(CN) - Shareholders of troubled clothing retailer Talbots are challenging a $369 million acquisition of the woman's apparel company by private equity firm Sycamore Partners Management.
Under the proposed transaction, Talbots' shareholders would receive $2.75 in cash for each of their shares. But lead plaintiff Early McWhorter says the offer undervalues the company's stock.
"In facilitating the acquisition of Talbots by Sycamore for inadequate consideration and through a flawed process, each of the defendants ... breached and/or aided the other defendants' breaches of their fiduciary duties," the lawsuit states.
According to the class, Talbots "turned down several higher bids" in favor of Sycamore's offer. Citing a New York Times Dealbook article which reported that Talbots had previously rejected Sycamore's $3 per share offer as too low, the class says that though financial analysts valued Talbots stock at $4 per share earlier this year, the stock took a plunge when Talbots and Sycamore failed to agree to terms on an improved offer of $3.05 per share. At the end of May, the company's share price closed at $1.29 per share, the lawsuit says.
The tumble allegedly prompted the Talbots board "in an act of apparent desperation," to hastily accept a discounted offer from Sycamore, the complaint states.
The deal also includes provisions to deter alternative offers, including a $6 million termination fee and a no-solicitation provision.
It is represented by Seth Rigrodsky with Rigrodsky & Long of Wilmington, Del.
Neither the law firm nor Talbots immediately responded to requests for comment.