Ancestry.com Deal Marred by Conflicts, Investors Claim
(Corrects that company was aware of filing in sixth paragraph of story published Dec. 12.)
Ancestry.com Inc. (ACOM) executives backed a $1.6 billion buyout by Permira Advisers LLP and dismissed higher bids for the world’s largest family-history website to protect their jobs and get shares in the deal, Ancestry investors said in a court filing.
Timothy Sullivan, Ancestry’s chief executive officer, and another executive supported Permira’s bid after receiving promises they could keep their posts and roll $67 million in Ancestry shares into the newly private company, the Ancestry shareholders said in a sealed Delaware Chancery Court filing reviewed by Bloomberg News.
Sullivan and Howard Hockhauser, Ancestry’s chief financial officer, served as the lead negotiators with bidders seeking to acquire the genealogical research firm, according to the Dec. 7 filing. Sullivan also sits on Ancestry’s board.
Because of their financial stake in Permira’s bid, the executives’ focus was on “obtaining the greatest return on their equity rollover, putting their interests at odds with public shareholders,” the investors said in the filing.
Permira, a London-based private-equity firm, agreed to pay $32 a share for Ancestry, 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.
Permira beat out Fort Worth, Texas-based TPG Capital and Rhode Island-based Providence Equity Partners Inc. for Ancestry, according to the filing. Ancestry said yesterday that Institutional Shareholder Services, a U.S. proxy advisory firm, recommended that shareholders vote for the acquisition by Permira.
Heather Erickson, an Ancestry spokeswoman, said company officials were aware of the investors’ filing alleging Permira’s buyout was tainted by conflicts of interest.
Company officials “do not believe the allegations have any merit,” Erickson said in an e-mailed statement. Noemie de Andia, a spokeswoman for Permira, didn’t immediately return a call seeking comment on the filing.
Pension funds and individual investors who own Ancestry shares are asking Chancery Judge Leo Strine to bar shareholders from voting on Permira’s offer and to invalidate some of the deal’s terms in hopes of generating a higher offer, according to the Dec. 7 filing. A hearing on the case is set for Dec. 17 in Wilmington.
Some Ancestry shareholders said today they were watching to see if another bidder moved to top Premira’s offer of $32-a- share.
“We’re supporting the deal, but we were disappointed with the purchase price,” Patrick Goff, an analyst at First Capital Alliance LLC in Chicago, said in a telephone interview. Goff said the firm holds more than 100,000 Ancestry shares. “Lots of analysts thought the shares were worth $35.”
Ancestry has more than 2 million subscribers, with 39 million family trees and about 4 billion profiles of individuals to help people to track family histories, according to court filings. It has posted a profit every year since at least 2007, according to data compiled by Bloomberg.
It began seeking a buyer in 2011 and attracted private equity bids from firms such as New York-based KKR & Co. (KKR), TPG, Providence Equity and Permira. Ancestry officials hired Frank Quattrone’s Qatalyst Partners LLC as its financial adviser, according to the filing.
The initial bidding drew cash offers from KKR of $31 a share and as much as $35 from Permira, according to the filing. TPG’s bid came in at as much as $37 while Providence Equity topped all bids with its offer of as much as $38 a share, according to the filing.
When it became clear Permira wouldn’t make the final round of bidding, officials at Qatalyst Partners privately tipped off executives at the buyout firm that they needed to boost their bid, the investors said in the filing. Permira officials raised the offer to as much as $37.50, according to the court papers.
Sally Palmer, a spokeswoman for San Francisco-based Qatalyst, didn’t immediately return a call seeking comment on claims that the firm’s officials tipped off Permira executives about other bids.
Sullivan’s backing for Permira’s bid was mirrored by Spectrum Equity Investors, one of Ancestry’s largest shareholders, according to the filing. Spectrum, which has offices in Boston and Menlo Park, California, manages $4.7 billion in private-equity funds and seeks acquisitions in Web- based businesses, according to its website.
Spectrum holds stakes in sites such as Seamless Web, a food-ordering service, and WeddingWire.com, a wedding-planning site. Spectrum, which has ties to five members of Ancestry’s nine-member board, came to favor Permira as the bidding progressed, according to the filing.
The offer allowed Spectrum to close out the fund it used to invest in Ancestry while rolling over part of its stake into the resulting private company, the investors said in the filing.
When Permira had difficulty coming up with funding to cover the high end of its bid range, Ancestry officials allowed them to team with colleagues at TPG to make a final offer of $32 a share, according to the filing. None of the other bidders were allowed to band together, the investors said.
Permira executives lined up financing commitments from five banks, including Barclays Plc (BARC), Credit Suisse Group AG (CSGN) and Morgan Stanley (MS), for their bid, Ancestry officials said in October.
Ancestry officials are planning to issue $300 million of bonds this week to help fund the buyout, according to a person familiar with the transaction who asked not to be identified because the terms aren’t yet set, Bloomberg News reported Dec. 10. Ancestry hasn’t previously issued bonds, according to data compiled by Bloomberg.
Sullivan supported Permira’s and TPG’s joint bid because both firms “offered the option to roll over his equity and keep his job,” the investors said in the filing.
The CEO also didn’t inform his fellow directors that he had a financial interest in Permia’s offer until the final bids were presented to Ancestry’s board in October, according to the filing.
When Qatalyst Partners officials balked at finding Permira’s $32-a-share offer for Ancestry fair, Sullivan and other company executives revised revenue projections for the genealogical research firm to enable the financial adviser to issue a so-called fairness opinion on the bid, the shareholders said in the filing.
“When the favored bidder offered an amount below a supportable fairness range, conflicted management manipulated financial projections to justify the deal,” according to the filing.
Along with blocking a shareholder vote on the deal, pension funds in Florida and Michigan, along with individual Ancestry investors, asked Strine to order the company to drop non- disclosure provisions that prevent earlier bidders, such as Providence Equity, from attempting to top Permira’s offer.
Until such provisions are enjoined, “no one can truly know whether the Permira deal is the only one available to shareholders,” the investors said in the filing.
The case is In re Ancestry.com Shareholder Litigation, CA 7988-CS, Delaware Chancery Court (Wilmington).
To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at email@example.com
To contact the editor responsible for this story: Michael Hytha at firstname.lastname@example.org