A Zale Corp. shareholder has filed a class-action suit to block the company’s proposed acquisition by Signet, charging the deal’s purchase price is “inadequate,” and the process behind it was “flawed.”
The suit, filed by shareholder Mary Smart on March 6 in the Court of Chancery of the State of Delaware, says the deal, which offers Zale stockholders $21 a share, is “inadequate and undervalues the company.”
By valuing the company at some $690 million, the papers say, the deal doesn’t account for “the many potential synergies that Signet will reap from the proposed transaction, including creating the largest stand-alone chain of jewelry stores in the United States, Canada, and the United Kingdom, with $6.2 billion in annual sales and $100 million in yearly cost savings.”
It also says that the purchase process was “marred by…conflicts of interest,” noting that CEO Theo Killion will retain his position and manage the business, which it called “an unusual move.”
Legal papers add the transaction has certain aspects that favor Signet, such as a “no-shop” provision, which discourages competing proposals, and a $26.7 million termination fee that must be paid to Signet if it fails to go through.
It charges that Zale directors breached their fiduciary duties and asks the transaction be enjoined and seeks unspecified damages.
This filing was not surprising; following the announcement of the acquisition, at least a dozen law firms put out notices that they were launching investigations, calling for shareholders to serve as plaintiffs in class actions. One of those firms, Ridgrodsky & Long, is involved in this suit.
According to a study by Cornerstone Research, in 2012, shareholder suits challenged 96 percent of transactions valued at more than $500 million. It adds that most of these cases settled, and in 80 percent of the settlements, shareholders only received additional disclosures.
Signet and Zale both declined comment.
JCK’s Coverage of Signet’s Purchase of Zale: