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Advocat shareholders sue over buyout rejection
In twist on typical buyout litigation, nursing operator's investors angry board didn't consider 96 percent premium offer
Typically when shareholders file lawsuits against a company over a buyout offer, it’s because the offer wasn’t high enough and the leadership didn’t hold out for more. Not so with the complaint filed Wednesday by a group of Advocat shareholders: They’re angry the nursing operator didn’t entertain an offer from Covington Health Group that valued the company at $50 million.
Georgia-based Covington recently put in a non-bidding offer for the Brentwood-based company at $8.50, nearly double the price at which the company’s shares closed last Thursday before the offer was made public. Much to the chagrin of the suing shareholders, the company’s board went on record saying it rejected the offer because it fails to take into account the company's investment growth and expansion plans. On top of that, they said the offer undervalues the senior living sector as a whole.
Additionally, the investment group met with Advocat’s largest shareholders, Wallace Olson and Chad McCurdy's Marlin Capital, who combined own 29 percent of the company’s shares. According to Advocat,
“Based on conversations with those shareholders following that meeting, the Board believes that those shareholders are not interested in selling their shares at the proposed price. While we acknowledge that those shareholders do not speak for all shareholders, we believe they serve as useful proxies for the views of many of our shareholders, and the significance of their ownership position has bearing on the likelihood that your proposal could be successfully concluded.”
The lawsuit, filed by local plaintiff law firm Barrett Johnston, claims the company’s board has over the years engaged in misconduct by employing various “draconian antitakeover defenses.” Advocat has had a poison pill in place since 1998 and, as the lawsuit points out, Covington would be unable to purchase the company even if shareholder support was overwhelming.
For its part, the market has responded to the offer, showing some healthy skepticismthat it will be completed. Shares have remained well below the $8.50 represented by the Covington offer.
The complaint asks the court to enjoin the company from employing any defensive measure, “which may render the acquisition of the Company unduly burdensome or expensive for a potential acquirer.”
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