Isilon Systems Inc. was sued by a shareholder who claims EMC Corp.’s $2.25 billion purchase of the company is unfair and doesn’t reflect its true value.
The purchase price is “wholly inadequate,” considering Isilon could grow 36 percent annually to an estimated $4 billion by 2014, lawyers for shareholder Saravanan Coimbatore said, citing market research firm International Data Corp. in the complaint filed today.
“As such, EMC, in possession of non-public information regarding the performance of Isilon, is taking advantage of its position to acquire the company at a substantial discount to its true value,” lawyers for Coimbatore said in the complaint filed in Delaware Chancery Court in Wilmington.
EMC announced Nov. 15 that it would purchase Isilon for $33.85 a share in cash to gain video-storage equipment. The price is 29 percent higher than Seattle-based Isilon’s closing price on Nov. 12. The acquisition pushes EMC deeper into the $19 billion external-storage market and allows it to challenge rivals NetApp Inc. and International Business Machines Corp.
Chris Blessington, a spokesman for Isilon, didn’t immediately return phone and e-mail messages seeking comment.
Coimbatore, who is seeking to bar the deal, accused Isilon directors of agreeing to the acquisition to reap “windfall benefits” from the proposed transaction in the form of change of control payments for both vested and unvested stock options and severance payments. Isilon founder Sujal Patel stands to collect more than $17.8 million in change-of-control payments, according to the complaint.
‘Poised to Capitalize’
Directors “effectively capped Isilon’s price at a time when the company’s stock was just recovering from ‘recessionary aftershocks’ and when it was poised to capitalize on its positive and encouraging financial outlook,” Coimbatore said in the complaint.
Under terms of the agreement, Isilon’s board of directors granted EMC a “top-up option” which allows EMC to acquire as much as 90 percent plus 100 shares and pursue a merger without a vote, according to the complaint.
Coimbatore is seeking to represent all Isilon shareholders and collect unspecified damages.
The case is Saravanan Coimbatore v. Isilon Systems Inc., CA6050, Delaware Chancery Court (Wilmington).