(CN) - Shareholders of Bidz.com are up in arms over what they believe to be "unlawful" corporate shenanigans involving the online retailer's sale to the Glendon Group for $14.3 million.
Shareholders are set to receive $0.78 per share in cash, but "Bidz's stock has been trading as high as $1.79 as recently as last year. Bidz's current book value per share is $1.17, significantly in excess of the paltry price offered by Glendon," the complaint states.
The complaint says that the board agreed to the merger because it owns over a third of the common stock.
"Moreover, in connection with the proposed transaction, certain of Bidz's directors and executive officers, who collectively own approximately 36.6% of Bidz's common stock, have entered into voting agreements to vote in favor of the proposed transaction with Glendon ... essentially requiring that the competing bidder agree to pay a naked premium for the right to provide the shareholders with a superior offer."
Though the company had seen its sales drop in 2011 from the prior year, it was re-establishing itself with an online retail site for designer products and consumer goods, which was seeing a steady increase in revenue. Shareholders say that "the significant 145% year-over-year increase in net revenues for Modnique.com reflects the strong growth in demand for its affordable brand name merchandise," according to a company press release.
The lawsuit names Bidz's CEO David Zinberg, CFO Lawrence Kong as well as other directors.
"The individual defendants have exacerbated their breaches of fiduciary duty by agreeing to lock up the proposed transaction with deal protection devices that preclude other bidders from making a successful competing offer for the company," the complaint states.
This includes a termination fee of $500,000, as well as "no-shop" provision and a 72 hour price match provision if other offers are made.
"These provisions substantially and improperly limit the board's ability to act with respect to investigating and pursuing superior proposals and alternatives including a sale of all or part of Bidz," the complaint states. "Ultimately, these preclusive deal protection provisions illegally restrain the company's ability to solicit or engage in negotiations with any third party regarding a proposal to acquire all or a significant interest in the company."
The class accuses the board of "knowingly or recklessly violating their fiduciary duties, including their duties of care, loyalty, good faith, and independence owed to plaintiff and other public shareholders of Bidz" when they agreed to accept the offer in which Glendon will merge with Bidz Acquisition Company, Inc. and will then take the company private.
Shareholders are represented by Brian Long, Seth Rigrodsky and Gina Serra of Rigrodsky & Long in Wilmington, Del. and by Donald Enright of Levi & Korsinsky in Washington.