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When Focus Financial Partners announced in February it was negotiating a sale to private equity firm Clayton, Dubilier and Rice for $4.1 billion in a take-private bid, shareholders expressed concerns.
They argued the price—$53 per share—did not reflect the company’s true worth and wondered whether Focus’ board of directors had done their due diligence in seeking the best deal for the company’s shareholders.
They also expressed frustration over the fact Stone Point Capital, the largest investor in the public company, would be the only existing shareholder allowed to roll equity into the new private company.
In late February, an agreement to sell at that price was officially announced. The sale is still pending a vote by disinterested shareholders—those that will effectively be forced out of the company at $53—expected to take place by summer.
“If the vote were held today, I suspect it would go through,” one concerned shareholder said on Monday. “Particularly given that the stock is trading below the deal price.
“That being said: a lot can happen between now and then.”
“Always difficult to predict on these types of votes,” said Gabelli Funds’ Macrae Sykes, whose GABF ETF owns Focus stock. “Generally, the passive owners go with the proxy feedback so that will be an important determinant of that part of the shareholder base.”
But investors aren’t waiting to see how the vote will go and have taken action to retain the services of law firm Johnson Fistel and others.
Johnson Fistel announced on Friday it will be investigating Focus to determine “whether the Focus board failed to satisfy its duties to the company shareholders, including whether the board adequately pursued alternatives to the acquisition and whether the board obtained the best price possible for Focus shares of common stock.”
After pointing out that prior valuations of the firm have been considerably higher than $53 and that Focus has “steadily” increased revenue year-over-year since 2019, Johnson Fistel noted in a letter to the plaintiff(s) that actions taken by the law firm will likely include a demand for records and other documentation related to the deal.
Based on the results of the investigation, legal action may be taken against “certain key insiders and/or directors of the company for violations of federal and/or state laws.”
Johnson Fistel is just one of several law firms retained for the purpose of investigating the transaction. Other firms include Levi & Korsinsky, Weiss Law, Kaskela Law and Andrews & Springer.
Andrews & Springer indicated their investigation has “discovered that the merger appears to have significant conflicts of interest, thus making the process and consideration unfair.”
“For example, Stone Point Capital, which currently owns and controls over 20% of Focus Financial’s outstanding stock, is rolling over a portion of its equity into the private company while Focus Financial’s remaining shareholders are receiving $53.00 per share in cash with no upside in the combined company,” the firm wrote in a press release. “In fact, the $53.00 per share consideration is only a 5.57% premium to the company’s $50.20 per share closing price on February 24, the last trading day before the merger was announced.”
Representatives from Focus Financial did not respond to requests for comment by press time.
“Shareholder lawsuits like these are very common,” said a shareholder who would prefer to see Focus hold out for a better price or remain public. “Even in the cleanest of deals, you will see these filed.”
“There may be nothing to read into there,” the shareholder said.
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