In Battle Between Promega and Shareholders, Linton Heads to Court

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any talk among company leaders, shareholders, or its board of directors about an IPO, merger, or acquisition. But plaintiffs say that in 2014, the year after Linton’s comments about Promega’s 100-year anniversary appeared in print, his plan to keep the company private and independent began coming into focus.

On July 9, 2014, Linton co-founded the Usona Institute, a nonprofit that has the same mailing address as Promega, the lawsuit says. According to Usona’s website, its mission is to conduct and support research that will help scientists and society better understand “therapeutic effects of [the hallucinogenic compound] psilocybin and other consciousness-expanding medicines.”

Plaintiffs in the lawsuit allege there is a “clear” and “concerning” connection between Promega and Usona, and that Linton’s goal in founding the nonprofit is to acquire a controlling interest in Promega, and then transfer that interest to Usona.

“Plaintiffs never expected—and no reasonable shareholder would expect—that their investments would be used to fund a nonprofit’s research into hallucinogenic drugs, let alone that Promega would itself be controlled by a nonprofit,” the lawsuit says.

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In January 2014, several months before Usona launched, Linton revealed to Promega’s board his “ultimate ambition” to obtain a controlling interest in the company, plaintiffs say in the suit. After the board rejected his initial buyback proposal, Linton introduced a plan under which Promega would repurchase stock from shareholders, through a reverse, or “Dutch,” auction. The auction was structured so that it could not result in Linton’s personal stake exceeding 45 percent of Promega’s outstanding shares, the lawsuit says. Plaintiffs say Linton agreed to that condition, knowing that it wasn’t likely to keep him from getting what he wanted.

“The Dutch auction [process] concealed the true impact it would have on Linton’s ownership percentage,” the lawsuit says. Linton reported controlling 31 percent of Promega’s stock on an offering notice, plaintiffs say in the suit, but he actually controlled far more stock, including shares held by his wife, and shares held in multiple trusts.

Promega bought back about 15 percent of outstanding stock in the company in the Dutch auction, the lawsuit says. It paid between $233 and $272 a share, which plaintiffs call a “heavily-discounted price” that Promega set without conducting a valuation to determine a fair price.

“Linton set out to eliminate dissent and seize control of the company through improper means, to the detriment of the plaintiff shareholders,” the lawsuit says.

During the process, Linton tried to force some shareholders—many of whom were Promega employees—into selling their shares, plaintiffs say in the suit. His tactics included threatening to fire employees if they didn’t sell, and telling shareholders that the Dutch auction was their last chance to receive any value for their investment, the lawsuit says.

As of March 31 there were about 1.9 million outstanding Promega shares, according to the lawsuit. That’s down from about 2.3 million in March 2014, just before the Dutch auction.

In July 2014, not long after the auction, Linton declined to nominate two longtime directors for reappointment to Promega’s board, plaintiffs say. Both were from outside the company and “actively opposed [Linton’s] 100-year plan,” the lawsuit says. At a board meeting that year, Promega did not show its full financial statements to directors, as plaintiffs say it had done in the past.

Kellner and Brand wrote a letter to Promega’s board in May 2015 in which they expressed … Next Page »

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