June 4 (Bloomberg) -- Websense Inc.’s directors didn’t get the best price for the website-filtering company in a $906 million sale to a private-equity firm and structured the deal to unfairly bar competing bids, an investor said in a lawsuit.
Websense’s board didn’t get enough for the firm and unduly favored Vista Equity Partners’ $24.75-a-share bid last month, shareholder Shelley Willner said in her Delaware Chancery Court suit. The San Francisco-based buyout firm plans to take San Diego-based Websense private after the deal closes.
“The board unduly focused on reaching a quick deal with a financial buyer rather than taking the time to engage in substantive negotiations with all interested parties,” Willner’s lawyers said in the suit filed May 31.
Websense officials are seeking to transform the company, best known for making software that blocks inappropriate websites in the workplace, into a provider of broader online-security services. Vista, a $6 billion fund, is known for investing in software- and technology-based businesses.
Patricia Hogan, a spokeswoman for Websense, didn’t immediately return a call for comment today on the suit.
Websense is refocusing on content security, including services that protect e-mail and other data. That market is worth about $5 billion to $6 billion, compared with less than $1 billion for Web-content filtering, John McCormack, the company’s chief executive officer, said at a JMP Securities conference last month.
That transition helped Websense post record fourth-quarter earnings and positioned the company for “future growth,” Willner’s attorneys said in the suit.
After several private-equity firms, including Vista, approached Websense’s board about an acquisition, company directors hired Bank of America Corp.’s Merrill Lynch unit to serve as its financial adviser, according to the suit.
Directors hired Merrill Lynch even though the financial firm had done more than $30 million in business with Vista over the last two years, Willner’s lawyers said. The board dismissed claims that Merrill Lynch had a conflict in connection with the buyout, they added. Neither Bank of America nor Merrill Lynch are named as defendants in the case.
Websense’s directors rebuffed other bids for the company and “rushed to sign” the Vista agreement after the private-equity firm agreed to keep current management in place, Willner’s attorneys said.
The board also loaded the agreement with so-called “deal-protection devices,” such as a ban on soliciting bids other than those outlined in the agreement and imposing an almost $35 million termination fee if Vista’s offer is topped, the lawyers said in the suit.
Willner is asking a judge to bar Websense and Vista from proceeding with the buyout or to award damages if the acquisition is completed.
The case is Willner v. Websense Inc., CA No. 8614, Delaware Chancery Court (Wilmington).
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