Two years removed from the original buyout that made Windsor-based SS&C Technologies a private company, a lawsuit alleging company directors benefited from the deal at the expense of shareholders has yet to reach a conclusion.
Now, as the company once again seeks access to the public market through a proposed $200 million IPO, the case heads to trial. And it’s unclear how the stock offer – launched so soon after the buyout – could affect the status of that suit, and conversely, if that suit could impact the IPO.
Since the suit’s filing, both sides have made a series of legal moves that resulted in a proposed settlement being thrown out of court in late 2006. A trial is scheduled for July 2008.
The dispute began in July 2005, when two then-shareholders in SS&C, Paulena Partners LLC and Stephen Landen, each separately sued SS&C’s directors, alleging that they benefited at stockholders’ expense from a $982 million buyout of the company led by The Carlyle Group and SS&C founder William Stone. A Delaware court combined the suits into a single class action a month later. In October of that year, before the buyout closed, the two signed a memorandum of understanding to settle the case provided SS&C include some additional disclosures about the transaction in its proxy statement to shareholders.
Settlement Talks
The deal closed that November, but it was not until the following July – eight full months after SS&C became a private entity – that both sides agreed to a settlement. In regulatory filings, SS&C said that settlement included an offer to pay $350,000 to the plaintiffs for legal fees. No other proposed details of the settlement were listed.
In November 2006, Stephen Lamb, a chancellor, or special judge, in Delaware where SS&C is incorporated, threw that settlement out. Lamb said the close of the buyout rendered any decision by the court “substantially emptied of meaning or purpose” and that the only “continuing interest is that of the plaintiffs’ counsel in recovering a fee.”
Lamb also criticized the plaintiffs’ lawyers, saying they “exhibited a striking lack of understanding about the basic terms of the transaction, including the terms of senior management’s participation in the deal.” The court said it could not find that the plaintiffs’ lawyers competently or adequately investigated the claims against the company.
Still the actions of founder and CEO Stone in initiating the sale raised serious legal and ethical questions, Lamb said.
Misguided Management?
In 2005, Stone, a significant shareholder in the company, began seeking buyers and negotiating a deal with The Carlyle Group without authorization from the board of directors, the court said. His goal in doing so was to realize a substantial cash payout for some of his shares and use the remainder to reinvest in SS&C. Once he negotiated a price of $37 a share, he sent a letter to the board informing them of details of the proposed sale, and his willingness to complete it
The board of directors, learning of the proposal, briefly formed a special committee to look for other buyers and alternatives to the sale, but all they managed to do was increase Carlyle’s price to $37.25 per share.
Stone’s behind-the-scenes maneuvering raised questions about whether he improperly used corporate information and resources to find a buyer most suitable to himself, rather than shareholders, the court found. It also raised questions whether Stone’s efforts thwarted any real chance for the board to find an alternative bid or better price.
Officials from SS&C declined to comment, as did The Carlyle Group, citing an SEC-mandated “quiet period” before an IPO.
But Jonathan Stein, a lawyer for the plaintiffs, said the forthcoming IPO could impact the direction of the lawsuit.
“It depends on what the offering is priced at. We allege that some individuals involved in the deal, especially Mr. Stone were treated differently. It’s interesting to see that they’re looking to sell the company already, but we will wait and see what, if anything, happens.”
If the case does head to trial, questions about less-than-forthcoming behavior by the company’s CEO are unlikely to benefit SS&C’s stock price. Of course, that’s if the case makes it that far.
