(CN) - An SRS Labs shareholder filed a class action over a proposed $148 million merger with DTS Inc., claiming the deal undervalues investors' interests in the audio tech firm.
     Karen Fong represents a class of shareholders who say the deal is "fundamentally unfair." Under the deal, shareholders are entitled to either $9.50 in cash or roughly 0.3 shares of DTS common stock.
     "However, the merger agreement provides that the total consideration to be issued to all SRS Labs stockholders will be comprised of a maximum of 50 percent cash and 50 percent shares of DTS common stock, and no fractional shares of DTS stock will be issued," the complaint states.
     In addition to SRS Labs Inc., named defendants are board members David Dukes, Winston Hickman, Carol Miltner, CEO Thomas Yuen, Sam Yau, Calabasas, Calif.-based DTS Inc. and its affilliates DTS Merger Sub Inc. and DTS LLC.
      According to the complaint, the firm "consistently improved" even during the so-called Great Recession, and the merger allegedly fails to reflect SRS's prospects for long-term growth given recent licensing deals with VIZIO, Samsung, Toshiba, Texas Instruments, HTC and others.
     The complaint says that directors will receive "special benefits" if the deal goes through. Yuen stands to occupy a seat on the the DTS board of directors and will receive $30 million for his interest in SRS, the complaint says.
     "Moreover, the individual defendants and other SRS Labs insiders control approximately 30 percent of the outstanding company stock," the lawsuit states. "In fact, defendant Yuen, along with his family members and affiliates, who together holds over 20 percent of the outstanding SRS Labs shares, have entered into a voting agreement with DTS and committed to vote all of their shares in favor of the proposed transaction, thereby diluting the public shareholder vote."
     Several deal protection devices ensure that no alternative suitors will come forward for the company, according to the class. Those devices allegedly include a "no solicitation" clause, a "last look" provision which gives DTS five days to top any superior offer, and an "exorbitant" $7.5 million termination fee.
     The class is represented by Ryan Ernst with O'Kelly Ernst Bielli & Wallen in Wilmington, Del.