An investor in shares of PRIMEDIA Inc. (NYSE:PRM) filed a lawsuit in State Court against directors of PRIMEDIA Inc. in effort to stop the takeover of PRIMEDIA under the current conditions by affiliates of TPG Capital.
According to the complaint the plaintiff alleges that the board of directors breached their fiduciary duties arising out of their attempt to sell PRIMEDIA Inc too cheaply via an unfair process and price affiliates of TPG Capital.
On May 16, 2011, PRIMEDIA Inc. (NYSE: PRM) announced that it has entered into an agreement to be acquired by affiliates of TPG Capital. Under the terms of the agreement, holders of the outstanding common shares of PRIMEDIA will receive $7.10 per share in cash, representing a transaction enterprise value of approximately $525 million.
Following the takeover proposal shares of PRIMEDIA Inc. (NYSE:PRM) rose from $4.38 on May 13 to $7.01 per share.
However, the plaintiff alleges that defendants breached their fiduciary duties by agreeing to lock up the proposed transaction with deal protection devices, such as a strict ‘no-solicitation’, a matching right, and a $8million termination fee provision, that preclude other bidders from making a successful competing offer for the company.
Additionally the plaintiff alleges that given the company’s recent performance and its positioning for growth, the proposed transaction consideration is inadequate and undervalues PRIMEDIA Inc. Indeed, PRIMEDIA has performed well for its investors in the past. Even though its 12months Total Revenue decreased over the past four annual filing periods its Net Income rose from $3.49million in ‘09 to $18.26million in 2010. Share prices for Primedia grew substantially over the past years. Shares of PRIMEDIA Inc. rose from as low as $0.89 per share in 2008 to $5.38 in February 2011.
The plaintiff also alleges that the process is unfair to PRM stockholders. In fact PRIMEDIA Inc said that stockholders holding approximately 58% of the outstanding PRIMEDIA common stock have already executed a written consent approving the transaction.