Following news earlier this month that the Shuman Law Firm is investigating the proposed buyout of American Greetings by members of the company’s founding family, several minority shareholders have announced their intention to sue the greetings card giant for what they consider to be an unfair bid.
The plaintiffs allege that members of the Weiss family, who hold executive positions at American Greetings Corp. and seats on the company board, have used inside information to wrest control of the business and breached their fiduciary duties owed to current shareholders.
Members of the Weiss family have over half of shareholder voting rights, minority shareholders said in a number of lawsuits filed in Cuyahoga County against board members. More than one of the lawsuits has demanded a block on the privatisation deal until the highest stock price is obtained for the minority shareholders.
American Greetings’ chief executive Zev Weiss, his brother the chief operating officer Jeffrey Weiss and other relatives put in an offer to buy the remaining 33.8 million shares for $17.18 each, giving an overall price of $580.7 million for the company. This was described as a ‘terrible, terrible price’, by one minority shareholder, who said that the lawsuits have arisen ‘because the price is ridiculous’.
The Weiss family says that American Greetings’ earnings have dropped while the greetings card market has shrunk. The company’s purchase of British retail chain Clinton Cards in June 2012 have also dented its cash reserves. Following this purchase American Greetings’ fiscal first-quarter profit dropped 78 percent, dragged down by the Clinton’s debt. Total revenue fell 3 percent to $393.1 million and over the past decade the company’s revenue has dropped by 17%.
It is felt by the minority shareholders that the special committee formed by American Greetings to consider its options, including the privatisation offer, is bound to be ‘hopelessly conflicted’. The committee includes independent board members Scott Cowen, William MacDonald, Michael Merriman Jr., and Jeffrey Dunn.
Going-private deals often result in lawsuits, so it’s likely that the Weiss family put in a lot of homework before attempting such an offer. Other shareholders fear that they have a better idea than any other bidder of the company’s true value and future prospects.
American Greetings was formed over 100 years ago and went public in 1958. Members of the founding Weiss family still make up a large part of its senior management, with the Weiss brothers’ father, Mory Weiss, serving as chairman and their uncle Erwin Weiss its senior vice president for specialty business. In making their bid the Weiss brothers said that taking the company private will allow American Greetings to “return to its roots,” and they are confident of securing financing.