EFiled: Oct 21 2010 3:51PM EDT Transaction ID 33942264 Case No. 5873-VCS
IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
LABORERS LOCAL 235 BENEFIT FUNDS, on behalf of itself and all other similarly situated shareholders of Alberto- Culver Company,
Plaintiff,
v. C.A. No. 5873-VCS
LEONARD H. LAVIN, CAROL L. BERNICK, V. JAMES MARINO, JAMES G. BROCKSMITH, JR., ROBERT H. ROCK, THOMAS A. DATTILO, GOVERNOR JAMES EDGAR, SAM J. SUSSER, GEORGE L. FOTIADES, KING HARRIS, ALBERTO-CULVER COMPANY, UNILEVER N.V., UNILEVER PLC, CONOPCO, INC. AND ACE MERGER, INC.,
Defendants.
VERIFIED AMENDED CLASS ACTION COMPLAINT
Plaintiff Laborers Local 235 Benefit Funds (“LLBF” or “Plaintiff”), on behalf of itself and all other similarly situated public shareholders of Alberto-Culver Company
(hereafter, “Alberto-Culver” or the “Company”) (the “Class”), brings the following verified Amended Class Action Complaint (the “Complaint”) against the members of the board of directors of Alberto-Culver (the “Alberto-Culver Board” or “Board”) for breaching their fiduciary duties, and against Unilever N.V., Unilever PLC, CONOPCO,
Inc. and Ace Merger, Inc. (collectively, “Unilever”) for aiding and abetting the same.
The allegations of the Complaint are based on the knowledge of Plaintiff as to itself, and on information and belief, including the investigation of counsel and review of publicly available information as to all other matters.
INTRODUCTION
1. Alberto-Culver has been headed and controlled by founder Leonard Lavin since its founding in 1955. After a series of personal and professional developments in recent years, Lavin, and his daughter Carol Bernick (together with Leonard Lavin, “the
Lavins”), the Company’s Executive Chairman, decided to cash out. In order to prioritize their interests over the Company’s public shareholders, the Lavins initiated, orchestrated and consummated a sales process that is in direct violation of Delaware law.
2. The Alberto-Culver Board was inexplicably complacent in heeding the wishes of the Lavins, and simply ignored its fiduciary duties in connection with an all- cash sale of the Company. As explained below, the Board allowed the Lavins’ personal investment banker to conduct a sale of the Company, and then just days before it approved the transaction, hired a nationally recognized investment bank to rubber stamp the deal with a narrowly written fairness opinion.
3. In doing so, the Board failed to perform any of the legally prescribed means to maximize shareholder value. As per the Lavins’ requirements, no strategic alternatives other than an all-cash sale of the Company were even contemplated by the
Board. Indeed, the Board allowed the Lavins’ investment banker to contact a sole buyer, negotiate exclusively with that buyer, and agree to an all-cash sale of the Company with no market check whatsoever.
4. On September 27, 2010, Unilever, an international consumer products company, and Alberto-Culver, a leading manufacturer of beauty care products,
-2- consummated an agreement and plan of merger (the “Merger Agreement”) whereby
Unilever would acquire Alberto-Culver for $37.50 per share in cash (the “Proposed
Transaction”), a meager 19% premium to Alberto-Culver’s closing stock price on the trading day immediately preceding the deal’s announcement.
5. The Proposed Transaction provides Alberto-Culver shareholders with inadequate consideration and is the result of an unlawful sales process. Alberto-Culver recently announced consecutive quarters of impressive sales and earnings per share.
Wall Street analysts predict rapid growth within the personal care products industry and in turn, the Alberto-Culver Board had substantial leverage to negotiate for a significant premium in an all-cash sale of the Company. Instead, the Board allowed the Lavins to to sell the Company to its chosen buyer Unilever.
6. The Board further breached its fiduciary duties by granting Unilever unreasonable and disproportionate deal protections in the Merger Agreement, including a nonsensical “no-shop” provision considering the Company did not shop the Company before agreeing to a deal with Unilever. Further, the Board granted Unilever unlimited recurring matching rights, and a punitive $125 million termination fee, both of which act to dissuade competing bids for Alberto-Culver. These deal protections heavily favor
Unilever over any other potential bidder and severely impair the Board’s ability to entertain any other potentially superior alternative offer. In light of the fact that potential buyers and strategic partners first learned that Alberto-Culver was for sale when the
Company announced the Proposed Transaction, the deal protections in the Merger
Agreement serve as a complete barrier to entry for any suitor other than Unilever.
-3- 7. The most problematic of these deal protections is a restrictive “no-shop” provision that prohibits the Company from soliciting or otherwise encouraging superior bids.
8. Here, where the Board agreed to the Lavins’ plan to negotiate solely with a single bidder, the Board is duty-bound to secure a “go-shop” period to provide the opportunity to perform a post-signing “market check.” Without a “go-shop” period, there is no way for the Board to determine whether the Proposed Transaction actually represents the highest price reasonably available for Alberto-Culver shareholders, as no third party was ever even given a chance to give an indication of interest.
9. In short, because the Alberto-Culver Board granted Unilever unreasonable deal protections that secure a transaction providing an inadequate price, the Board must seek to maximize shareholder value and, to that end, must either eliminate the unwarranted deal protections to create a level playing field for other potential bidders, or take steps to amend the Proposed Transaction to accomplish the same.
THE PARTIES
10. Plaintiff LLBF is a shareholder of Alberto-Culver, has owned shares of
Alberto-Culver common stock throughout the relevant time period, and will continue to hold shares through the pendency of this action.
11. Defendant Alberto-Culver develops, manufactures, distributes and markets beauty care products as well as food and household products in the United States and more than 100 countries. The Company’s beauty care products marketed in the United
States include the Alberto VO5, TRESemme, Nexus and Consort lines of hair care
-4- products, the St. Ives and Noxzema lines of skin care products, FDS feminine deodorant sprays and lotions, Soft & Beautiful, Just For Me, TCB and Comb-Thru lines of multicultural hair care products. Food and household products sold in the United States include Mrs. Dash salt-free seasoning blends, Static-Guard anti-static spray, Molly
McButter butter flavored sprinkles, SugarTwin sugar substitute and Kleen Guard furniture polish. The Company is incorporated in Delaware and maintains its principal executive offices in Melrose Park, Illinois. Alberto-Culver trades on the New York Stock
Exchange under the ticker symbol “ACV.”
12. Defendant Leonard H. Lavin (“Lavin”) is the founder and Chairman
Emeritus of Alberto-Culver. He has served as Chairman Emeritus since 2004 and a director since 1955. Prior to becoming Chairman Emeritus, Lavin served as Chairman of the Company from 1955 to 2004. As of December 14, 2009, Lavin is the beneficial owner of 7,771,211 shares, or approximately 7.92%, of Alberto-Culver’s outstanding common stock. He is also the father of Defendant Bernick.
13. Defendant Carol L. Bernick (“Bernick”) is the Executive Chairman of
Alberto-Culver. She has served as Executive Chairman since 2004 and a director since
1984. She served as President of Alberto-Culver USA, Inc., a wholly-owned subsidiary of Alberto-Culver, from 1994 to 2004; as Vice Chairman of the Company from 1988 to
2004; as President of Albert Culver Consumer Products Worldwide, a division of
Alberto-Culver, from 2002 to 2004; and as Assistant Secretary of the Company from
1990 to 2004. As of December 14, 2009, Bernick is the beneficial owner of 6,093,560 shares, or approximately 6.13%, of Alberto-Culver’s outstanding common stock. She is
-5- also the daughter of Defendant Lavin.
14. Defendant V. James Marino (“Marino”) is the President, Chief Executive
Officer (“CEO”) and a director of Alberto-Culver. He has served as President, CEO and a director since November 2006. Marino served as President of Alberto-Culver
Consumer Products Worldwide from 2004 to November 2006; and from 2002 to 2004, he served as President of Alberto Personal Care Worldwide, a division of Alberto-Culver.
15. Defendant James G. Brocksmith, Jr. (“Brocksmith”) has served as a member of the Board since 2002.
16. Defendant Robert H. Rock, D.B.A. (“Rock”) has served as a member of the Board since 1995.
17. Defendant Thomas A. Dattilo (“Dattilo”) has served as a member of the
Board since 2006.
18. Defendant Governor James Edgar (“Edgar”) has served as a member of the Board since 2002.
19. Defendant Sam J. Susser (“Susser”) has served as a member of the Board since 2001.
20. Defendant George L. Fotiades (“Fotiades”) has served as a member of the
Board since 2006.
21. Defendant King Harris (“Harris”) has served as a member of the Board since 2002.
22. The defendants listed in paragraphs 12 through 21 above are collectively referred to herein as the “Individual Defendants.”
-6- 23. Defendant Unilever is one of the world’s largest suppliers of consumer goods. It focuses on everyday consumer needs for nutrition, hygiene and personal care.
Unilever’s portfolio includes brands such as Knorr, Lipton, Hellmann’s, Magnum, Omo,
Dove, Lux and Axe/Lynx. Unilever’s products are sold in over 170 countries around the world. Each of the entities collectively referred to herein as “Unilever” are named as defendants herein because they are parties to the Merger Agreement and for aiding and abetting the Alberto-Culver Board’s breaches of fiduciary duties.
SUBSTANTIVE ALLEGATIONS
I. Alberto-Culver’s History
24. Alberto-Culver has operated as a family-run business since its founding over 50 years ago. In 1955, Chicago entrepreneur Leonard Lavin purchased a California beauty supply company. Lavin, who was a sales representative for a number of other companies, moved the beauty supply company with his wife Bernice to Chicago and discontinued a majority of the Company’s products in its line to focus on and expand
Alberto VO5 Hairdressing.
25. The move was an unbridled success – within three years Alberto VO5
Hairdressing had become the country’s number one selling shampoo, and it retains that rank to this day.
26. In 1961 Alberto-Culver became a public company, and it has been listed on the New York Stock Exchange since 1965.
27. In 1974, Lavin’s daughter, Defendant Bernick, joined the family business, where she rose to the position of Executive Chairman, a position she still holds.
-7- 28. Throughout much of its existence, Alberto-Culver grew through two central businesses: (a) consumer packaged goods manufacturing and marketing, and (b)
Sally Beauty Company, the largest distributor of professional beauty supplies in the world.
29. In the early 1990s, driven by the need to revive the consumer products business and armed with reports of the workplace that identified key problem areas,
Bernick began an overhaul of the Company’s corporate culture.
30. Despite competition from larger rivals such as Procter & Gamble Co. and
Unilever, the Company has regularly posted impressive sales and earnings, and has almost always paid a dividend.
31. Recently, the Lavin family has experienced significant changes that have affected the Company’s corporate composition.
32. In 2005, Defendant Carol Bernick and her husband Howard, the then CEO of the Company, surprised the Board and shareholders with their decision to separate after 30 years of marriage.
33. Around the same time, Leonard Lavin began suffering severe health problems, and the Company’s co-founder, Bernice passed away.
34. On November 10, 2006, in response to consolidation in the beauty products industry, Alberto-Culver spun-off the Company’s salon distribution business, including its Sally Beauty Supply stores and Beauty Systems Group.
35. Following this turbulent period, members of the Lavin family began selling large portions of their equity in the Company. Now, the Lavin family is
-8- attempting to use the Proposed Transaction to cash out entirely.
36. According to the Company’s definitive proxy statement filed on
December 14, 2009, Lavin and Bernick still beneficially own approximately 14 million shares of the family business. By orchestrating the Proposed Transaction, the Lavin family stands to receive $525 million. To help ensure that the Unilever deal is consummated, Lavin and Bernick have pledged their shares in support of the Proposed
Transaction pursuant to a stockholder agreement (the “Voting Agreement”).
II. Background Of The Proposed Transaction
A. The Board Fails To Consider Alternative Transactions
37. After deciding to cash out of the family business, the Lavins were still not prepared to “let-go” until a deal was reached that suited them entirely. While the Lavins could have merely sold their stake on the open market and removed themselves from the
Company’s operations, this would have provided them no control premium for their shares and would have allowed someone else to run Alberto-Culver – something that has never happened and that the Lavins would not accept.
38. The Lavins sought one course of action: an all-cash sale to a large consumer products company that would continue to market Alberto-Culver’s famous products but would otherwise envelop the Company’s operations. For this reason, private equity buyers were ruled out by the Lavins, as was any potential strategic merger or partnership.
39. To orchestrate a sale in accordance with their directives, the Lavins hired neophyte investment bank BDT & Company, LLC (“BDT”), headed by Byron Trott
-9- (“Trott”), a banker who had worked closely with the Lavins in connection with the
Company’s sale of Sally Beauty Holdings, Inc. when he was previously employed by
Goldman Sachs Group, Inc. (“Goldman”).
40. The Lavins, in breach of their fiduciary duties of care, loyalty and candor, provided Trott and BDT non-public, material information about Alberto-Culver in order for BDT to assess the best course of action for the Lavins to accomplish their personal and financial goals before the Board was ever aware of the Lavins’ desire to sell the
Company.
41. Significantly, while BDT was preparing an analysis of Alberto-Culver and the Lavins’ equity stake in the Company in preparation for a sale of the Company, the
Alberto-Culver Board was unrepresented by financial advisors and unaware of the conduct of both its executive chairman and chairman emeritus.
42. According to the Schedule 14A Preliminary Proxy Statement relating to the Proposed Transaction filed with the United States Securities and Exchange
Commission (“SEC”) on October 15, 2010 (the “Proxy”), BDT met and advised the
Board on a sale of the Company on and between June 9, 2010 and June 22, 2010 – before ever being retained by the Board, ostensibly still working for the Lavins.
43. Upon its initial presentation to the Board based on guidance and information provided by the Lavins, BDT suggested Unilever as an advisable buyer for the Company. The Proxy does not disclose to what extent Trott or BDT had already discussed such an acquisition with Unilever. As described below, Trott has a longstanding relationship with Unilever, a relationship that should have been a red flag
-10- to the Board in its consideration of retaining BDT.
44. On June 22, the Board retained BDT, who at that point was apparently no longer employed by the Lavins. The Proxy is silent on when exactly BDT’s engagement with the Lavins’ officially ended.
45. Underscoring the inappropriate engagement of BDT by the Board is
BDT’s policy of not issuing fairness opinions for strategic acquisitions and buyouts.
This policy alone should have caused the Board concern in retaining BDT to conduct a sale of the Company, putting aside (1) BDTs initial engagement by the Lavins and (2)
Trott’s longstanding relationship with Unilever.
46. After Trott proposed Unilever as the appropriate buyer for Alberto-Culver, neither BDT, the Board nor the Lavins ever so much as contacted a single third party regarding an alternative transaction, even to this day. Now, by agreeing to the Merger
Agreement with its deal protections in place, the Board has improperly sacrificed any opportunity to do so in order to maximize shareholder value.
47. According to the Proxy, the Board authorized BDT to contact Unilever about a sale of the Company. The Proxy, however, fails to disclose whether the Board authorized BDT to contact any third parties concerning a strategic transaction. The Proxy makes it clear that BDT never did contact any third parties and that the Board was aware of this fact.
B. The Lavins’ Personal Banker Favors Unilever
48. BDT’s favoritism of Unilever is of no surprise. Not only does Unilever fit the requirements outlined by the Lavins, but it is a past client of Trott’s and likely a
-11- future client of BDT.
49. BDT’s founder and namesake Trott has a long established relationship with Unilever. Among other things, Trott was a top Goldman executive when Unilever hired the firm to sell Unilever’s frozen food business in 2006. Goldman was successful, and the unit was sold for roughly one billion pounds sterling to London-based private equity group Permira in August of that year.
50. Taking advantage of his relationship with Unilever, Trott proposed the
Dutch conglomerate as a potential buyer for Alberto-Culver on the very day BDT was retained by the Board. Trott apparently recognized the value of his relationship with
Unilever as he attempted to build his own investment bank, and worked to shield the
Dutch consumer products giant from having to bid for Alberto-Culver in an auction.
C. Credit Suisse Issues “Fairness Opinion” After Only Six Days
51. Recognizing the apparent inadequacy of BDT’s work and the complete disregard for the Company’s public shareholders that marred the sale process, the Lavins and the Board sought to “cleanse” the Proposed Transaction by hiring an investment bank with less obvious conflicts to issue a fairness opinion that BDT was unwilling or incapable of issuing.
52. In turn, the Board hired Credit Suisse AG (“Credit Suisse”) a mere six days before agreeing to the Proposed Transaction to issue a fairness opinion (the
“Fairness Opinion”), calling into question what, if any, substantive advisory work Credit
Suisse could have provided in this short time period. The Fairness Opinion concedes that
Credit Suisse did no independent analysis of Alberto-Culver’s financial position,
-12- prospects or potential, and merely relied on the information created and provided by
BDT, the Lavins, and the Alberto-Culver management that the Lavins employ.
53. The Proxy fails to disclose the structure of the Credit Suisse engagement or the extent to which its fee would be based upon the issuance of a fairness opinion that supported the Proposed Transaction – as negotiated by BDT, the Lavins and Unilever.
Indeed, the Fairness Opinion does not purport to opine on the relative fairness of the
Proposed Transaction to the Company’s shareholders as compared to the Lavins, but only speaks to general fairness of the offer price.
54. From the contents of the Proxy, it is apparent that Credit Suisse’s involvement in the Proposed Transaction was limited and superficial, providing no comfort to the Company’s public shareholders that their interests were at all represented by the Board in the sale process. The Board had a duty to seek and receive cognitive and substantive financial advice before imposing a sale of the Company on the Plaintiff and the Class, and it failed to do so.
III. The Proposed Transaction
55. On September 27, 2010, Alberto-Culver and Unilever announced an agreement and plan of merger whereby Unilever would acquire Alberto-Culver for
$37.50 per share in cash, a meager 19% premium to Alberto-Culver’s closing stock price on the trading day immediately preceding the deal’s announcement.
56. As previously alleged, the process leading up to the Board’s decision to agree to the Proposed Transaction was severely flawed, and not in any way designed to elicit the most economically favorable transaction for Alberto-Culver’s shareholders.
-13- 57. According to a Q-&A (the “Q&A) distributed internally at the Company and filed with the SEC on September 27, 2010, Alberto-Culver and Unilever first began discussing a potential sale a few months ago. Response No. 8 to the Q&A states:
We knew from discussions with numerous bankers and investment advisors that Unilever had a commitment to growing their personal care business and their infrastructure, geographic footprint and resources could provide accelerated growth for our brands. Through our banker we approached Unilever. Discussions with Unilever leadership have been underway for a few months. (Emphasis added.)
58. Despite impressive sales results and remarkable growth prospects, as described below, the Alberto-Culver Board was convinced – by an investment banker looking out for the best interests of the Lavins (and himself) – that now was the appropriate time to conduct what amounted to a hasty sale of the Company.
59. Also in the Q&A and as confirmed by the Proxy, Alberto-Culver admitted that after considering Unilever for a transaction, the Alberto-Culver Board never attempted to confirm whether the Proposed Transaction represents the best possible strategic alternative for Alberto-Culver’s shareholders. Question and response No. 9 states:
9. Did the Board actively explore the possibility of other buyers?
The BOD explored the opportunity with Unilever and the discussions led to a financially compelling offer for our shareholders and a strategically compelling opportunity for our brands and business. And, as is clear from their offer, they clearly value the brands highly and believe they can grow them dramatically.
-14- 60. The Alberto-Culver Board approved and now recommends Unilever’s low premium offer without any understanding as to what, if any, competing interest there is in the Company. It is also unclear how the Board could be confident that the Proposed
Transaction proposes a “financially compelling” offer if it conducted no market-check to gauge Unilever’s purchase price.
61. The Company’s assertion that the Proposed Transaction provides
“strategically compelling opportunity for our brands and business” is illustrative of the
Board’s failed duties. Shareholders will be cashed out of the business upon consummation of the Proposed Transaction and thus, future opportunities of the
Company are irrelevant to them in considering the merits of the Proposed Transaction.
IV. The Alberto-Culver Board Agreed To Sell The Company To Unilever For Inadequate Consideration
62. The merger consideration of the Proposed Transaction is inadequate when examined with minimal scrutiny. The premium offered in the Proposed Transaction fails to account for: (a) Alberto-Culver’s stellar sales and earnings per share (“EPS”) during the last two fiscal quarters, and (b) the explosive anticipated growth in the personal care products industry.
63. For the second fiscal quarter of 2010, which ended on March 31, 2010, the
Company’s net sales increased 11.8% to $384.8 million compared to $344.3 million in the second quarter of fiscal 2009. During the quarter, diluted EPS from continuing operations also increased 7.1% to 30 cents per share.
-15- 64. In connection with the earnings release, CEO Marino described the quarter as follows:
“The strength of our brands, led by TRESemme, has enabled us to continue to show positive momentum and generate especially strong growth in our international markets.”
65. Alberto-Culver’s third fiscal quarter 2010 sales and EPS eclipsed even those posted one quarter prior. During this quarter, the Company’s net sales were $417.6 million, an 18.8% increase from sales posted during the comparable period in fiscal year
2009. Similarly, diluted EPS from continuing operations also increased to 47 cents compared to 28 cents during the prior year’s third fiscal quarter. Defendant Marino described the Company’s performance during the third quarter as follows:
“I am very pleased to report an exceptionally strong quarter of sales and earnings growth in both our U.S. and international segments. Despite challenging economic conditions and soft category growth rates, we continue to outperform the hair care category and gain market share. Double-digit organic sales growth was broad based across our core beauty care brands.” (Emphasis added.)
66. The Board should have leveraged the market’s heightened demand for the
Company’s products to extract a substantial premium and a favorable Merger Agreement.
Instead, the Individual Defendants hastily locked-up a deal with Unilever before ever fulfilling their fiduciary duties to maximize shareholder value in a change of control transaction such as this one.
67. For example, the offer price fails to properly account for ongoing growth in the personal care products segment of the consumer products industry. Indeed, consumer goods analyst Mark Whalley from Datamonitor predicts that sales of personal
-16- care products in the BRIC nations (i.e., Brazil, Russia, India and China) will grow by more than 40% between 2009 and 2014. Whalley explains that “the industry as a whole has been growing despite the recession because people aren’t prepared to cut back on personal care because of the feel-good factor. In these emerging markets there’s a certain degree of following Western fashion trends, and using these kinds of more expensive products.”
68. In addition, Alberto-Culver’s stock price in the wake of the Proposed
Transaction’s announcement casts serious doubts on the adequacy of the offered consideration. Beginning on September 28, 2010, the day after the deal was announced, and through today, the Company’s stock has been trading above Unilever’s offer price, indicating that the market believes that the Proposed Transaction does not provide full and fair value for the Company’s shares.
69. In negotiating the Proposed Transaction, the Alberto-Culver Board abandoned opportunities to secure the highest price reasonably available for the
Company, even if that price were to ultimately come from Unilever. Obvious potential suitors – such as L’Oreal SA, Henkel AG, and Beiersdorf AG – were never contacted or appropriately considered by the Alberto-Culver Board despite their superior financial resources. See Proxy at 17 (Reasons for the Merger; Recommendation of Alberto
Culver’s board of Directors section, the Board purportedly considered a number of factors including that “many of the Company’s competitors [are] substantially larger and more diversified and [have] significantly greater financial resources.”). Further, these companies and other potential Alberto-Culver buyers who may wish to outbid Unilever
-17- for the Company are now hamstrung by the harmful and preclusive deal protections included in the Merger Agreement described below.
70. Alberto-Culver shareholders have a right to receive consideration that accurately accounts for the Company’s bright prospects, stellar past performance and brand recognition. Instead, the Board negotiated exclusively with Unilever and agreed to the Proposed Transaction in violation of their fiduciary duties owed to the Company’s public shareholders.
V. The Alberto-Culver Board Agreed To Deal Protections That Improperly Strip The Board Of The Ability To Properly Exercise Their Fiduciary Duties
71. Not only did the Alberto-Culver Board fail to maximize shareholder value in agreeing to the Proposed Transaction without considering any alternative transactions, it also took unreasonable steps to virtually guarantee consummation of a deal with
Unilever to the detriment of Alberto-Culver’s shareholders.
72. First, the Alberto-Culver Board failed to negotiate for a “Go-Shop” provision. In light of the Board’s decision to initiate sales dialogue and enter exclusive negotiations with Unilever, a “Go-Shop” is the only to ensure that shareholders receive the highest value reasonably available for their shares. While not a perfect substitute for a pre-signing auction, a “Go-Shop” could serve a similar function by allowing the Board to canvas the market to determine whether potential suitors are interested in making a competing bid.
73. Instead of negotiating for a “Go-Shop”, the Alberto-Culver Board agreed to a prohibitive “No Solicitation” clause (the “No-Shop”), further limiting the Board’s
-18- ability to entertain superior strategic alternatives. Section 4.02(a) of the Merger
Agreement provides:
The Company shall not, nor shall it authorize or permit any of its Subsidiaries or any of its or their respective directors, officers or employees or any investment banker, financial advisor, attorney, accountant or other advisor, agent or representative (collectively, “Representatives”) retained by it or any of its Subsidiaries to, directly or indirectly through another person, (i) solicit, initiate or knowingly encourage, induce or facilitate any Takeover Proposal or any inquiry or proposal that could reasonably be expected to lead to a Takeover Proposal or (ii) enter into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any person any information with respect to, or otherwise cooperate in any way with, any Takeover Proposal or any inquiry or proposal that could reasonably be expected to lead to a Takeover Proposal. The Company shall, and shall cause its Subsidiaries and its and their respective Representatives to, immediately cease and cause to be terminated all existing discussions or negotiations with any person conducted heretofore with respect to any Takeover Proposal, or any inquiry or proposal that could reasonably be expected to lead to a Takeover Proposal, request the prompt return or destruction of all confidential information previously furnished and immediately terminate all physical and electronic dataroom access previously granted to any such person or its Representatives.
74. As written, the No-Shop provision prevents Alberto-Culver from even encouraging competing bids for the Company; the antithesis of maximizing shareholder value.
75. The No-Shop provision is already costing Alberto-Culver shareholders the opportunity to receive maximum value for their shares. Even though the Company’s stock has already traded above the Unilever offer price since the Proposed Transaction was announced, the Board is barred from exploring strategic alternatives to the Proposed
Transaction. -19- 76. The Alberto-Culver Board also granted Unilever a “Matching Right” in the Merger Agreement that provides Unilever five business days to revise its proposal or persuade the Alberto-Culver Board not to change its recommendation on the merger in the face of a proposal from a third party suitor. Section 4.02(b)(iii) of the Merger
Agreement provides:
Notwithstanding Section 4.02(b)(i), at any time prior to obtaining the Stockholder Approval, if the Company receives a Takeover Proposal which the Board of Directors of the Company determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) constitutes a Superior Proposal, the Company may terminate this Agreement to enter into a definitive agreement with respect to such Superior Proposal if the Board of Directors of the Company determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) that the failure to do so would be inconsistent with its fiduciary duties under applicable law; provided, however, that the Company shall not terminate this Agreement pursuant to this Section 4.02(b)(iii), and any purported termination pursuant to this Section 4.02(b)(iii) shall be void, unless (A) the Company has not breached or failed to perform any of its representations, warranties, covenants or agreements set forth in this Agreement, including in this Section 4.02, such that the conditions set forth in Section 6.02(a) or 6.02(b) could not then be satisfied, (B) concurrently with such termination the Company pays the termination fee payable pursuant to Section 5.06(b), (C) the Company has provided prior written notice to Parent that the Company intends to terminate this Agreement to enter into a definitive agreement with respect to such Superior Proposal (a “Notice of Superior Proposal”), which notice shall specify the material terms and conditions of such Superior Proposal (including the identity of the third party or group making such Superior Proposal) and attach a copy of the definitive agreement proposed to be entered into with respect to such Superior Proposal, (D) the Company has negotiated in good faith (including by complying with its obligations under Section 4.02(b)(iv)) with Parent with respect to any changes to the terms of this Agreement proposed by Parent for at least five business days following receipt by Parent of such Notice of Superior Proposal (it being understood -20- and agreed that any amendment to any material term of such Superior Proposal shall require a new Notice of Superior Proposal and an additional three business day period from the date of such notice) and (E) taking into account any changes to the terms of this Agreement proposed by Parent to the Company, the Board of Directors of the Company has determined in good faith (after consultation with outside counsel and a financial advisor of nationally recognized reputation) that such Superior Proposal continues to meet the definition of the term “Superior Proposal” and the failure by it to terminate this Agreement to enter into the definitive agreement with respect to such Superior Proposal would be inconsistent with its fiduciary duties under applicable law. (Emphasis added.)
77. The Matching Right dissuades interested parties from making an offer for the Company by providing Unilever the opportunity to make repeated matching bids to counter any competing offers. Due to the complete absence of any pre-signing market check, no justification exists for the inclusion of the Matching Right and other bid advantages in the Merger Agreement.
78. The Alberto-Culver Board further reduced the possibility of a maximizing shareholder value by agreeing to a punitive $125 million termination fee (the
“Termination Fee”). The Termination Fee is payable if, among other situations, the
Alberto-Culver Board terminates the Merger Agreement and the Company consummates a transaction with another interested party within fifteen months after the date of such termination. Thus, the $125 million Termination Fee will be payable by any potential third-party buyer, driving up the cost of the acquisition and potentially transferring money to Unilever that otherwise could have been paid to Alberto-Culver shareholders as additional merger consideration.
-21- 79. The No-Shop, Matching Right and Termination Fee (collectively, the
“Deal Protections”) serve to deter competing parties from making bids and prevent the
Alberto-Culver Board from properly exercising their fiduciary duties to obtain the best available strategic alternative – and resulting maximum value – for Alberto-Culver’s shareholders.
80. The Deal Protections are unreasonable barriers to competing offers and substantially increase the likelihood that the Proposed Transaction will be consummated, leaving Alberto-Culver shareholders with limited opportunity to consider any superior offer. When viewed together and in light of the now non-existent premium offered by the
Proposed Transaction, these provisions cannot be justified as reasonable or proportionate measures to protect Unilever’s investment in the transaction process. This is particularly true in light of the fact that Alberto-Culver reached out to Unilever, streamlining the sale process for a the Board’s favored buyer.
VI. The Defendants Cause to Be Filed A False And Misleading Preliminary Proxy Statement
81. On October 15, 2010, Alberto-Culver and Unilever caused to be filed with the SEC Schedule 14A Preliminary Proxy Statement (previously defined as “Proxy”). As set forth below, the Proxy fails to fully and fairly disclose material information that would, if disclosed, significantly alter the total mix of information made available to shareholders asked to consider the end of Alberto-Culver’s existence as an independent public company.
A. The “Background Of The Merger” Discussion -22- 82. The “Background of the Merger” discussion in the Proxy leaves many material questions unanswered, and provides misleading information to shareholders.
83. Among other things, the Proxy fails to disclose why the Board decided to negotiate exclusively with Unilever thereby prohibiting exploration of strategic alternatives. For example, the Proxy states that following a meeting of the Board on
August 17, 2010, when the Board finally considered whether to contact any third parties
– more than two months after BDT suggested its preferred bidder Unilever:
Our board of directors also considered whether to contact other potential buyers if a price above $37.00 per share could not be reached with the Unilever Group, but after discussing other potential buyers and considering advice from representatives of BDT, among other things, concluded that financial bidders would not be able to offer as much as strategic buyers, and that involving additional strategic buyers in a sale process would be undesirable because it would require sharing more confidential information with competitors and potentially be disruptive to the business and the negotiations with the Unilever Group, without a reasonable likelihood of another party being able to offer a higher price than the Unilever Group. (Emphasis Added.)
84. The Board’s purported rational for not contacting other potential strategic buyers was “that involving additional strategic buyers in a sale process would be undesirable because it would require sharing more confidential information with competitors.” This statement is misleading because no other strategic buyers had been contacted and therefore there was no risk of sharing more confidential information.
Further, other strategic buyers might well have been willing to offer equity as well as cash for the Company, and the Proxy fails to disclose why this consideration was ignored.
85. The Proxy also misleadingly states that the BDT and the Board ruled out private equity purchasers as the Board “concluded that financial bidders would not be -23- able to offer as much as strategic buyers.” This statement is misleading as it states that there are multiple strategic buyers who would offer more value than financial bidders, but in fact only one strategic buyer was ever contacted. While it might be reasonable to conclude that strategic buyers could offer more value if they foresaw synergies with
Alberto-Culver, it is unreasonable to assume they would do so bidding against themselves.
86. The Proxy also fails to disclose material information concerning the
Company’s investigation of strategic alternatives prior to being approached by BDT about a deal with Unilever. Specifically, the Proxy fails to disclose whether the Board was well informed of the Company’s alternatives to the sale of 100% of the Company, or the reasons why no offers or proposals materialized during negotiations with Unilever.
87. The Proxy lacks sufficient information regarding the provisions that serve to “lock-up” the Proposed Transaction, including the rationale for a No-Shop provision in light of the fact that no other potential purchasers were informed that the Company might be for sale. Deal protections such as the Termination Fee and No-Shop provision should not be granted without contemplation of the consideration received in exchange for them, and their relative impact on the Board’s exercise of its fiduciary duties.
88. The Proxy also fails to disclose the number of investment banks, if any, the Board considered before retaining the Lavins’ personal investment bank, BDT.
Moreover, the Proxy fails to explain why, if on June 22, 2010 the Board understood it would need an additional financial advisor to render a fairness opinion, such advisor was not retained until three months later.
-24- 89. The Proxy does not disclose the identity of the “numerous” investment banks referenced in Response No. 8 to the Q&A, nor does it disclose when they provided the Board with information concerning Unilever, and what caused them to do so.
90. The Proxy fails to disclose the structure of the Credit Suisse engagement and the extent to which its fee would be based upon the issuance of a fairness opinion that supported the Proposed Transaction – as negotiated by BDT, the Lavins and
Unilever. Also, the Proxy fails to provide any specific details on Credit Suisse’s involvement in the Proposed Transaction.
B. The Credit Suisse Fairness Opinion
91. Credit Suisse was asked to render the Fairness Opinion without the benefit of updated financial projections that Alberto-Culver had already provided to
Unilever
92. According to the Proxy, on October 11, 2010, two weeks after the date of the Fairness Opinion, Credit Suisse was finally provided certain updated financial forecasts that the Company had already provided to Unilever on September 19, 2010 (the
“Updated Financial Projections”).
93. The Updated Financial Projections contained revised forecasts of net sales and EBIT for the fiscal year ending September 30, 2010 of approximately $1.589 billion and $234 million, respectively, and $.039 diluted earnings per share. The Updated
Financial Projections also contained similar forecasts for the fiscal quarters ending
December 1, 2010 and March 31, 2010.
94. The Proxy reveals that the Updated Financial Projections were not
-25- reflected in the financial analysis performed by Credit Suisse and presented to the Board on September 26, 2010, and were not used in preparation of the September 26 Fairness
Opinion.
95. However, the Proxy does not disclose why the Updated Financial
Projections were not provided to Credit Suisse until October 11, if such projections had been available for three weeks.
96. The Proxy states: “Credit Suisse used the Company’s projections of net sales, EBITDA, EBIT and net income for the fiscal year ending September 30, 2010 to calculate, with the Company’s consent and management’s guidance, pro forma net sales,
EBITDA, EBIT and net income for the fiscal year ending September 30, 2010 of approximately $1.614 billion, $277 million, $247 million and $168 million, respectively, to give effect to the Simple acquisition on a pro forma basis for the full fiscal year.”
97. Accordingly, the pro forma projections prepared by Credit Suisse accounting for the Company’s acquisition of Simple Health & Beauty Limited
(“Simple”) had the impact of improving Net Sales from $1.586 billion to $1.614 billion; improving EBITDA from $258 million to $277 million; EBIT from $228 million to $247 million; and Net Income from $155 million to $168 million (the “Simple Projections”).
98. The Proxy fails to disclose, however, whether Credit Suisse used the
Simple Projections in the DCF analysis disclosed in the Proxy, and if so, how these impacted the analysis. The Proxy also fails to disclose whether the Board ever used the
Simple Projections to negotiate a better price from Unilever.
99. Additionally, the Proxy completely fails to disclose the underlying
-26- methodologies, projections, key inputs and multiples relied upon and observed by Credit
Suisse in conducting its analysis in support of the Fairness Opinion concerning the
Proposed Transaction. This information is material to shareholders so they can properly assess the credibility of the various analyses performed by Credit Suisse and purportedly relied upon by the Board in recommending the Proposed Transaction.
100. The Proxy is deficient and should provide, inter alia, the following:
1. Selected Companies Analysis
a) The criteria utilized by Credit Suisse to select the companies and the multiples used in its Selected Companies Analysis.
b) The multiples observed and ratios calculated for each company in the Selected Companies Analysis.
c) The enterprise values as a multiple of calendar years 2010 and 2011 estimated EBITDA observed for each company in the Selected Companies Analysis.
d) The stock price as a multiple of calendar year 2010 and 2011 estimated EPS observed for each company in the Selected Companies Analysis.
e) The reference ranges of selected multiples for the selected companies applied to corresponding financial data of Alberto- Culver in the Selected Companies Analysis
2. Selected Transaction Analysis
a) The criteria utilized by Credit Suisse to select the transactions in its Selected Transactions Analysis.
b) The transaction values and multiples observed by Credit Suisse for each transaction in the Selected Transactions Analysis.
c) The “LTM” (“enterprise value as a multiple of the target company’s EBITDA over the last 12 months preceding the announcement of the transaction”) used by Credit Suisse for each of the transactions in the Selected Transaction Analysis. -27- d) The “reference range of selected multiples” used by Credit Suisse for each of the transactions in the Selected Transaction Analysis
3. Discounted Cash Flow Analysis
a) The methodology used by Credit Suisse to conduct its Discounted Cash Flow Analysis (“DCF”).
b) The criteria used to select the 7.0% to 8.5% discount rates used in the DCF and methodology of calculating the discount rate.
c) The criteria for selecting terminal multiples ranging from 9.0x to 11.0x (to the 2015 EBITDA of the Company).
d) The criteria and methodology used to select 2015 as the last year to forecast cash flows for the Company.
e) The criteria and methodology used to forecast revenue growth for the Company during the forecast period.
f) The methodology used to calculate the Company’s weighted average cost of capital.
g) The free cash flow projections for the Company for each year in the forecast period and the Terminal Value free cash flow in table format.
4. Confirmation of Opinion
a) How the Updated Financial Projections altered the Discounted Cash Flow Analysis conducted by Credit Suisse. The summary of the DCF Analysis should be updated to reflect the October 11 Updated Financial Projections.
b) The reasons and basis for the Updated Financial Projections.
5. Financial Projections
a) How the Updated Financial Projections impacted the DCF analysis as disclosed, and the Fairness Opinion.
-28- b) The financial projections in a clear and understandable manner for shareholders with an explanation as to how the Simple Projections impacted the Credit Suisse DCF analysis, the Fairness Opinion, and the Board’s duty to obtain the best price for shareholders in a change of control transaction such as the Proposed Transaction.
C. Interests Of Alberto Culver’s Directors And Officers
101. The Interests of Alberto Culver’s Directors and Executive Officers in the
Merger section of the Proxy states: “In considering the recommendation of the Alberto
Culver board of directors that you vote to adopt the merger agreement, you should be
aware that Alberto Culver’s executive officers and directors have interests in the
merger that are different from, or in addition to, those of Alberto Culver’s stockholders
generally.” (Emphasis added.) While this language raises concerns that Company insiders are receiving in the Proposed Transaction additional compensation beyond what is being provided to the Class, the Proxy fails to adequately disclose what these interests might be, and their relative value.
102. Disclosures concerning these interests are particularly relevant to an informed shareholders vote considering that the Fairness Opinion does not address the relative fairness of the consideration to be received by the Class as compared to the consideration to be received by Company insiders. The Fairness Opinion states:
Our opinion addresses only the fairness, from a financial point of view, to the holders of Company Common Stock of the Consideration to be received in the Merger and does not address any other aspect or implication of agreement, arrangement or understanding entered into in connection with the Merger or otherwise including, without limitation, the fairness of the amount or nature of, or any other aspect relating to, any compensation to any officers, directors or employees of any party to the Merger, or class of such persons, relative to the Consideration or otherwise. -29- 103. This limitation of the Fairness Opinion coupled with the admission that
Company insiders might receive consideration in addition to what will be received by the
Class creates a problematic void in the total information available to shareholders as they prepare to vote. The Proxy must disclose or describe what, if any differential consideration may be received by the Company’s executive officers and directors, in particular the Lavins.
D. The Role Of BDT In The Proposed Transaction
104. The Proxy fails to fully and fairly inform the Class about the role BDT played in the Proposed Transaction. For example, the Proxy states that representatives of
BDT delivered a presentation based upon the analysis it had completed for the Lavin family, which had been prepared from publicly available information regarding the
Company and the personal care industry. The Proxy fails to disclose when this was prepared and for what reasons. Moreover, the Proxy does not specify what, if any, non- public information was used in this analysis.
105. While the Proxy states that “Our board of directors was informed that the
Lavin family’s engagement of BDT had been previously terminated,” it fails to mention when, why and by whom it was terminated. The Proxy also fails to disclose why it is
BDT’s policy not to deliver fairness opinions. Further, the Proxy fails to disclose whether the Board considered this policy in evaluating the adequacy of BDT to serve as its primary financial advisor in a sale of the Company.
106. According to the Proxy, the “board of directors unanimously authorized
-30- BDT to approach the Unilever Group,” without disclosing why it did not also authorize contacting either Company A or any of the seventeen companies listed in the “Selected
Companies Analysis.” The Proxy fails to disclose whether BDT had already discussed an acquisition of Alberto-Culver with Unilever before advising the Board.
107. The Proxy does not disclose what portion of BDT’s fee is contingent on a deal closing at all or on a deal closing with Unilever.
CLASS ACTION ALLEGATIONS
108. Plaintiff brings this action pursuant to Rule 23 of the Rules of the Court of
Chancery, individually and on behalf of all other holders of Alberto-Culver’s common stock (except defendants herein and any persons, firm, trust, corporation or other entity related to or affiliated with them and their successors in interest) who are or will be threatened with injury arising from defendants’ wrongful actions, as more fully described herein.
109. This action is properly maintainable as a class action.
110. The Class is so numerous that joinder of all members is impracticable.
The Company has thousands of shareholders who are scattered throughout the United
States. As of June 30, 2010, there were 98,652,789 shares of Alberto-Culver’s common stock outstanding.
111. There are questions of law and fact common to the Class including, inter alia, whether:
a. The Individual Defendants breached their fiduciary duties by refusing to extract the highest value possible from Unilever in exchange for Alberto-Culver’s shares; -31- b. The Individual Defendants are acting in furtherance of their own self-interest to the detriment of the Class;
c. The Individual Defendants breached their fiduciary duties by “locking” up” the Proposed Transaction to the detriment of the Class by approving the No-Shop, Matching Right and Termination Fee without obtaining adequate consideration for Alberto-Culver shareholders;
d. The Individual Defendants breached their duties of care, candor and loyalty by failing to disclosure all material information so shareholders could make a fully informed decision when voting whether to approve the Proposed Transaction;
e. Plaintiff and the other members of the Class are being and will continue to be injured by the wrongful conduct alleged herein and, if so, what is the proper remedy and/or measure of damages; and
f. Plaintiff and the other members of the Class will be damaged irreparably by Defendants’ conduct.
112. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff’s claims are typical of the claims of the other members of the Class, and Plaintiff has the same interests as the other members of the Class. Plaintiff is an adequate representative of the Class.
113. The prosecution of separate actions by individual members of the Class would create the risk of inconsistent or varying adjudications with respect to individual members of the Class, which would establish incompatible standards of conduct for
Defendants, or adjudications with respect to individual members of the Class, which would as a practical matter be disjunctive of the interests of the other members not parties to the adjudications or substantially impair or impede their ability to protect their interests. -32- 114. Defendants have acted, or refused to act, on grounds generally applicable to, and causing injury to, the Class and, therefore, preliminary and final injunctive relief on behalf of the Class, as a whole, is appropriate.
COUNT I
BREACH OF FIDUCIARY DUTY AGAINST THE INDIVIDUAL DEFENDANTS
115. Plaintiff repeats and realleges each and every allegation above as if set forth in full herein.
116. The Individual Defendants, as Alberto-Culver directors, owe the Class the utmost fiduciary duties of due care, good faith, candor and loyalty. By virtue of their positions as directors and/or officers of Alberto-Culver and/or their exercise of control and ownership over the business and corporate affairs of the Company, the Individual
Defendants have, and at all relevant times had, the power to control and influence and did control and influence and cause the Company to engage in the practices complained of herein. Each Individual Defendant was required to: (a) use their ability to control and manage Alberto-Culver in a fair, just and equitable manner; (b) act in furtherance of the best interests of Alberto-Culver and its shareholders and not their own; and (c) fully disclose the material circumstances, procedures, and terms of the Proposed Transaction so that shareholders can make a fully informed decision.
117. The Individual Defendants failed to fulfill their fiduciary duties in connection with the Proposed Transaction.
-33- 118. As a result of the Alberto-Culver directors’ breaches of fiduciary duty in agreeing to the Proposed Transaction, the Class will be harmed by receiving the inferior consideration offered in the Proposed Transaction.
119. Furthermore, the Deal Protections adopted by the defendants and contained in the Merger Agreement impose an excessive and disproportionate impediment to the Board’s ability to entertain any other potentially superior alternative offer. The Alberto-Culver Board’s agreement to the No-Shop, Matching Right and the
Termination Fee constitute a breach of fiduciary duty, especially in light of the Individual
Defendants’ failure to obtain additional consideration in exchange for these valuable concessions.
120. Finally, the Individual Defendants breached their duties of care, candor and loyalty by failing to disclosure all material information in the Proxy concerning the
Proposed Transaction so shareholders could make a fully informed decision when voting whether to approve the Proposed Transaction.
121. Plaintiff and the Class have no adequate remedy at law.
COUNT II
AIDING AND ABETTING AGAINST UNILEVER
122. Plaintiff repeats and realleges each and every allegation above as if set forth in full herein.
123. Defendant Unilever knowingly assisted the Individual Defendants in construction of the Proposed Transaction and the related Merger Agreement and Voting
Agreement, which unlawfully restrict the Alberto-Culver Board from fully informing
-34- itself of all of the Company’s strategic alternatives in compliance with its fiduciary duties.
124. Further, Unilever, to the extent jointly responsible for the Proxy, has aided and abetted the Alberto-Culver Board in a breach of its duty of candor.
125. As a result of this conduct by Unilever, Plaintiff and other members of the
Class have been and will be damaged by being denied the best opportunity to maximize the value of their investment in the Company.
126. Plaintiff and the Class have no adequate remedy at law.
RELIEF REQUESTED
WHEREFORE, Plaintiff demands judgment as follows:
a. Preliminarily and permanently enjoining Alberto-Culver and any
of the Alberto-Culver Board members and any and all other employees, agents, or
representatives of the Company and persons acting in concert with any one or
more of any of the foregoing, during the pendency of this action, from taking any
action to consummate the Proposed Transaction until such time as the Alberto-
Culver Board has fully complied with their fiduciary duties and taken all readily
available steps to maximize shareholder value;
b. Finding the Alberto-Culver Board liable for breaching their
fiduciary duties to the Class;
c. Finding the Deal Protections invalid and unenforceable, or in the
alternative, amending the Deal Protections as necessary to ensure a full and fair
sale process for the benefit of the Class;
-35- d. Finding Unilever liable for aiding and abetting a breach of fiduciary duty;
e. Requiring the Alberto-Culver Board to fully inform itself of all of the Company’s strategic alternatives, and giving full and fair consideration to any alternative offers for the Company;
f. Requiring the Alberto-Culver Board and Unilever to disclose all material information relating to the Proposed Transaction, the Voting Agreement and the related shareholder approval process;
g. Awarding the Class compensatory damages, together with pre- and post-judgment interest;
h. Awarding Plaintiff the costs and disbursements of this action, including attorneys’, accountants’, and experts’ fees; and
i. Awarding such other and further relief as is just and equitable.
-36- Dated October 21, 2010 GRANT & EISENHOFER P.A.
/s/ John C. Kairis SAXENA WHITE P.A. Jay W. Eisenhofer (Del. Bar No. 2864) Joseph E. White III Michael J. Barry (Del. Bar No. 4368) Lester R. Hooker John C. Kairis (Del. Bar No. 2752) 2424 North Federal Highway 1201 N. Market St. Suite 257 Wilmington, DE 19801 Boca Raton, FL 33431 Tel.: 302-622-7000 Tel: (561) 394-3399 Fax: 302-622-7100 Fax: (561) 394-3382
Co-Counsel for Plaintiff BERNSTEIN LITOWITZ BERGER & GROSSMANN LLP Mark Lebovitch Brett Middleton Amy Miller Jeremy Friedman 1285 Avenue of the Americas New York, NY 10019 Tel: (212) 554-1400 Fax: (212) 554-1444
Co-Counsel for Plaintiff
-37-