalf of its shareholders, alleging that Nokia failed to make reasonable and good faith efforts to promote one of the first products to allow consumers to access their emails on their cell phones.

The law office of Makarem & Associates has experience representing plaintiffs in wide array of complex business litigation matters, and our representative clients include shareholders, corporations, corporate officers, and small businesses. Our team of experienced Los Angeles business litigation attorneys is committed to providing individualized legal solutions and strategies and strive to obtain the best possible outcome for each client we take. If you would like to schedule a consultation with one of our complex business litigation attorneys, please contact us by phone at(310) 312-0299 or email at [email protected].

Source: In re Shareholder Litigation, CA 7988-CS, Delaware Chancery Court (Wilmington).