Micro Focus shareholders grapple over settlement in merger lawsuit

A sign stands outside the offices of Micro Focus in Newbury
The offices of Micro Focus in Newbury, Britain, September 8, 2016. REUTERS/Eddie Keogh
  • Plaintiffs disagree over whether federal court has jurisdiction
  • Federal plaintiffs seek to settle for $15 million
  • State court plaintiffs say deal undervalues their claims

(Reuters) - U.S. shareholders in Micro Focus International PLC are fighting over a proposed $15 million settlement with the British software company, with some arguing the deal undervalues their claims.

A Michigan pension fund that leads a federal lawsuit against Micro Focus and the company itself both asked a federal judge in Manhattan to approve the $15 million settlement on Friday. The settlement would resolve claims that the company hid looming problems in its $8.8 billion acquisition of Hewlett-Packard Enterprise's software business in 2017.

But a group of investors who sued the company in California state court told U.S. District Judge Andrew Carter Jr he did not have jurisdiction over the case and said it undervalued their claims, which they have said are worth $2 billion.

Attorneys for the parties did not immediately reply to requests for comment on Monday.

The dispute is an example of the kind of issue courts have grappled with following a 2018 U.S. Supreme Court ruling that let investors sue in state court over alleged misrepresentations in securities offerings.

While some companies have since required shareholders to sue in federal court, state and federal courts are navigating litigation brought in the wake of the Cyan Inc v. Beaver County Employees Retirement Fund decision.

Two groups of U.S. investors sued Micro Focus in 2018 over the Hewlett-Packard acquisition.

In federal court, the investors alleged the company and its leaders had made misrepresentations in registration statements for the American Depositary Shares issued during the merger.

The lawsuit also claimed the company defrauded investors who bought shares between the merger and 2019.

Carter dismissed the case in September and investors filed an appeal. But they withdrew the appeal this spring while negotiating the settlement.

The plaintiffs in the state court case claim that the federal plaintiff's proposed settlement short changes investors and ignores Carter's dismissal of the case.

The pension fund urged Carter to reject that argument, which it said would put the case in "limbo."

Micro Focus agreed, saying the state court plaintiffs' "jurisdictional shotgun blast" would deny recovery to the investors on the fraud claims, which are not a part of the state court action.

The parties have until Aug. 27 to file reply briefs.

The case is In Re Micro Focus International PLC Securities Litigation, United States District Court for the Southern District of New York, No. 1:18-cv-06763.

For the federal plaintiffs: James Harrod and Jai Chandrasekhar of Bernstein Litowitz Berger & Grossmann

For the state plaintiffs: Joseph Russello of Robbins Geller Rudman & Dowd; John Jasnoch of Scott + Scott; and Joseph Cotchett of Cotchett, Pitre & McCarthy

For Micro Focus International: Matthew Solum and Stephen Potenza of Kirkland & Ellis

Read more:

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Dela. Supreme Court: Companies can pick forum for shareholders’ Section 11 claims

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Jody Godoy reports on banking and securities law. Reach her at jody.godoy@thomsonreuters.com