Playboy Enterprises Inc. agreed to pay $5.25 million to settle investors’ lawsuits alleging the media company’s founder, Hugh M. Hefner, shortchanged shareholders in a going-private buyout.
The accord resolves four suits over the 2011 deal, in which Hefner backed a partnership’s acquisition of all Playboy stock he didn’t already own for $6.15 a share, according to Delaware Chancery Court filings. Hefner and Playboy officials denied they harmed investors as part of the transaction.
“The defendants are entering into the stipulation solely because the settlement would eliminate the burden, expense and uncertainties inherent in further litigation,” company officials said in today’s filing.
The accord comes after Playboy, founded by Hefner in 1953, moved its headquarters from Chicago to Beverly Hills, California, in August as part of a consolidation effort, officials said. The adult-entertainment company’s magazine and TV divisions are now housed together in the 45,000-square-foot facility.
Teri Thomerson, a spokeswoman for Playboy, didn’t respond to e-mails seeking comment on the settlement. Carmella Keener, a lawyer for some of the Playboy investors who sued, didn’t return a call and an e-mail seeking comment.
Playboy expanded globally in the 1960s and 1970s when Hefner, now 86, ran the company. The company went public in 1971 and circulation reached 7.2 million for one issue in 1972. Hefner is the company’s chief creative officer.
Hefner faced a challenge for control of the company in 2010 when FriendFinder Networks Inc., owner of Penthouse magazine, offered $210 million for Playboy.
That prompted Hefner to team up with the private-equity firm Rizvi Traverse Management LLC to take Playboy private in a $207 million deal backed by more than 84 percent of the company’s minority stockholders, according to court filings. The acquisition provided a 50 percent premium to investors, company officials said.
Some Playboy investors contend they were shortchanged in the buyout and argue Hefner took the company private “at an inadequate price,” according to a 2010 suit filed in state court in Wilmington, Delaware.
Hefner, who wasn’t serving as a Playboy director when the board considered the going-private deal, didn’t “utilize his controlling interest” in the company to strong-arm executives or other investors into backing the buyout, his lawyers said in earlier court filings.
As part of the buyout, Hefner “sold his controlling interest” in Playboy to the partnership, the lawyers noted in the filing. Minority shareholders shouldn’t be able to use that sale to challenge the deal, the attorneys said.
Delaware law gives a controlling shareholder the “discretion as to when to sell his stock and to whom,” the lawyers said in earlier court filings.
Rizvi Traverse, with offices in New York and Los Angeles, has investments in firms such as Menlo Park, California-based Facebook Inc. (FB) and San Francisco-based Twitter Inc. along with Playboy, according to the firm’s website.
Delaware Chancery Court Judge John Noble still must decide whether to approve the settlement.
The case is In Re Playboy Enterprises Inc. Shareholders Litigation, CA5632-VCN, Delaware Chancery Court (Wilmington).
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