Why is a Lawsuit Filed for Every Deal: J. Crew Buyout Edition

February 28, 2011

Here and here, I’ve discussed why shareholders file lawsuits to challenge every deal. †The J. Crew buyout is a case where the lawsuit may help increased the buyer’s out’s payment to shareholders. †The lawsuit, however, is much more likely to succeed when, like in the J. Crew buyout, it is paired with an†Institutional†Shareholder Services recommendation†that shareholders vote “no” on a particular transaction. †J. Crew has responded by advising its potential buyers that:

[T]he clothing retailerís board of directors to sweeten their $43.50 a share offer to sway skeptical shareholders, said two of the people, who declined to be identified because the matter is private.

Lead counsel in the shareholder lawsuit also weighed in:

If they were to bump to say $46 a share, I think they could get a successful deal and 80 percent or more of the vote . . .

J. Crew has roughly 64 million†shares outstanding, so a “bump” to $46, although seemingly insignificant, it would be $160,000,000 increase in deal price. †The shareholders’ lawyers usually take 15-20% of the ultimate recovery, so it would be a good day for them too.

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