Lifting the Lid: Investors sue over cozy deals

By Martha Graybow

NEW YORK (Reuters) - U.S. shareholder lawyers are pouncing on private equity buyouts of public companies, bringing a string of lawsuits claiming the deals are unfair to investors and sometimes only serve to enrich top executives.

Private equity has become a hot area for plaintiffs' lawyers, who have challenged buyouts at companies including Lear Corp. (LEA.N: Quote, Profile, Research, Stock Buzz), Topps Co Inc. TOPP.O and in a new case filed this week, Ceridian Corp. CEN.N.

Typically in these cases, shareholders argue that managers accept low-ball offers because they have cut lucrative deals for themselves with the buyers that might allow them to continue running the company and get an equity stake in the new private entity.

"You have private equity getting into bed with management," said shareholder lawyer Seth Rigrodsky. "We are very concerned about the process in which these companies are being sold."

Rigrodsky's firm, Rigrodsky & Long, represents shareholders in Delaware Chancery Court challenging a $2.86 billion buyout offer for auto parts maker Lear by billionaire Carl Icahn.

Also in Delaware, where many corporate disputes are litigated, the firm represents investors suing baseball trading card company Topps, which has agreed to a $385 million buyout from an investor group led by former Walt Disney Co. (DIS.N: Quote, Profile, Research, Stock Buzz) chief Michael Eisner and a private equity firm.

Corporate lawyers say that while there has been an explosion of private equity and management-led buyouts of public companies, there is not much new legally about the current crop of lawsuits. They say shareholders frequently challenge mergers, mainly on the argument that the price is inadequate, but that these suits face high hurdles in court.

Private equity firms have done more than $420 billion of buyouts globally this year, more than three times the amount for the same period last year, according to merger data tracker Dealogic.