CHICAGO (CN) - A shareholder class action claims Midas is merging with TBC Corp. to give corporate officers a big "payday," and because Midas' company's financial adviser, J.P. Morgan Securities, has a large financial interest in the deal.
Lead plaintiff Jacob Scheiner sued Midas, TBC Corp., Gearshift Merger Corp., J.P Morgan Securities and five Midas officers, in Federal Court.
Midas operates and franchises more than 2,300 auto shops in 15 countries. TBC is one of the largest sellers of auto tires in the United States. It runs Big O Tires, Tire Kingdom, and other outlets, according to the TBC website.
The Midas board on March 12 unanimously approved TBC's buyout offer, for $11.50 a share, or $310 million, plus "the assumption of approximately $137 million in debt and pension liabilities," according to the complaint.
Scheiner claims $11.50 per share is too cheap, "at a time when Midas is experiencing financial success and executing on its growth strategy through value priced oil changes and co-branding."
He claims that "the company and the individual defendants undertook an unfair process engineered towards consummating a merger with favored TBC that germinated from the long tenure of Midas' lead director Defendant [Robert] Schoeberl on TBC's board and featured the engagement of a seriously conflicted financial advisor with an enormous financial interest in TBC's parent company Sumitomo."
J.P Morgan has a 7 percent interest in Sumitomo, worth $1.2 billion, according to merger documents cited in the complaint.
"J.P Morgan's ownership interest in Sumitomo coupled with its interest in the Share Collar Transaction is, at best, a potentially serious conflict of interest as it provided the bank with a strong financial incentive to steer the Board and/or the Special Committee away from other bidders or strategic alternatives and towards a transaction with TBC, regardless of the merits of these other competing strategies or bids," the complaint states.
"It is especially egregious that the individual defendants, in breach of their fiduciary duties owed to plaintiff and the class, did not seek a separate fairness opinion from an independent and unconflicted financial advisor ...
"The Board - tasked with the unremitting duty to obtain the maximum price reasonably obtainable for Midas' shareholders - simply had no business relying upon a financial advisor with such conflicts of interest."
Scheiner claims Midas' executive management team will personally benefit from the merger at shareholders' expense.
"Having decided to put itself up for sale in August of 2011, Midas insiders were interested in deal certainty to achieve their exit strategy and advance their own interest, in breach of their fiduciary duties and to the detriment of plaintiff and the class. Initiating a sham 'auction' process and tilting the subsequent process in favor of TBC (including reliance on an advisor beholden to TBC) was the surest path for insiders to secure their change in control payday," the complaint states.
Scheiner wants the deal enjoined, and class damages for violations of the Exchange Act, breach of fiduciary duty, and aiding and abetting breach of fiduciary duty.
He is represented by Leigh Handelman with Pomerantz Haudek Grossman & Gross.
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