Stockholder lawsuit against PPD sale may pose minimal threat

Although a PPD, Inc., stockholder has filed a class-action lawsuit aimed at blocking the sale of the company to two private equity firms, the threat to the sale may be minimal.

California resident and stockholder Mark Hendriks filed his suit October 11 in the U.S. District Court for Eastern North Carolina. The lawsuit alleges that the offered share price of $33.25 by The Carlyle Group and Hellman & Friedman undervalues the company, and that officers and directors of PPD breached their fiduciary duties in several ways.

The emergence of such lawsuits frequently happens in cases where companies are being taken private, but that does not mean that this one will be successful, said Edward Graham, professor of finance at UNC Wilmington.

“My expectation is that no such settlement is forthcoming, as is typically the case, and that the PPD deal is not colored by such an undervaluation,” he said.

“Why would the board agree to a price that left a lot of their money on the table?” Graham added. “In a case where the board owns little stock in the company, the lawyer might have a case to build, but in the PPD case, where the dealmakers all have skin – lots – in the game, that is likely not the case.”

When the PPD sale was announced on October 3, several law firms posted web announcements inviting company stockholders to contact them if they believed the offered buy-out share price was not a fair one.