Kate Spade & Co.’s former board of directors have been hit with a lawsuit accusing the company of taking a lowball offer from Coach Inc. in order to avoid pressure from activist investors.
A filing in Delaware Chancery Court, made public on Tuesday, alleges that Kate Spade’s board accepted an under-value offer from Coach in May 2017 to prevent a proxy fight with activist investors including Jana Partners LLC and Starboard Value. Kate Spade was acquired by Coach Inc., now Tapestry Inc., in 2017 in a $2.4 billion sale, which valued shares at $18.50 a piece.
According to the suit, the Kate Spade board had rejected a Coach acquisition proposal that placed shares at $22 in February 2016, choosing instead to continue with its “more valuable” standalone business. The suit, which is heavily redacted, alleges that the company’s business plan valued stock at between $22.50 to $25.50 a share at that time.
“In pursuing a sale, the board backtracked from its earlier positions regarding an acceptable price and disregarded the fact that the most valuable option for stockholders was to engage in no transaction at all,” the filing reads.
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The filing claims that the majority of Kate Spade & Co. board members were “professional directors at the time of the buyout” and wanted to avoid a proxy contest because exiting one seat has been shown to cause a ripple effect on other, unrelated board positions.
“[The board] acted to mislead Kate Spade stockholders into approving the buyout by concealing and misleading stockholders as to material facts, including with respect to the company’s true value and its true prospects as an independent company, and with respect to their own true motivations and actions,” the suit reads.
Additionally, the suit claims that Kate Spade’s former CEO, Craig Leavitt, was entitled through the buyout to a “golden parachute payment” valued at over $25 million — allegedly more than 10 times the value of his shares at the time of the merger.
For the three-month period ended March 28, revenues at Kate Spade slid 11% to $250 million amid pandemic-induced store closures. At market close on Wednesday, Tapestry shares were valued at about $12 a piece.
A representative from Tapestry Inc. told FN that the company does not comment on pending litigation but believes the suit to be without merit.