Unsurprisingly, Rightside has been sued after announcing its planned sale to Donuts.
The lawyers are circling.
Seattle law firm Breskin Johnson & Townsend PLLC has filed a lawsuit (pdf) on behalf of Rightside (NASDAQ:NAME) shareholder Susan Paskowitz challenging the deal Rightside struck to be acquired by Donuts for $213 million. The suit seeks class action status.
Up until 2015, nearly 90% of merger and acquisition deals over $100 million were litigated like this. The number dropped significantly last year after a judge shot down a “Disclosure-Only Settlement” involving Trulia. Disclosure-only settlements basically require the company to disclose more information and pay the lawyers’ fees. The shareholders don’t really get anything out of these settlements.
The suit against Rightside claims more should have been disclosed, but also takes issue with deal lock up terms that do not permit Rightside to shop the deal and a $7.7 million breakup fee due to Donuts if the deal falls through.
Amusingly, it appears the lawyers took some of the language for the lawsuit from an old SEC filing or investor presentation. It states:
The Company currently has 16 million domain names under management, more than 20,000 distribution partners, an award-winning retail registrar, and the leading domain name auction service through its NameJet joint venture.
The only part of this statement that was accurate after Rightside sold its eNom business to Tucows in January of this year was the retail registrar portion.
Hiring an adviser to look for financial buyers, per the Nasdaq listing guide, is considered “material news”.
There are hundreds of private equity funds or other potential buyers. Why the management did not announce the intention of sale of the company publicly? Restricting this to only “33 potential strategic and financial buyers” is not for shareholders interest. They could at least negotiate more than 10% premium…
Per their statement:
“On September 14, 2016, Party B, a leading internet domain registrar and web hosting company, submitted a non-binding indication of interest to acquire Rightside for $11.75 per Share in cash. Following discussion between representatives of Barclays and representatives of Party B, on September 19, 2016, Party B submitted a revised non-binding indication of interest to acquire Rightside for $13.50 per Share in cash.”
Yet, the BOD agree to sell the company for $10.60/share…
Read the whole thing. Both of those companies pulled out or reduced their offer.
I did. In this paragraph they are referring to the same company “Party B” who raised the price from $11.75 to $13.50. There is no info why they had to pull out.
I did my own some of the parts analyses and my price target was always ~$12.00, in line of the first offer…
Anyway, I do not intend to tender my shares at $10.60 and it is very rare, but in this case, I support the lawsuits. Something is not kosher in this deal…