HOLDER SUES TO BLOCK MAYBELLINE MERGER
Byline: Carol Emert
WASHINGTON — A Maybelline stockholder has filed a class-action complaint in federal court seeking to stop Maybelline’s merger with the Paris-based L’Oreal.
The shareholder, Crandon Capital Partners, based in Florida, contends that the proposed merger cheats Maybelline shareholders because Maybelline might have fetched a higher purchase price from another buyer.
Maybelline officials did not return telephone calls. A spokesman for Cosmair, the New York-based subsidiary of L’Oreal, said Thursday, “We do not believe the lawsuit will derail the tender offer.” He would not comment further except to say that Maybelline “intends to vigorously defend the action.”
Maybelline should have held an auction or at least conducted a “market check” to determine whether its shares were worth more than the $36.75 that L’Oreal has agreed to pay, said Crandon’s complaint, a copy of which was filed by Maybelline with the Securities and Exchange Commission.
The complaint itself was filed in federal court in Delaware, where Maybelline is incorporated.
“The consideration to be paid to the Maybelline shareholders in the merger is grossly unfair, inadequate and substantially below the fair or inherent value of the company,” the complaint said.
Suits such as Crandon’s, known as shareholder strike suits, commonly accompany announcements of high-profile mergers, and they often result in a relatively fast settlement by the defendant to allow the merger to proceed, according to legal experts interviewed Thursday.
However, Crandon’s case appears to be stronger than most shareholder strike suits because of a wrinkle involving Wasserstein Perella & Co., the New York investment firm that owns 30 percent of Maybelline’s stock, said J. Stephen Simms of Greber & Simms, Baltimore, Md. Crandon is contending that Maybelline’s directors breached their fiduciary duty to stockholders by relying on the advice of Wasserstein Perella, rather than hiring an independent investment firm to evaluate the merger.
Plaintiffs rarely win such suits because of a law called the Business Judgment Rule, which Simms described as “a presumption that what directors have done has been in the best interest of the corporation.”
“It’s the rarest of plaintiff security suits that goes to trial, and among those that do go to trial, it’s even more rare that the plaintiff wins,” said Simms, immediate past chairman of the American Bar Association’s committee on professional directors’ and officers’ liability law.
A weaker argument by Crandon is that Wasserstein Perella had a greater interest in the merger than other stockholders because it would get a higher return on its initial investment. Wasserstein Perella bought its shares in 1990 for $5 each, while the price at the company’s 1993 initial public offering was $23.50, the complaint notes.
However, Simms said the argument that Wasserstein Perella was getting a higher return than other taxpayers was weak because people who invest in a company before it goes public typically pay a much lower share price than do those who buy their shares on an exchange. Early investors routinely benefit from higher share prices after the company goes public and/or is the target of an acquisition.
Crandon’s complaint asks that Maybelline be put up for auction or that a market check be conducted; that if the merger goes forward, it should then be rescinded, or else stockholders should be compensated, and that the defendants should pay the plaintiffs’ attorney fees and “further relief as may be just and proper.”
Attorneys for Crandon did not return telephone calls Wednesday and Thursday.
The suit was dated Dec. 11, the day after plans for the $508 million merger were announced. — Fairchild News Service