Salesforce’s Proposed Acquisition of Slack Prompts Slack Shareholder Suit

On Monday a Slack Technologies, Inc. stockholder filed a complaint in the Northern District of California against the company and members of its Board of Directors for allegedly violating the Securities Exchange Act of 1934 for its registration statement relating to Salesforce’s proposed acquisition of Slack. Accordingly, the plaintiff has sought to enjoin the proposed transaction.

Pursuant to the Merger Agreement, the complaint said, Slack shareholders will “receive $26.79 in cash and 0.0776 shares of Salesforce common stock for each share of Slack common stock owned” as merger consideration. The plaintiff noted that the Board unanimously recommended for shareholders to vote in favor of the proposed transaction.

The plaintiff claimed that in order to persuade stockholders to vote for the proposed transaction, on “December 23, 2020, the Board authorized the filing of a materially incomplete and misleading Registration Statement on Form S-4 (the ‘Registration Statement’) with the Securities and Exchange Commission (‘SEC’)” that violates the Exchange Act because it allegedly does not comply with SEC Rule 14a-9 and Regulation G. The plaintiff contended that the defendants did not disclose certain material information that is necessary and important for shareholders to know in order to sufficiently asses the proposed transaction.

Specifically, the plaintiff averred that the Registration Statement contained materially incomplete and misleading information regarding “the financial forecasts for the Company prepared and relied upon by the Board in recommending to the Company’s stockholders that they vote in favor of the Proposed Transaction.” For example, Slack allegedly failed to disclose certain information such as “reconciliation to its most comparable GAAP measures” and “the value of certain line items used to calculate (a) Non-GAAP Gross Profit, and (b) Non-GAAP Operating Income (Loss)” in relation to both Slack’s Initial Three-Year Plan and Slack’s Updated Three-Year Plan and Related Extrapolations. Additionally, for Slack’s Updated Three-Year Plan and Related Extrapolations, the Registration Statement allegedly did not disclose “the value of certain line items used to calculate” “Unlevered Free Cash Flow, and…Unlevered Free Cash Flow Less Stock-Based Compensation” and it also purportedly did not disclose stock-based compensation, according to the plaintiff.

These forecasts were used by Slack’s financial advisors when they were “conducting their valuation analyses in support of the fairness opinions.” Additionally, the plaintiff proffered that the information about certain financial analyses conducted by the financial advisors contained in the Registration Statement were also materially incomplete and misleading. The plaintiff argued that the Registration Statement omissions must be disclosed to stockholders before they must vote on the proposed Transaction.

The defendants are accused of violating Sections 14(a) and 20(a) of the Exchange Act, SEC Rule 14a-9, and Regulation G. The plaintiff has sought to enjoin the defendants from “proceeding with, consummating, or closing the Proposed Transaction unless and until” Slack discloses the omissions, but if the proposed transaction is consummated for it to be rescinded; an award for damages, costs, and fees; and other relief.   

The plaintiff is represented by Wolf Haldenstein Adler Freeman & Herz LLP.

Slack was previously sued for securities violations, but not related to the proposed transaction; instead, the two lawsuits were related to Slack’s direct listing.