The proposed buyout of online answer engine Answer Corp. has triggered investigations for investors of Answers Corporation (NASDAQ:ANSW) that question the potential unfairness of the deal.
The investigations by law firms concern possible breaches of fiduciary duties by certain officers and directors at Answers Corp. arising out of their attempt to sell Answers Corp. to AFCV Holdings, LLC
On Thursday, Feb 3, 2011, before the market opened Answers.com, (NASDAQ:ANSW) announced that it has entered into a merger agreement to be acquired by AFCV Holdings, LLC, for a total cash consideration of approximately $127 million. Under the terms of the proposed agreement AFCV Holdings, LLC will acquire all outstanding shares of Answers.com common stock, Series A convertible preferred stock and Series B convertible preferred stock. Answers.com common stock shareholders will receive $10.50 in cash for each outstanding share of common stock they own. The holders of Series A and Series B convertible preferred stock will also be entitled to receive cash consideration based on the number of the common stock into which those shares are convertible at the time of the merger.
Answers Corporation said the $10.50 offer represents a premium of approximately 33% over its 90-day volume-weighted average closing stock price.
But one law firm said that the offer undervalues the company because the buyout price is only a 16% premium over Wednesdays price and the stock has increased almost 50% in the past 5 1/2 months. Shares of Answers Corporation (Public, NASDAQ:ANSW) traded before the announcement at roughly $9.15 per share and increased in response to the news to $10.39 per share.
In addition the performance of Answers Corporation is increasing. Answers.coms 12months Total Revenue increased from $7.03million in 2006 to $20.75million in 2009. Its Net Income went from a Net Loss of $8.57million n 2006 to a Net Income of $1.76million in 2009.
Therefore the investigation concerns whether Answers Corp Board of Directors undertook an adequate and fair sales process to obtain fair consideration for all shareholders of Answers Corporation (NASDAQ:ANSW) and specifically breached their fiduciary duties to Answers Corp (ANSW) shareholder by failing to adequately shop the Company before entering into this transaction. A potential class action lawsuit would seek to maximize the amount of money and information ANSW shareholders would receive in a buyout, so the law firm.