An investor in Answer Corp. (ANSW) shares filed a lawsuit in State Court in effort to block the proposed takeover of online answer engine Answer.com operator Answer Corp by private equity company Summit Partners. According to the complaint the plaintiff alleges that directors at Answers Corporation breached their fiduciary duties by agreeing to sell Answer Corp. too cheaply through an unfair process to Summit Partners.
On Thursday, Feb 3, 2011, before the market opened Answers.com, (NASDAQ:ANSW) had announced that it has entered into a merger agreement to be acquired by AFCV Holdings, LLC, a portfolio company of growth equity investor Summit Partners, for a total cash consideration of approximately $127 million. Under the terms of the proposed agreement AFCV Holdings, LLC will acquire all outstanding shares of Answers.com common stock, Series A convertible preferred stock and Series B convertible preferred stock. Answers.com common stock shareholders will receive $10.50 in cash for each outstanding share of common stock they own. The holders of Series A and Series B convertible preferred stock will also be entitled to receive cash consideration based on the number of the common stock into which those shares are convertible at the time of the merger.
Answers Corporation said the $10.50 offer represents a premium of approximately 33% over its 90-day volume-weighted average closing stock price.
In fact shares of Answers Corporation (Public, NASDAQ:ANSW) traded before the announcement at roughly $9.15 per share and increased in response to the news to $10.39 per share.
But the plaintiff alleges that the offered prices is unfair since the buyout price is only 18% above the close of trading on the day prior to the announced of the proposed transaction. Additionally ANSW stock has increased almost 50% in the past 5 1/2 months. Furthermore the performance of Answers Corporation is increasing. Answers.com’s 12months Total Revenue increased from $7.03million in 2006 to $20.75million in 2009. Its Net Income went from a Net Loss of $8.57million n 2006 to a Net Income of $1.76million in 2009.