Ancestry.com Inc. officials can’t proceed with the $1.6 billion sale of the family-history website to Permira Advisers LLP until it discloses more information about the deal before a Dec. 27 shareholder vote, a judge ruled.
Delaware Chancery Court Judge Leo Strine today told Ancestry officials they can’t close the deal with Permira for now. Ancestry must publicly disclose that its financial adviser wouldn’t issue a fairness evaluation of the deal until officials changed revenue projections and that provisions of the deal barred other bidders from attempting to top Permira’s offer, Strine said.
“I’m not prepared to allow this to go to a vote without the shareholders being told” about the changes to the projections, Strine said at a hearing in Wilmington, Delaware. “I’m not prepared to issue an injunction for more than that.”
Permira, a London-based private-equity firm, agreed to pay $32 a share for Ancestry, the world’s largest genealogical research site, the companies said Oct. 22. That was 41 percent higher than Provo, Utah-based Ancestry’s closing price on June 5, the last day of trading before the company hired a financial adviser for a possible sale.
Heather Erickson, an Ancestry spokeswoman, said in an e-mail that “we intend to promptly cure the disclosure matters raised by the court.” Erickson said Ancestry expects the stockholder vote on the merger to proceed on Dec. 27 and the merger will close by the end of the year.
Nathaniel Garnick, a Permira spokesman, declined to comment on the ruling.
Strine’s ruling amounts to an injunction covering only the disclosure issues about Permira’s bid, Stuart Grant, a lawyer for Ancestry shareholders, said in an interview after the hearing today.
Permira beat Fort Worth, Texas-based TPG Capital and Rhode Island-based Providence Equity Partners Inc. for Ancestry, according to court filings. Ancestry said that Institutional Shareholder Services, a U.S. proxy advisory firm, recommended that shareholders vote for the acquisition by Permira.
Ancestry has more than 2 million subscribers, with 39 million family trees and about 4 billion profiles of individuals to help people track family histories, according to court filings. It has posted a profit every year since at least 2007, according to data compiled by Bloomberg.
Investors argued in court filings that Timothy Sullivan, Ancestry’s chief executive officer, and other Ancestry officials, along with Qatalyst Partners LLC, the firm’s financial advisers, improperly favored Permira’s bid, giving the buyout firm information about other bids and then manipulating the company’s revenue projections to get the deal done.
If Permira’s bid was approved, Sullivan and Howard Hockhauser, Ancestry’s chief financial officer, would keep their posts and be allowed to roll $67 million in Ancestry shares into the newly private company, investors said in court filings.
The CEO also didn’t inform his fellow directors he had a financial interest in Permira’s offer until the final bids were presented to Ancestry’s board in October, according to the filings.
Bill Savitt, one of Ancestry’s lawyers, said such stock rollovers are common in private-equity buyouts and that Sullivan’s and Qatalyst Partners’ handling of the company’s sale process was fully disclosed to investors.
Ancestry conducted “a broad auction” and Permira’s $32-a-share bid was the result of a “hard fight” among the bidders, Savitt said.
After about a five-hour hearing, Strine concluded the actions of Sullivan and other Ancestry officials, including rolling over their company shares, didn’t amount to conflicts of interest that marred the deal. He also found Ancestry officials didn’t improperly favor Permira’s bid over other offers.
Still, the judge found Ancestry executives erred in not disclosing that Qatalyst Partners said in October it couldn’t issue a so-called fairness opinion about Permira’s offer based on the company’s existing revenue projections.
“The proxy doesn’t tell shareholders that there was this painful point that the bankers said they couldn’t issue the opinion,” Strine noted.
Lawyers for investors contend Ancestry officials then reduced revenue projections from as far out as 2016 to help justify the fairness of Permira’s $32-per-share bid.
“The fairness opinion wound up being a farce,” Grant, one of the lawyers representing Ancestry shareholders, told Strine today.
In his ruling, the judge noted Ancestry officials also failed to publicly disclose that the deal’s non-disclosure provisions barred bidders from coming back to top Permira’s offer and Sullivan and other board members weren’t aware of the effect those terms had on the sales process.
Bidders were required to sign agreements that barred them from coming back with higher bids once they’d made their best offer in the auction, according to investors’ court filings.
“The plaintiffs have shown here that the board was not informed about the potency” of the provisions, Strine said.
The judge didn’t place a time limit on his order barring the deal from proceeding. Once Ancestry makes the disclosures, that “should allow you to get your vote,” Strine said.
The case is In re Ancestry.com Shareholder Litigation, CA 7988-CS, Delaware Chancery Court (Wilmington).