On Thursday, ZAGG Inc., which sells accessories for phones and tablets, and its Board of Directors were sued in a class-action complaint by a stockholder for purported securities violations based on alleged misleading statements, as well as an unfair and undervalued acquisition of ZAGG.
According to the complaint, the action arises out of the defendants’ efforts to sell ZAGG to Zephyr Parent, Inc. and Zephyr Merger Sub, Inc., collectively Evercel. The plaintiff noted that on Dec. 11, 2020, the Proposed Transaction terms were memorialized in a Securities and Exchange Commission (SEC) filing for the Merger Agreement.
Under the Merger Agreement, “Evercel will acquire all of the outstanding shares of ZAGG’s common stock at a price up to $4.45 per in cash. ZAGG stockholders will receive $4.20 per share in cash upon closing and a Contingent Value Right of up to $0.25 per share … As a result, ZAGG will become an indirect wholly-owned subsidiary of (Zephyr Parent), a subsidiary of Evercel.” Additionally, the plaintiff stated that the Proposed Transaction is an “all cash transaction valued at approximately $132.8 million.”
The stockholder averred that the “Proposed Transaction is unfair and undervalued.” In particular, the plaintiff pointed to the purportedly insufficient process described in the Preliminary Proxy Statement filed with the SEC in which the Board allegedly “acquiesced to two activist stockholder groups who forced through a sale of the Company despite the fact that the Board previously concluded that continuing as a standalone entity was in the Company’s best interest.” Moreover, the plaintiff proffered that the Board breached its fiduciary duties “of loyalty, good faith, due care and disclosure” by agreeing to sell ZAGG without first making sure that the putative class of stockholders “would obtain adequate, fair and maximum consideration under the circumstances.” The plaintiff further claimed that ZAGG designed the Proposed Transaction “to benefit themselves and/or Evercel without regard for ZAGG’s public stockholders.”
For example, the plaintiff said that the Board and company executives “will be able to exchange all Company equity awards for the merger consideration” upon consummation of the Proposed Transaction, but the merger consideration for the putative class is allegedly inadequate and does not take various factors into consideration. The plaintiff added that the Merger Agreement also contains statements that benefit Evercel “by making an alternative transaction either prohibitively expensive or otherwise impossible.”
Furthermore, the plaintiff claimed that the defendants provided materially insufficient statements in order to persuade stockholders to vote in favor of the Proposed Transaction. Specifically, the misleading statements and/or omissions related to “the sales process and in particular certain conflicts of interest for management,” “the financial projections for ZAGG,” and “the data and inputs underlying the financial valuation analyses.” Therefore, according to the plaintiff, the stockholders did not have sufficient information to properly vote on the matter.
ZAGG was accused of violating Section 14(a) and 20(a) of the Securities and Exchange Act of 1934, breaching its fiduciary duty, and aiding and abetting breaches of fiduciary duties.
The plaintiff asked the court to approve the class action, to enjoin the Proposed Transaction or if it has occurred set it aside and award damages, require the defendants to fulfill their fiduciary duties, and provide relief and damages for the class who were purportedly harmed by the acquisition.
The plaintiff is represented by Brodsky & Smith, LLC.