May 28, 2020 / 6:49 PM / 2 months ago

As Xperi merger with TiVo heads to vote, shareholder firms fight to lead M&A class action

(Reuters) - Shareholders of the entertainment technology company Xperi will vote tomorrow on the company’s proposed $3 billion stock-for-stock merger with TiVo. But Delaware Chancery Court litigation over the merger won’t end with the shareholder vote. And now prominent shareholder firms are fighting over who will get to lead the case alleging that Xperi directors breached their duties to shareholders.

Kessler Topaz Meltzer & Check and Prickett, Jones & Elliott filed a Chancery Court complaint on May 15 for the Local 464 United Food and Commercial Workers Union Pension Fund, asserting that Xperi’s disclosures on the TiVo deal were inadequate. Specifically, the shareholder suit claimed that Xperi directors failed to provide shareholders with an explanation for their quick rejection of a competing all-cash offer from Metis Ventures, which is headed by an executive who served as Xperi’s CEO until June 2017. The UFCW suit also alleged that Xperi did not provide shareholders with information about how COVID-19 would affect its business or the business of the post-merger company.

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In response to the shareholder suit, Xperi filed a new prospectus on May 20, adding more information about the board’s rejection of the Metis offer and its analysis of COVID-19’s impact. Kessler Topaz and Prickett Jones said those new disclosures mooted shareholders’ claims over the Metis proposal – but argued that Xperi still hadn’t provided enough information about potential fallout from the virus. They asked Vice Chancellor Joseph Slights for leave to supplement their original complaint with new claims about the alleged inadequacy of Xperi’s May 20 filing.

I should say here that an Xperi spokesman declined to comment on shareholders’ allegations. The company has said that the decision to reject the Metis proposal and proceed with the TiVo merger was a matter of business judgment by independent directors.

Unbeknownst to UFCW and its lawyers, a different shareholder – the Boca Raton Police and Firefighters’ Retirement System – was also investigating the Xperi board’s decision to reject the Metis offer, which would have paid Xperi shareholders a premium over the company’s trading price. In late March, the Boca pension fund’s lawyers at Grant & Eisenhofer served a demand to see Xperi’s corporate books and records. It asserted that directors may have been conflicted in approving the TiVo deal because Xperi will have majority control over the board of the merged company, which will be headed by Xperi’s current CEO.

Kessler Topaz and Prickett Jones had also served a books-and-records demand, but when Xperi balked at turning over records, they sued. Grant & Eisenhofer, on the other hand, negotiated with Xperi’s lawyers at Skadden Arps Slate Meagher & Flom to obtain access to some documents. Xperi is due to turn over those records to Grant & Eisenhofer by the end of the month.

On May 21, Grant & Eisenhofer moved to intervene in the UFCW’s case. The motion accused Kessler Topaz and Prickett Jones of “racing to courthouse” after Xperi turned down their demand for books and records, instead of slugging it out with Xperi to develop a record with facts that will withstand a defense motion to dismiss. Shareholders’ interests, the Grant & Eisenhofer brief said, are not being safeguarded by its rival firms. G&E asked Vice Chancellor Slights to stay the UFCW case until the Boca pension fund has received Xperi’s records and can craft a detailed complaint about the board’s conduct.

Kessler Topaz and Prickett Jones met fire with fire. In a May 26 brief opposing intervention, the UFCW accused Grant & Eisenhofer of attempting to “hijack” the class action “so it can pursue a sandbagging strategy in the hope that it eventually can come up with derivative claims that might survive a post-closing motion to dismiss.” The UFCW’s strategy, the brief said, has already proved successful: Xperi disclosed more information about the rejected Metis deal in response to the suit filed by Kessler Topaz and Prickett Jones. And now Grant & Eisenhofer, the brief said, is trying to seize hold of a case it did not initiate in order to protect its own prospective derivative suit – even though, at the moment, that suit exists only in the hypothetical.

Neither Lee Rudy of Kessler Topaz nor G&E lawyers Michael Barry and Christine Mackintosh responded to my emails about the leadership fight.

Plaintiffs’ firms squabbling over who gets to litigate shareholders’ M&A claims: The country must be headed back to some version of normal, right?

The views expressed in this article are not those of Reuters News.

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