In a putative class action, Ronald Blackwell sued Forescout Technologies, a device visibility and control solutions company, and its board members on Tuesday in the Northern District of California for securities fraud. The complaint alleged that Forescout omitted information in its documents and breached its fiduciary duty.
The issue arose out of Advent International Corporation, a private equity firm, and its affiliates’ interest to acquire all issued outstanding Forescout shares. In February, Forescout and Advent entered into the initial merger agreement, “pursuant to which Forescout’s shareholders would be entitled to receive $33.00 per share in cash for each share of Forescout common stock they own.”
In March, Forescout issued a proxy statement asking shareholders to vote for the initial merger agreement, which was approved in April. Meanwhile, Advent supposedly informed Forescout three days before the initial merger was set to close that because Forescout had allegedly breached the agreement “it had concluded that certain closing conditions provided in the Initial Merger Agreement could not be met, and as a result Advent would not consummate the acquisition.” The initial merger would have been a $1.9 billion deal. In July, Advent and Forescout entered a new merger agreement, where shareholders would receive $29.00 per common stock share.
However, the plaintiff claimed that “[i]n renegotiating a deal with Advent, the officers and directors of the Company abandoned the interests of shareholders in pursuit of their own personal benefits.” Specifically, “one of the primary new features present in the Merger Agreement that was absent from the Initial Merger Agreement is the ability for certain shareholders and certain holders of Forescout Stock-Based Awards and/or Forescout Options, including Forescout’s executive officers, to roll their equity over into the combined company and continue to share in the future growth of the Company. This rollover comes at the expense of common shareholders, who will now receive four dollars less per share from the Initial Consideration.”
Furthermore, the plaintiff proffered that in order to persuade Forescout shareholders to tender their shares, in July Forescout’s Board “authorized the filing of a materially incomplete and misleading Schedule 14D-9 Solicitation/Recommendation Statement…with the Securities and Exchange Commission.” Examples of the allegedly incomplete and misleading information relate to: “(i) the Company’s financial projections; (ii) the valuation analyses performed by the Company’s financial advisor, Morgan Stanley & Co. LLC (‘Morgan Stanley’); (iii) the conflicts of interest facing Morgan Stanley; (iv) the conflicts of interest facing the Company’s officers and directors; and (v) the background of the offer.” As a result, plaintiff Blackwell alleged that shareholders cannot make an informed decision when voting on the transaction because of omitted and undisclosed information. The plaintiff added that the tender offer is set to expire after August 20, 2020, so it is important that Forescout discloses the omitted information before it expires.
Forescout Technologies is accused of violating Sections 14(e) and 20(a) of the Securities Exchange Act of 1934 and of breaching their fiduciary duties under state law for the aforementioned conduct. The plaintiff has sought to enjoin the defendants from closing the tender offer or to prevent it from completing the proposed transaction, unless the requested information is disclosed, to recover damages, and other relief.
Blackwell is represented by Monteverde & Associates PC and Ademi & O’Reilly, LLP.