Investors Sue to Block Sonic's Proposed $2.3B Deal to Take Company Private
A shareholder of Sonic Corp. has sued in Delaware federal court to halt the drive-in fast food company's $2.3 billion bid to take the company private, alleging that the board withheld key financial data about the deal.
November 05, 2018 at 04:15 PM
3 minute read
A shareholder of Sonic Corp. has sued in Delaware federal court to halt the drive-in fast food company's $2.3 billion bid to take the company private, alleging that the board withheld key financial data about the deal.
The class action lawsuit, filed Nov. 2, seeks to enjoin a planned vote on Sonic's proposed sale to Inspire Brands Inc. until the company provides more details about the process, potential conflicts and financial projections that investors said were omitted from regulatory filings earlier this year.
The filing, which was made public on Monday, was the second to challenge the proposed acquisition.
Attorneys for shareholder Eric Federman said in the 20-page complaint that the additional disclosures were needed for investors to make a fully informed decision on whether to approve the transaction.
“In short, unless remedied, Sonic's public stockholders will be forced to make a voting or appraisal decision on the proposed transaction without full disclosure of all material information concerning the proposed transaction being provided to them,” O'Kelly Ernst & Joyce partner Ryan M. Ernst said in the filing.
Oklahoma City-based Sonic announced in late September that it had reached for Inspire, which is majority-owned by affiliates of private-equity firm Roark Capital Group, to buy Sonic for $43.50 per share. According to the complaint, Sonic management began meeting with Roark managing partner Neal Aronson in April and authorized its financial adviser to contact 10 potential buyers, including Roark's Inspire, whose portfolio of restaurants includes more than 4,700 Arby's, Buffalo Wild Wings and Rusty Taco locations worldwide.
In a joint press release Sept. 25, Sonic and Inspire said the deal, valued at approximately $2.3 billion, would include the assumption of Sonic's debt and better position the company for long-term growth.
“Our board of directors, taking into account the views of shareholders, conducted a comprehensive review of a wide range of strategic options to maximize shareholder value,” Cliff Hudson, Sonic's CEO, said at the time. “This transaction delivers significant, immediate and certain value to Sonic shareholders, and the private ownership structure will provide important benefits to our guests, franchisees and employees.”
However, Federman said that Sonic's proxy materials failed to disclose possible conflicts for Sonic insiders, who he argued were the “primary beneficiaries” of the transaction. According to Federman, Sonic's executive officers had secured positions for themselves in the post-merger firm and stood to “reap substantial financial benefits” from the deal.
Should their employment be terminated, Federman said members of Sonic's management team would fall back on a “golden parachute,” in the form of cash payments totaling millions of dollars.
Federman and his attorneys pushed for access to data on Sonic's five-year financial projections, as well as the inputs and assumptions used to conduct the company's financial analyses in the run-up to the deal.
Sonic did not immediately respond Monday to a request for comment. An online docket-tracking service did not list counsel for the company and its directors.
The named defendants include Hudson and the rest of Sonic's 11-member board.
The lawsuit, filed in the U.S. District Court for the District of Delaware, is captioned Federman v. Sonic.
Another investor, Anthony Franchi, has made similar allegations in a suit filed last week. Neither case has yet been assigned to a judge.
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