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Azar v. Blount International Inc.

United States District Court, D. Oregon

March 20, 2017

ELIA AZAR and DEAN ALFANGE, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
BLOUNT INTERNATIONAL, INC., JOSHUA L. COLLINS, DAVID A. WILLMOTT, ROBERT E. BEASLEY, JR., RONALD CAMI, ANDREW C. CLARKE, NELDA J. CONNORS, E. DANIEL JAMES, HAROLD E. LAYMAN, MAX L. LUKENS, and DANIEL J. OBRINGER, Defendants.

          Robert J. McGaughey, McGaughey Erickson Lead Counsel for Plaintiffs.

          Joshua M. Sasaki and Ian Christy, Of Attorneys for Defendants Blount International, Inc., Robert E. Beasley, Jr., Ronald Cami, Andrew C. Clarke, Nelda J. Connors, E. Daniel James, Harold E. Layman, Max L. Lukens, and Daniel J. Obringer.

          Gary A. Bornstein, Cravath, Swaine & Moore LLP Of Attorneys for Defendants Blount International, Inc., Andrew C. Clarke, Nelda J. Connors, E. Daniel James, and Harold E. Layman.

          Lawrence J. Portnoy and Rebecca L. Martin, Davis Polk & Wardwell LLP Of Attorneys for Defendants Robert E. Beasley, Jr., Ronald Cami, Max L. Lukens, and Daniel J. Obringer.

          B. John Casey, K&L Gates LLP, Jay P. Lefkowitz and Nathaniel J. Kritzer, Kirkland & Ellis LLP Of Attorneys for Defendants Joshua L. Collins and David A. Willmott.

          OPINION AND ORDER

          Michael H. Simon United States District Judge

         Plaintiffs, former stockholders of Defendant Blount International, Inc. (“Blount” or the “Company”), bring this putative class action lawsuit primarily under § 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a), seeking to rescind Blount's merger (the “Merger”) with American Securities, LLC and P2 Capital Partners LLC (collectively, the “Buyers”). In the alternative, Plaintiffs seek money damages arising out of the Merger. Defendants Blount, Joshua L. Collins, David A. Willmott, Robert E. Beasley Jr., Ronald Cami, Andrew C. Clarke, Nelda J. Connors, E. Daniel James, Harold E. Layman, Max L. Lukens, and Daniel J. Obringer (collectively, “Defendants”) have moved to dismiss Plaintiffs' Amended Class Action Allegation Complaint (“Amended Complaint” or “Am. Compl.”), under Rule 12(b)(6) of the Federal Rules of Civil Procedure.[1] For the reasons that follow, the Court DENIES Defendants' motion.

         STANDARDS

         A motion to dismiss for failure to state a claim may be granted only when there is no cognizable legal theory to support the claim or when the complaint lacks sufficient factual allegations to state a facially plausible claim for relief. Shroyer v. New Cingular Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). In evaluating the sufficiency of a complaint's factual allegations, the court must accept as true all well-pleaded material facts alleged in the complaint and construe them in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co, 668 F.3d 1136, 1140 (9th Cir. 2012); Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998 (9th Cir. 2010). To be entitled to a presumption of truth, allegations in a complaint “may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). All reasonable inferences from the factual allegations must be drawn in favor of the plaintiff. Newcal Indus. v. Ikon Office Solution, 513 F.3d 1038, 1043 n.2 (9th Cir. 2008). The court need not, however, credit the plaintiffs legal conclusions that are couched as factual allegations. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

         A complaint must contain sufficient factual allegations to “plausibly suggest an entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation.” Starr, 652 F.3d at 1216. “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Bell Atl Corp. v. Twombly, 550 U.S. 544, 556 (2007)). In addition, as discussed more fully below, under the Private Securities Litigation Reform Act (“PSLRA”), class-action claims under § 14(a) must meet heightened pleading standards. 15 U.S.C. § 78u-4(a)(1); Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., 759 F.3d 1051, 1058 (9th Cir. 2014) (“The PSLRA . . . imposes more exacting pleading requirements . . . .” (quotation marks omitted)).

         BACKGROUND

         Blount is a Delaware corporation that manufactures and markets replacement parts, equipment, and accessories for consumers and professionals in the forestry, lawn and garden, farm, ranch, agriculture, and construction industries. Am. Compl. ¶¶ 2, 17. Before the Merger, Defendants Collins and Willmott were the Chief Executive Officer and Chief Operating Officer of Blount, respectively. Id. ¶ 18. Blount's Board of Directors (the “Board”) consisted of ten members: Collins, Willmott, and eight independent directors, Defendants Beasley, Cami, Clarke, Connors, James, Layman, Lukens, and Obringer. Id. ¶¶ 20-28. At all relevant times, Plaintiffs were Blount stockholders. Id. ¶¶ 1, 16.

         P2 Capital Partners LLC (“P2”) approached Collins in early 2015 about partnering with another investor to acquire the Company and take it private. Id. ¶ 3. P2 eventually teamed with American Securities, LLC (“American Securities”) and worked with Collins and Willmott to effect that purchase and sale. Id.

         On August 6, 2015, the Buyers submitted an informal indicative proposal to acquire the Company at a price range of $11.00 to $12.50 per share, and stated that they intended to retain Collins and Willmott as managers. Id. ¶ 42. Plaintiffs allege that Collins and Willmott thus were conflicted because of this potential post-transaction employment, giving them an interest in the Merger separate from those of other Blount shareholders. Id. ¶¶ 42-43. Despite this alleged conflict, Collins and Willmott worked with the Buyers to close the deal to sell the Company. Id. ¶ 43.

         On September 9, 2015, because the Buyers wanted to retain Company management, the Board formed a “Special Committee” to negotiate, evaluate, and provide recommendations to the Board regarding any acquisition proposals. Portnoy Decl. ¶ 2, Ex. A, “Blount International Inc.'s Definitive Proxy Statement” (“Proxy”) at 35, ECF 57-1.[2]

         In the process leading to the Merger, Blount's management created certain sets of financial projections, generated as early as September 2015, which Plaintiffs refer to as the “September Projections.” Am. Compl. ¶¶ 55, 58 & n.2. These projections “forecasted the Company's financial performance for several years into the future” and “purportedly exhibited management's expectations regarding Blount's future financial performance.” Id. ¶¶ 8, 55.

         On September 9, 2015, the Board met to discuss the Buyers' offer. Id. ¶¶ 58, 59. Goldman, Sachs & Co. (“Goldman Sachs”), one of the Board's financial advisors, attended the meeting and presented to the Board preliminary financial analyses of the Merger; Goldman Sachs used the September Projections in performing these analyses. Id. ¶¶ 8, 58, 59. Plaintiffs allege that Goldman Sachs also was conflicted, due to its previous ties to American Securities and P2. Id. ¶¶ 73-87. On October 8, 2015, the Buyers submitted a non-binding indication of interest to acquire the Company for between $8.25 and $8.50 per share, which the Special Committee rejected the next day. Proxy at 37.

         On October 12, 2015, the Buyers submitted a revised proposal of $9.75 to $10.00 per share. Id. With this higher price on the table, the Special Committee obtained its own financial advisor, Greenhill & Co. (“Greenhill”), and own legal advisors. Id. at 38-40. Goldman Sachs continued to advise the Special Committee. Id. at 38. During negotiations, the Buyers' indicative price range rose as high as $10.55 to $10.80 per share. Id. at 41.

         On October 15, 2015, the independent members of the Board held an executive session, with Goldman Sachs attending. Am. Compl. ¶ 58. Blount management (specifically, Collins and Hall, 629 F.3d at 998. The court “may treat such a document as part of the complaint, and thus may assume that its contents are true for purposes of a motion to dismiss under Rule 12(b)(6).” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006) (quotation marks omitted). Because the Amended Complaint relies on the Proxy (see, e.g., Am. Compl. ¶¶ 10-12, 48, 53, 55-72), the Court will consider it in ruling on Defendants' motion to dismiss.

         Willmott) previously had told Goldman Sachs that the September Projections “were no longer current” and that management would need to revise the projections downward. Id. ¶ 60. In response, Goldman Sachs told the Board at the October 15, 2015 meeting of the need for downward revisions to the projections. Id. ¶¶ 60-61. According to Plaintiffs, “[i]nstead of inquiring directly with Blount's management, the Board relied upon Goldman Sachs' questionable hearsay and decided that management should prepare updated financial projections.” Id. ¶ 62.

         Blount's management (Collins and Willmott) subsequently created new financial projections for the years 2015 through 2020, which significantly downgraded the Company's financial outlook. Id. ¶ 9. These projections, created in November and December 2015, are the “November Projections” and “December Projections, ” respectively. Id. Management allegedly created these more pessimistic projections in order to support a reduced per-share merger price. Id. Plaintiffs allege that the September Projections more accurately reflected Blount's short- and long-term prospects than did later projections, and that the November and December Projections were misleading as to management's true views of the Company's prospects. Id. ¶ 10.

         On November 9, 2015, Blount reported financial results from third quarter 2015. Id. ¶ 65. These results showed gains across several key metrics from second quarter 2015. Id. ¶ 66. The Company “did not publicize any information that would warrant slashing its financial projections, ” i.e., revising downward the September Projections. Id. ¶ 65. The Proxy stated that in October 2015, management had told the Buyers that it “anticipated improved third quarter results and provided greater certainty that the Company would meet year-end targets as compared with the preliminary reports provided to the [Buyers] prior to October 8, 2015.” Id. ¶ 67 (quoting Proxy at 37). Plaintiffs allege that “[t]hese statements belie the notion that Blount needed to reduce its 5-year financial projections based on any objective measure of the Company's financial performance.” Id. ¶ 68.

         On December 4, 2015, the Buyers reduced their proposed purchase price to $9.85 per share. Proxy at 46. The Special Committee countered at $10.30 per share. Id. at 47. The Buyers then countered with a “best and final offer” of $10.00 per share on December 7, 2015. Id. On December 10, 2015, “following months of negotiations led by Collins and Willmott with minimal Board involvement, Blount announced that it had entered into an Agreement and Plan of Merger, ” by which P2 and American Securities would acquire all outstanding shares of Blount common stock for $10.00 per share. Am. Compl. ¶ 4.

         Plaintiffs allege that the $10.00 per share was a “fire sale price” that benefited Collins and Willmott at Blount shareholders' expense. Id. ¶¶ 69, 72. Goldman Sachs and Greenhill had rendered a fairness opinion based on the more pessimistic projections that recommended the “materially inadequate” $10.00 per share price to shareholders. Id. ¶ 71. “Blount stockholders should have been given the earlier set(s) of financial projections in order to gain an accurate view of the Company's prospects, and the failure to disclose such information rendered the Proxy Statement materially misleading and inadequate.” Id. ¶ 72.

         On January 12, 2016, Blount filed a preliminary proxy statement with the Securities and Exchange Commission (“SEC”); on February 16, 2016, Blount filed an amended preliminary proxy statement with additional disclosures. See Portnoy Decl. ¶ 3, Ex. B, ECF 57-2. On March 9, 2016, Blount filed its Definitive Proxy Statement with the SEC. Am. Compl. ¶ 6. On April 7, 2016, a majority of ...


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