EAGAN, MN - The acquisition of Norcraft Companies, Inc. by MasterBrand parent Fortune Brands Home & Security, Inc., though it seems likely to go through, could be blocked by shareholder lawsuits. Robbins Arroyo LLP, a law firm specializing in shareholder litigations, says it is seeking litigants.
While Fortune Brands Home & Security first announced it had signed an agreement to acquire Norcraft Cabinets March 31, Norcraft included a description of the tender offer in its December 31, 2014 annual report - though that wasn't filed with the March 30, 2015. That points to the offer being under discussion, and under wraps, at least during the last quarter of 2014.
FBHS offered $25.50 per share, for a total of $600 million, for Norcraft, which reported sales of $376 million in its annual report. If the deal doesn't go through, Norcraft must pay $20 million to Fortune Brands.
In its annual report filing, Norcraft Cabinets notes:
The Merger Agreement contains provisions that could discourage or make it difficult for a third party to acquire us prior to the completion of the Fortune Brands tender offer and the merger. . . These provisions include our agreement, following the expiration of the thirty - five day go - shop period, not to solicit or initiate any additional discussions with third parties regarding other proposals for our acquisition, as well as restrictions on our ability to respond to such proposals subject to fulfillment of certain fiduciary requirements of our board of directors. The Merger Agreement also contains certain termination rights, including, under certain circumstances, a requirement for us to pay to Fortune Brands a termination fee of approximately $20.0 million, or approximately 3.3% of the purchase price.
Subject to the provisions and restrictions in the Merger Agreement, in the event that the company terminates the Merger Agreement prior to May 29, 2015 to pursue a competing proposal with a party that submitted such proposal during the thirty - five day go - shop period, the termination fee will be $10.0 million, or approximately 1.7% of the purchase price.
Historically, following the announcement of a proposed merger, securities class action litigation has often been brought against a company and its board of directors. Litigation may be filed against us and the members of our board of directors challenging the Fortune Brands tender offer and merger and an adverse judgment in any such lawsuit may prevent the Fortune Brands tender offer and merger from being completed within the expected timeframe or at all.
Shareholder rights attorneys at Robbins Arroyo said it would investigate litigation on the same day the proposed acquisition of Norcraft Companies, Inc. by Fortune Brands Home & Security, Inc. (NYSE: was announced.
Robbins Arroyo says its investigation focuses on whether the board of directors at Norcraft is undertaking a fair process to obtain maximum value and adequately compensate its shareholders.
"As an initial matter, the $25.50 merger consideration represents a premium of only 11.4% based on Norcraft's closing price on March 27, 2015.," the law firm said. "This premium is significantly below the average one day premium of nearly 54.7% for comparable transactions within the past five years."
Building its case, Robbins Arroyo says that on March 30, 2015, Norcraft reported strong earnings for its fourth quarter and full year 2014. In the fourth quarter of 2014, Norcraft reported a net sales increase of $13.5 million, or 16.7%, to $94 million. Norcraft also reported that its income from operations in the fourth quarter of 2014 increased 62%, to $7.4 million.
"We ended 2014 with a firmly established platform to continue expanding Norcraft's customer base with a broad range of higher-end, semi-custom cabinetry within the truly exceptional dealer channel," said Norcraft Companies CEO Mark Buller in announcing fourth quarter earnings.
"In light of these facts, Robbins Arroyo LLP is examining Norcraft's board of directors' decision to sell the company now rather than allow shareholders to continue to participate in the company's continued success and future growth prospects."
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