Vascular Solutions shareholder Paul Parshall is suing the Maple Grove-based company claiming it made a poor deal when it agreed to be purchased by Teleflex for $1 billion.
In documents filed Friday in the U.S. District Court for the District of Minnesota, Parshall called the $56-per-share deal “inadequate,” adding that it was preferential to Vascular Solutions’ executive team, including CEO Howard Root who is said to receive over $8 million if the acquisition is completed.
When the acquisition was announced in December
, Root noted one reason for selling Vascular Solutions was over concern of falling victim to another federal government investigation. “I am not willing to assume much longer the personal risk associated with being the CEO of a public, medical-device company,” he said.
After several years in court and $25 million spent fighting the charges, Vascular Solutions was cleared in February 2016
of alleged “off-label” promotions of its products. Root afterward called the entire process “obscene” and wrote a book about his experience.
Concerning the recent lawsuit, Root told TCB, “This type of lawsuit is filed in virtually every sale of a public company transaction. It has no merit and we’ll prove it.”
Parshall is seeking class action certification with the hope of stopping the proposed acquisition. (Vascular Solutions would be compelled to pay Teleflex a $35 million termination fee if the deal falls through.)
Citing Vascular Solutions’ double-digit year-over-year sales growth in recent quarters, the plaintiff believes “the intrinsic value of the company is materially in excess” of the $1 billion offer.
To back up his claim, Parshall said Vascular Solutions violated the Securities Exchange Act by omitting material information from the proxy statement it filed with the SEC. By not including information, such as capital expenditures, taxes, and stock-based compensation in the filing, Parshall claimed the proxy statement is rendered as “false and misleading.”
Moreover, the plaintiff said the company and its shareholders should be willing to solicit other, potentially better, offers, court filings indicate.
“It’s become increasingly common for lawsuits to be brought whenever there is a significant acquisition, either against the acquiring company or the acquired company,” said David Pearson, shareholder at Minneapolis-based law firm Winthrop and Weinstine. “Typically these lawsuits are unsuccessful. The courts give a significant amount of deference to boards of directors and management in making decisions regarding mergers and acquisitions. It’s a fairly high standard that has to be met in order to block a proposed merger acquisition, so usually these cases are either dismissed because they have no merit or the parties reach some type of settlement.”
Vascular Solutions said the plaintiff’s claims are “without merit” in an SEC filing Wednesday.
Parshall has a history of suing companies that he owns shares in. He has filed at least 22 cases against companies dating back to 1993. In 1996, he was permanently enjoined by the U.S. District Court for the District of Utah for violations against the Securities Act.
In addition to termination of the deal, Parshall is seeking an unspecified amount in damages, as well as a “reasonable allowance” to cover legal fees.