An investor in Polymer Group, Inc. (OTC:POLGA) filed a lawsuit in State Court against Polymer Group directors alleging breaches of fiduciary duty arising out of their attempt to sell Polymer Group too cheaply to an affiliate of Blackstone Capital Partners V L.P.
According to the complaint the plaintiff alleges that directors of Charlotte based Polymer Group, Inc. breached their fiduciary duties owed to Polymer Group, Inc. (OTC:POLGA) investors for agreeing to sell Polymer Group via an unfair process at an unfair price to an affiliate of Blackstone Capital Partners V L.P.

On Tuesday, October 04, 2010, Polymer Group, Inc. (OTC Bulletin Board: POLGA/POLGB) announced it has entered into an agreement to be acquired by an affiliate of Blackstone Capital Partners V L.P. As a result of the transaction, each holder of outstanding shares of Polymer Group, Inc. (OTC:POLGA) common stock will be entitled to receive up to $18.16 in cash for each share. A portion of the aggregate purchase consideration totaling $64.5 million, or approximately $2.91 per share, will be deposited in an escrow account at closing and will be available to cover potential tax liabilities, costs and expenses. As a result of the reserve of the escrow funds, each holder of outstanding shares of PGI common stock will be entitled to receive approximately $15.25 at closing, and will be entitled to receive its ratable share of any additional amounts if and when released from the escrow fund in accordance with the definitive agreement.

The plaintiff claims the offered price clearly is inadequate and substantially undervalues Polymer Group, Inc. Shares of Polymer Group Inc. traded at $20 per share on April 09, 2010, and April 23, 2010 after Polymer Group announced its Board of Directors is evaluating strategic alternatives. Then after media reports surfaced in August announcing that Private-equity firm Blackstone Group LP is in exclusive, early-stage talks to buy Polymer Group Inc. its shares (POLGA) closed 4% higher on August 13, 2010, or at $21.75 per share, valuing Polymer at about $467 million. POLGA shares continued to increase in value to as high as $23.99 per share on September 29, 2010, before losing almost 35% in response to the takeover news on October 04, 2010.

The plaintiff also alleges that the proposed acquisition is the product of a fundamentally flawed process that is designed to ensure the acquisition of Polymer Group Inc by Blackstone on terms preferential to Blackstone, but detrimental to the plaintiff and the other minority shareholders of Polymer Group. The plaintiff claims that Blackstone stands on both sides of the transaction, because Blackstone is not only a potential acquirer of Polymer Group, but actually also participated in its valuations process, serving as Polymer Group’s financial advisor for the acquisition.