Whole Foods shareholders have filed a class action seeking to halt Amazon’s acquisition of the company unless they receive additional information. The disclosure lawsuit filed in the Western District of Texas alleges that Whole Foods’ proxy statement omits or misrepresents material information about insiders’ potential conflicts of interest and the fairness opinion rendered by the grocer’s financial advisor, Evercore (Gieske v. Whole Foods Market, Inc., July 18, 2017).
The complaint alleges that the proxy statement filed on July 7 fails to disclose communications regarding the continued employment of Whole Foods insiders. The companies’ joint press release had indicated that CEO John Mackey will remain in his post following the merger. Furthermore, while the proxy describes Evercore’s fairness opinion and the valuation analyses supporting it, it fails to include key inputs and assumptions underlying those analyses. "When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed," the plaintiff submits.
The plaintiff adds that Whole Foods executives will receive cash payments under the merger agreement, which provides for the conversion of unvested equity-based awards. Whole Foods also has significant severance obligations. By failing to disclose the timing and nature of communications involving future employment or directorship, or whether Amazon’s prior proposals mentioned management retention or director placements, the proxy is materially misleading.
With respect to Whole Foods’ financial projections, the proxy allegedly fails to disclose material information about unlevered free cash flows or line-item projections for the metrics used to calculate non-GAAP measures. Furthermore, according to the proxy, the company provided Amazon with an earlier version of management’s projections. But it fails to make disclosures "concerning the eleventh hour update to these earlier projections." The midpoint of the range of implied values per share resulting from Evercore’s DCF analysis is well above the $42 per share merger consideration, making it critical for stockholders to be able to observe whether the projections were created solely to fit the merger consideration into a range of "fairness."
The case is No. 17-cv-00684.
Attorneys: Thomas E. Bilek (Bilek Law Firm, L.L.P.) for Elizabeth M. Gieske.
Companies: Whole Foods Market, Inc.
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