(CN) - Speech technology company M*Modal faces class action over a proposed sale to private firm One Equity Partners.
The complaint accuses OEP, a private investment vehicles of JP Morgan Chase, of attempting to acquire M*Modal at "an unfairly low price" of $14 per share.
Until very recently, according to the complaint, M*Modal was very upbeat about its future and prospects.
"I am please with the positive momentum we've established over the last three quarters," M*Modal CFO Ron Scarboro stated in a May 18, 2012 press release. "We are on track with our commercialization and go-to market initiatives in the second half of the year.".
However, the rosy picture caused analysts to question why the company is being sold at this time, according to the lawsuit.
"If in fact the business outlook is so robust and so big why are you selling at this time? I just don't get it? And for this price?" Michael Needleman of Preservation Asset Management asked during an investor conference call.
The lawsuit questions why "the proposed transaction also comes just as the company has begun to show," according to CEO Roger Davenport, "'the benefit of having our new leadership team assembled and management system in place this quarter with revenue growth and continued execution on leveraging an enhanced value proposition across out customer base."
Investors claim the company's largest shareholder, SAC, is exerting undue influence on the board to sell given that four directors are "partners in SAC affiliates." SAC owns 17.5 million shares of M*Modal stock, the suit says.
"Thus at least four of the company's directors have interests that are aligned with SAC and that may thus differ from the interests of M*Modal's public shareholders," the lawsuit states.
According to the complaint the transaction agreement contains "several unreasonable and preclusive deal protection devices" including a $28 million termination fee, a "no solicitation provision" and a "top up option that allows OEP to purchase additional shares of M*Modal stock if it acquires a majority stake through the tender offer" allowing OEP to "bypass the normal voting process" and essentially "effect a short-form merger."
Investors are represented by Jessica Zeldin of Rosenthal Monhait & Goddess in Wilmington, Del. and by Carl Stine of Wolf Popper in New York. The suit was file in Delaware Chancery Court.