The legal challenges started within 90 minutes of infoGroup officially announcing it had been sold.
InfoGroup confirmed its sale to private equity firm CCMP Capital mid-Monday. According to a company release, the total value of the transaction was $635 million. But a Wall Street Journal report pegged the price at $460 million, and that price is more in line with the $8 per share the company will award stakeholders.
Almost immediately, a number of law firms issued statements saying they would investigate the sale. Whether these investigations will involve lawsuits or any other actions was not specified in the releases.
Common practice is for firms to pay a premium over the price of the most recent close when acquiring publicly held targets. On March 5, the stock finished trading at $8.16 per share. Monday’s announced price represents a 2% discount from that value.
What are the legal firms claiming? The Kendall Law Group said its shareholder investigation reflected its fear “that the infoGROUP Board of Directors breached their fiduciary duties by failing to seek other deals to better represent the value of the company before entering into an agreement that is potentially unfair to shareholders and represents no premium for shareholders.”
Aside from quoting the $8 per-share purchase price and the $8.16 per share Friday close price, the Kendall statement did not offer any substantiation for its allegations.
Law firm Levi & Korsinsky set the stakes even higher, noting its investigation “concerns whether the InfoGROUP Board of Directors breached their fiduciary duties to infoGROUP shareholders given that the offer price is less than the $8.99 per share that infoGROUP traded at as recently as November 10, 2009 and at least one analyst set a price target for infoGROUP stock at $10.00 per share.”
And according to a statement from legal firm Brodsky & Smith, “The transaction appears to be unfair, in part, given that Infogroup stock was trading at $8.31 a share as recently as March 2, 2010 and was trading at $8.81 a share on November 20, 2009.”
While not making specific allegations, the firm added that its investigation “concerns possible breaches of fiduciary duty and other violations of state law related to the Infogroup board’s approval of the proposed acquisition.”
An infoGroup spokesperson was not available at deadline. But the stock price was addressed in documents filed with the Securities and Exchange Commission. An internal memo made public by the company raised the question of the stock price, asking “…wouldn’t Infogroup have reached or exceeded this threshold in the near future anyway? Wasn’t the analyst target of $10 attainable?”
The company’s response, in full, read: “We have a fiduciary duty to consider all alternatives for the Company that delivers [sic] a fair return for our shareholders and the CCMP offer meets that requirement, providing an attractive, immediate and certain cash value of their shares.
“The Board’s decision to accept the CCMP offer was unanimous, and the Board recommends that shareholders vote in favor of the transaction.”
The $8 per share price may be below its Friday close, but since the beginning of the year, the value of a share of infoGroup stock has bounced between $7 and $8.50. And the swings during the last 52 weeks are even wider, with the price fluctuating between $2.24 per share and $8.89.
Founder Vinod C. Gupta is no longer involved with the company’s day-to-day operations, but he does sit on its board, and is its largest shareholder. Once the company is sold, the entire board – including Gupta – will resign, according to documents filed with the Securities and Exchange Commission. CCMP will appoint a new board.
The current management team is expected to remain under CEO Bill Fairfield through the closing of the transaction, according to papers filed with the SEC.
Assuming the sale goes through as anticipated – it should close by mid-summer, it will add infoGroup’s capabilities to what CCMP Capital managing director Kevin O’Brien called “extensive experience in direct marketing and business services” in a statement announcing the sale.
Rumors about infoGroup being on the selling block had been bubbling since last October, although the company has never confirmed it has sought suitors. In February, the company let around 40 employees, including several in upper management. CEO Fairfield has been operating under a contract that calls for his employment to be on an automatically renewing quarter-by-quarter basis, with both himself and the company able to terminate it.
During 2009, infoGroup sales stood at $499.9 million, down from $588.7 million in 2008. Additionally in 2009, infoGroup took a $6.8 million net loss, compared with net income of $4.8 million. The year ended Dec. 31.
CCMP’s Web site touts the firm as specializing in buyouts and equity investments in companies ranging from $500 million to more than $3 billion in size. Its traditional investment industries have included consumer, retail and services; energy; healthcare infrastructure; industrial; and media and telecom.
CCMP currently holds investments in Aramark Corp., Edwards Limited, Generac Power Systems, Grupo Corporativo ONO, Legacy Hospital Partners, Quiznos Sub and Warner Chilcott, among others.
