Byline: Karyn Monget / Thomas J. Ryan

NEW YORK — The proposed acquisition of Frederick’s of Hollywood by Knightsbridge Capital Corp. faces yet another hurdle.
Frederick’s has been hit with a class action lawsuit by three minority shareholders aiming to prevent the deal, which is scheduled to close Monday. A hearing to seek a 10-day delay on the closing of the deal is scheduled Monday in Delaware Chancery Court, said a Frederick’s spokesman. Frederick’s said it plans to contest the motion for a restraining order and proceed with its merger with Knightsbridge.
As reported, Frederick’s on Sept. 6 accepted a bid from Chicago-based Knightsbridge to buy the company for $7.75 a share and agreed not to entertain any other bids.
Veritas Capital on Sept. 11 offered $9 a share for the company, but Frederick’s said it would still accept the earlier offer because Knightsbridge had locked in control of the company.
Knightsbridge gained control by acquiring 43.4 percent of Frederick’s class-A shares from the estates of the founding family and later increasing that stake to some 50.04 percent through acquisitions in the open market.
Veritas has proposed that the majority grip of the Knightsbridge group could be diluted by issuing a new class of stock and selling the new shares to Veritas, but Frederick’s ignored the proposal.
The lawsuit, combining three individual shareholder suits, was filed by the firm of Rosenthal, Monhait, Gross & Goddess, based in Wilmington.
Phone calls to the attorneys were not returned. The names of the plaintiffs were not available.
In a telephone interview Wednesday, a Frederick’s spokesman at the lingerie specialist’s Los Angeles headquarters said, “Now it all depends on what the judge decides. If the judge goes for a restraining order, there’s a 10-day waiting period. Then both sides will have to get together again for a second hearing.”
The spokesman noted that “three lawsuits were consolidated into one class action suit because of the $9 bid on the table, the bid Frederick’s did not accept.”
Veritas Capital, here, originally bid $7.75 for Frederick’s, making a last-minute appearance as a $6.90 a share deal was about to be completed with Knightsbridge. Knightsbridge then hiked its offer to $7.75, pushing Veritas to make its $9 bid.
Discussing the contesting offers, the Frederick’s spokesman contended, “It was a bird-in-the-hand scenario. Does Frederick’s go with what it has or go with an offer that might take forever and not work out. Knightsbridge could have walked away.
“The Veritas bid was a letter — not a bonafide money-in-place offer. Veritas could only spend a certain amount of its capital on any transaction It was part of the company’s charter,” the spokesman said.
Reached at his offices here Wednesday, Robert McKeon, Veritas president, said: “There are a lot of issues that are not accurate….Usually, a company [such as Veritas, a merchant banker and private equity firm] can’t invest more than 25 percent [of its capital] in a deal, but this was waived by our largest investor.” And, McKeon said, Frederick’s was informed of this.
McKeon said that his grievances have been stated in an affidavit in support of the lawsuit.
Shares of Frederick’s closed Wednesday at 7 13/16, unchanged, on the New York Stock Exchange.

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