An investor in Builders FirstSource, Inc (NASDAQ:BLDR) has filed a lawsuit on behalf of current investors Builders FirstSource, Inc (Public, NASDAQ:BLDR), who purchased the shares before August 31, 2009, over potential breaches of fiduciary duty in connection with the proposed recapitalization.
According to the complaint the plaintiff alleges the Board of Directors of Builders FirstSource, Inc (NASDAQ:BLDR) and the controlling stockholders of Builders FirstSource, JLL Partners, Inc. and Warburg Pincus LLC breached their fiduciary duty in connection with JLL Partners's and Warburg Pincus' September 1, 2009 announcement of their recapitalization plan for Builders FirstSource.

Under the terms of the recapitalization proposal, Warburg Pincus and JLL Partners offered to exchange $98 million of floating rate Builders FirstSource notes that they own and that are due to mature in 2012, for 49 million shares of common stock valued at $2 per share. The remaining noteholders will be permitted to exchange their notes for new notes due to mature in 2017 at 75% of par value, or some combination of new notes and common stock valued at $2 per share. In reaction to the announcement of the recapitalization plan, shares of Builders FirstSource dropped more than 35%, falling from $7.69 to
$4.98 per share, and continued their decline to close at $4.31 per share yesterday.

The plaintiff alleges that the acts by the defendants are unfair to the investors of Builders FirstSource, Inc (NASDAQ:BLDR) and they did not act in good faith to the BLDR shareholder. JLL Partners and Warburg Pincus collectively own 49.9% of the common stock of Builders FirstSource and the plaintiff accuses that the majority of the company’s board of directors has a conflict of interest. The offer is not in the best interest of the minority shareholders of Builders FirstSource, Inc and the offer by the majority shareholders will cause the minority shareholders to suffer voting dilution and from dilution of their stock, so the complaint. The plaintiff alleges that under the proposed offer the minority shareholders might go from 18 million to 30 million shares, while the defendants JLL Partners and Warburg Pincus could Therefore plaintiff alleges that the defendants breached their fiduciary duty, duty of loyalty. On the day the proposal was made, Builders FirstSource stock dropped from $7.69 to $4.98 per share, and later reached $4.27 per share on September 3, 2009. As part of the recapitalization, the other debt-holders of Builders FirstSource would be permitted to exchange their notes for common stock priced at $2 per share, for new notes at reduced par value maturing in 2017 or for a combination of the two.

Previous investigation called the offer even” suspicious because JLL Partners Fund V, L.P. and Warburg Pincus Private Equity IX are using their 50% ownership of the Company to restructure debt that the Company owes to them under the terms that they unilaterally decided upon. It appears that the terms are unfair to the remaining shareholders because by taking so many Company shares in return for extinguishing the debt owed to them JLL Partners Fund V, L.P. and Warburg Pincus Private Equity IX are significantly diluting the value of the shares owned by the other shareholders. The dilution of share value is reflected in the fact that the Company's share price dropped an astonishing 35% as soon as this deal was announced”. Builders FirstSource, Inc., located in Dallas, Texas, is a supplier and manufacturer of structural and related building products for residential new construction in the United States. Builders FirstSource offers an integrated solution to its customers providing manufacturing, supply and installation of a range of structural and related building products. Builders FirstSource, Inc. has operations principally in the southern and eastern United States with 58 distribution centers and 57 manufacturing facilities, many of which are located on the same premises as its distribution centers. Builders FirstSource reported in 2007 Total Revenue of $1.53053billion and in 2008 Total Revenue of $1.03452billion. Shares of Builders FirstSource (Public, NASDAQ:BLDR) traded at $4.92 per share, down from a 52weekHigh of $8.60 per share, almost $20 per share in 2007, and over $25 per share in 2006.