UPDATE 1-Ancestry.com must tell more about Permira deal -judge

Mon Dec 17, 2012 5:22pm EST

* Company must disclose info on fairness opinion

* Company also must disclose details on bid provisions

* Ancestry.com's Dec. 27 shareholder vote at stake

By Tom Hals

WILMINGTON, Del, Dec 17 (Reuters) - Ancestry.com Inc must provide more details about the $1.6 billion sale of the genealogy website before its shareholders vote on the acquisition by private equity firm Permira Investment Advisors, a Delaware judge ruled on Monday.

Delaware Court of Chancery judge Leo Strine made his ruling from the bench, saying he wanted to give Ancestry.com time to comply and hold its Dec. 27 shareholder vote as scheduled.

Shareholders had sued to block the vote on the deal, arguing the sale was riddled with conflicts, lacked disclosures and used legal steps that locked out competing bids.

Strine said Ancestry.com had to disclose that its banker initially said it would be difficult to qualify as fair the $32 per share bid by Permira.

He also ordered the Provo, Utah-based company to disclose that a confidentiality agreement signed by the 12 parties interested in buying Ancestry.com contained a provision that prevented them from offering a topping bid once Permira had been selected.

"That should allow you to get your vote or I will enjoin the deal," said Strine.

Ancestry.com's attorney, William Savitt, of Wachtell, Lipton, Rosen & Katz, told the court the company wanted the deal to close before year end for tax reasons, suggesting Ancestry.com would make the disclosures soon.

The Permira-led buyout group included Ancestry.com's Chief Executive Tim Sullivan and Chief Financial Officer Howard Hochhauser and Spectrum Equity, which is the largest shareholder in the company with a 30 percent stake.

Strine said he found that the sale process had a lot of "vibrancy and fairness to it." However, he zeroed in on two "troubling" aspects,

In the lead-up to the board's approval of the deal, Hochhauser altered internal company projections after Ancestry.com's banker, Qatalyst Partners, had reservations about the $32 per share bid.

Days after getting the new numbers, Qatalyst declared the deal fair to Ancestry.com's public shareholders.

"I do think the process by which things were changed was unusual," Strine said of Hochhauser's altered forecasts.

Strine also focused on a "Don't Ask, Don't Waive" provision signed by bidders that prevented them from raising their bid, or even suggesting they might raise their bid, once a winner was selected.

Strine said he was bothered that shareholders were being told the sale was subject to higher bids but they were not told that the losing bidders were precluded from re-entering the process.

The judge did say that he found the increasingly popular provision a useful tool to force bidders to make their best offer.

The case was heard in Delaware where Ancestry.com is incorporated.

Strine, the chief judge of the business court, has been reluctant to block votes if it means preventing shareholders getting the only deal available.

Earlier in the year he allowed shareholders to vote on the $23 billion sale of El Paso to Kinder Morgan Inc, despite finding El Paso's chief executive and company's advisor, Goldman Sachs Group, suffered from conflicts. However, Strine also pointed the way to damages and El Paso's shareholders ended up getting an additional $110 million settlement after the deal closed.

Strine said Ancestry.com's shareholders may have similar cause to pursue damages after the deal closes.

The case is In Re: Ancestry.com Inc Shareholder Litigation, Delaware Court of Chancery, No. 7988.

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