Within days of Kroger's (NYSE:KR) $2.5 billion offer to buy Harris Teeter (NYSE:HTSI), law firms have started looking for ways to sue Harris Teeter's board for accepting the deal, according to Progressive Grocer.
The argument: The deal will be great for Harris Teeter executives, who will get a 35 percent bonus once the merger closes. But Kroger's offer of $49.38 per share is only 1.78 percent higher than Harris Teeter's closing price on the last trading day before the merger announcement. That's far below the 31 percent price premium for comparable transactions in the past three years.
On the other hand, Kroger's offer is 33 percent higher than Harris Teeter's price when that chain was first reported to be up for sale in January.
Whether the lawsuit efforts will derail the deal is iffy at best. The boards of both chains have already OKed the transaction, which still requires regulatory and shareholder approval. No date has been set yet for Harris Teeter stockholders to vote on the buyout proposal.
It's true that wherever there's money there will be lawsuits, but there's a particular irony to legal efforts in retailer mergers like this. The lawyers typically say (among other things) that they're trying to get the chains to disclose material information so shareholders can vote on the transaction in an informed manner. Of course, that's information that's not already public, and potentially of competitive value to other chains. In this case, that would by definition take something of proprietary value away from Harris Teeter and give it to its competitors. That hardly argues that the "shareholder advocacy" lawyers are really trying to boost the chain's value.
But that may all be academic. Harris Teeter's stock price has been hovering around the Kroger offer. If it climbs higher, it won't take a class-action lawsuit to force the deal to be renegotiated.
- See this Progressive Grocer story
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