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Ruby Tuesday Unfair Compensation for Merger Securities Class Action

Ruby Tuesday has entered into a merger agreement that would have NRD Capital paying stockholders $2.40 a share. The complaint for this class action alleges that Ruby Tuesday’s Proxy Statement violates Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 in several ways, but it’s the account of the process that makes this deal a head-scratcher.

The class for this action is all holders of Ruby Tuesday common stock who are being harmed by the actions of Ruby Tuesday and its board.

According to the complaint, Ruby Tuesday has had several years of struggle in the casual-dining business, but late 2016 embarked on restructuring and cost-saving initiatives, closing roughly 95 underperforming locations. As of September 2017, it had 599 restaurants in 41 states, 14 foreign countries, and Guam.

A year earlier, NRD had offered to acquire the company for $3.50 a share. Ruby Tuesday declined, but NRD repeated the offer in January of 2017, and Ruby Tuesday engaged UBS Securities as a financial advisor. NRD was permitted to do due diligence on the company for thirty days, but then reduced its offer to $2.50 to $3.00.

Ruby Tuesday looked for other partners and eventually entered into confidentiality agreements with twenty-three other companies. In late March, the board requested non-binding offers from nineteen of those companies, and received nine offers, ranging from $2.25 to (with revised bids) $3.40. Ruby Tuesday also performed an “as-dark” review of its assets, that is, one presuming no business operations at its locations, and received a total value estimate of $360 million, without any value assigned to the brand or to long-term ground leases.

NRD then proposed $2.77 per share; Ruby Tuesday declined. Another round of bids produced purchase offers of up to $375 million and $3.50 per share. For the final round in July 2017, NRD offered $2.55 and another bidder $2.88. Later, NRD reduced its offer to $2.40, and—according to the complaint, without communicating with the other bidder—Ruby Tuesday entered into an agreement with NRD On October 16.

The complaint claims that the agreement contains protective devices that ensure that the deal is virtually complete, such as a restrictive no-shop provision, a standstill provision, and a termination fee of $7.5 million, or more than 5% of the deal value.

The complaint also alleges that the financial information in the Proxy is incomplete, for example in its use of non-GAAP metrics, and in its Valuation Analyses and Fairness Opinion. Interestingly, the complaint alleges that the Selected Transactions Analysis indicates a share price for Ruby Tuesday of $3.12, and the Selected Companies Analysis a share price of $2.67. It’s clear why shareholders might be somewhat confused at being asked to vote on this transaction without more information.

Article Type: Lawsuit
Topic: Securities

Most Recent Case Event

Ruby Tuesday Unfair Compensation for Merger Securities Complaint

November 8, 2017

Ruby Tuesday has entered into a merger agreement that would have NRD Capital paying stockholders $2.40 a share. The complaint for this class action alleges that Ruby Tuesday’s Proxy Statement violates Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 in several ways, but it’s the account of the process of the deal that makes this deal a head-scratcher. In the course of negotiation with other bidders, Ruby Tuesday received superior offers from other companies, and the complaint asks why the company did not accept them, when parts of its own Proxy Statement appear to assess its shares at a higher value. 

ruby_tuesday_sec_compl.pdf

Case Event History

Ruby Tuesday Unfair Compensation for Merger Securities Complaint

November 8, 2017

Ruby Tuesday has entered into a merger agreement that would have NRD Capital paying stockholders $2.40 a share. The complaint for this class action alleges that Ruby Tuesday’s Proxy Statement violates Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 in several ways, but it’s the account of the process of the deal that makes this deal a head-scratcher. In the course of negotiation with other bidders, Ruby Tuesday received superior offers from other companies, and the complaint asks why the company did not accept them, when parts of its own Proxy Statement appear to assess its shares at a higher value. 

ruby_tuesday_sec_compl.pdf
Tags: Providing False or Misleading Information, Proxy Statement, Securities