Parlux Fragrances Inc. (PARL)’s $170 million sale to Perfumania Holdings Inc. (PERF) should be blocked because directors of the maker of Paris Hilton perfume didn’t seek a higher bid, a lawyer for Parlux shareholders said.
Parlux’s board also failed to disclose that Perfumania officials threatened to begin a proxy fight unless the offer was accepted, attorney Donald J. Enright told Delaware Chancery Court Judge Sam Glasscock.
The directors “caved into the pressure” after being threatened by Perfumania, Enright said at a hearing today in Georgetown, Delaware. A special committee that was appointed following the threat only evaluated the proposal and didn’t solicit offers from other buyers and failed to lock in an all- cash option that had been part of an earlier offer.
Glasscock said that he would “address this promptly” and told lawyers that he would either issue a written opinion next week or make a ruling from the bench.
Fort Lauderdale, Florida-based Parlux announced Dec. 23 it would sell the company to Perfumania, which operates a chain of about 360 perfume shops, in a deal then valued at $170 million, according to a company statement.
“The value of this transaction has dropped very, very substantially since it was announced,” Enright told Glasscock. Enright estimates that the price has “dropped by about $50 million” for a total value of $120 million, based on Perfumania’s recent share price.
Under the terms of the sale, Parlux investors can choose to receive $4 in cash plus 0.20 share of Bellport, New York- based Perfumania or 0.53333 of the buyer, for each share they own. Perfumania rose 12 cent to $10.32 at 3:45 p.m. in Nasdaq Stock Market trading. Parlux lost one cent to $5.64 at 3:45 p.m. in Nasdaq Stock Market trading.
Lawyers for Parlux’s board told Glasscock today that they had an “active committee” evaluate the offer.
“It would be a futile exercise to make” the company “go out and shop it again; the buyer is here,” Alvin B. Davis told Glasscock.
He said no other bidders emerged for the company because the market recognized the “giant of Perfumania hanging over its head” and the dangers that could arise from a spurned buyer as your biggest customer.
Parlux and Perfumania official had asked Glasscock to put the Delaware suit, filed by Parlux shareholder Jose Dias, on hold while similar suits proceed in state court in Florida. Glasscock denied that request earlier this month.
“I find nothing that indicates that this matter should be stayed in deference to the Florida action,” Glasscock said. “To the contrary, the interest in this state in the behavior of fiduciaries for its corporate citizens convinces me” to allow the suit to proceed, the judge added.
Dias’ lawyers argued in a March 14 court filing that Parlux directors knuckled under to demands from Glenn Nussdorf, Perfumania’s chairman, that it sell the company or face a fight over board seats.
“It appears that Mr. Nussdorf’s threat had the desired effect,” Enright said in court today.
Nussdorf, who owns 11 percent of Parlux’s common stock, placed two members on the company’s board after expressing interest in buying the perfume maker in 2006, Dias’ lawyers said in the filing.
“At no point in time did the board or the special committee even discuss whether to contact other potentially interested suitors for a pre-agreement market check,” the investor’s attorneys noted in the March 14 court papers.
“The notion that they were beholden to Nussdorf is mischievous and unfair,” Davis said. “He was appointed because he was competent, not biased,” he added, referring to Anthony D’Agostino, one of the board members selected by Nussdorf.
The case is Dias v. Purches, CA 7199, Delaware Chancery Court (Wilmington).
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