The acquisition of Imperial Sugar by Louis Dreyfus Commodities made big news on Tuesday, but as the hours passed by, press releases from one big law firm to the next began trickling out. The deal it seems was big enough to draw the attention of law firms from all over the country announcing that they were investigating Imperial Sugar’s board of directors for not getting enough value for existing shareholders.
That seems to be the crux of it, at least. In America, when an attorney sees an opportunity that looks like easy prey, it’s known as ambulance chasing. But the way these later announcements sprouted up throughout the day, ambulance chasing began to look more like a dog pile.
In any deal as big as the LDC buy out of Imperial Sugar, about US$78 million in cash plus debt and pension liabilities for a total of about US$203 million, there’s bound to be a lot of attorneys involved. And those attorneys expect to make big money.
Even the attorney for the deal themselves seem to have their own attorneys. Perella Weinberg Partners, who is acting as exclusive financial advisor to Imperial Sugar, is being represented by Covington & Burling. That’s just attorney fees on top of more attorney fees right there.
But back to the dog pile.
The claim by no less than seven law firms from New York to Pennsylvania and Delaware who announced investigations into the deal within hours of its going public have their eye on a big prize. No doubt these firms are fishing for clients, hoping to represent current IPSU shareholders who may feel that they’re getting the short end of the stick when it comes to shareholder value. The question remains to be seen if that’s true.
Though most of the firms are claiming that they’re investigating possible “breaches of fiduciary duty and other violations of state law,” the key seems to be that they don’t think that Imperial Sugar shopped itself around enough and sold out to the first offer that was given, an offer that is felt to be too low. LDC offered US$6.35 per share, which was a 50% premium on Monday’s closing share price. Considering the stock had been trading in the gutter in recent months, that probably seemed like a fair price at the time, at least to Imperial and LDC.
The lawyers are claiming otherwise, however. As IPSU traded as high as US$7.03 as recently as February 13, and at US$24.49 on Aug. 2, 2011, the lawyers are saying that the price offered by LDC was too low, thus the claims of breaching fiduciary duty. Where the lawyers seem to be on weak ground is where several of them are using a Yahoo! Finance analyst’s projections that the share price should be US$20 as justification of their complaint.
But that 50% premium that LDC offered? That was made up in trading the day of the announcement, with shares closing at 58% higher on the day. The shares have stayed around the US$6.40 range ever since.
The first law firm out of the gate hinting at poor fiduciary execution was former United States Securities and Exchange Commission attorney Willie Briscoe, giving some validity to the idea that there may be something afoot. Sadly he was also the first to reference Yahoo! Finance as a source, but to his credit he did point out that the stock’s 52-week high had been US$25.68 per share.
“Based on the lack of a significant premium to Imperial Sugar shareholders, and other factors, the firms are investigating whether the buyout price is fair to Imperial Sugar shareholders. Our proposed shareholder lawsuit seeks to obtain additional value for shareholders than what is proposed in the current buyout offer," Briscoe said in a statement.
And then there was the justifier that the following half dozen law firms would put in their press releases in some form or another: “If you are an affected investor, and you want to learn more about the lawsuit or join the action… There is no cost or fee to you.”
Ah yes, the attorneys are fishing. But if they’re successful, they could catch a big one. If what’s offered is US$6.35 and a lawsuit can get that to US$10 or even US$15, well 30% or more of the difference in prices translated into attorney fees certainly looks like a good return on the effort of putting up a press release on a free website.
LDC is expected to put forward its cash tender offer no later than May 11 with the deal expected to close by the end of the second quarter, just five weeks later. The deal seems pretty much done and dusted, but the question remains if one or several of these law firms will be successful in getting together one or several class action lawsuits. That would certainly put a hamper on the deal and slow down the process significantly, while jacking up attorney costs for LDC or Imperial Sugar or both.
Or perhaps LDC actually did its homework before making the offer and the deal is a fair one, which will mean these law firms will have to go back to chasing ambulances.