PHILADELPHIA – A Pennsylvania man and Spirit Airlines stockholder has launched litigation against the CEO and Board of Directors of the airline company, alleging that in its proposed merger with Frontier Airlines, the defendants failed to disclose proper information of the transaction and violated the Securities Exchange Act of 1934.
Jeffrey D. Justice II filed suit in the U.S. District Court for the Eastern District of Pennsylvania on March 21 versus Spirit Airlines, Inc., Edward M. Christie, III, Carlton D. Donaway, Mark B. Dunkerley, H. McIntyre Gardner, Robert D. Johnson, Barclay G. Jones III, Christine P. Richards, Myrna M. Soto and Dawn M. Zier.
After Spirit Airlines announced the merger on Feb. 5, the defendants filed a registration statement associated with the transaction on March 11, which the suit says failed to disclose material information regarding the proposed merger.
“The registration statement fails to disclose material information regarding Spirit’s and Frontier’s financial projections, specifically the line items underlying the financial projections. The disclosure of projected financial information is material because it provides stockholders with a basis to project the future financial performance of a company and allows stockholders to better understand the financial analyses performed by the company’s financial advisor in support of its fairness opinion,” the suit says.
“The registration statement fails to disclose material information regarding the financial analyses conducted by Barclays and Morgan Stanley. When a banker’s endorsement of the fairness of a transaction is touted to shareholders, the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed. Regarding Barclays’ selected comparable company analysis, the registration statement fails to disclose the individual multiples for the companies utilized by Barclays.”
The suit went on to describe further alleged omissions from the financial filings.
“Regarding Barclays’ discounted cash flow analyses, the registration statement fails to disclose: (i) the terminal values utilized by Barclays; (ii) the inputs and assumptions underlying the discount rates and multiples utilized by Barclays; and (iii) the total debt, cash, and fully diluted shares utilized by Barclays. Regarding Barclays’ research analyst price targets analysis, the registration statement fails to disclose: (i) the price targets utilized by Barclays; and (ii) the sources of the price targets utilized by Barclays,” the suit states.
“Regarding Morgan Stanley’s discounted cash flow analyses, the registration statement fails to disclose: (i) the terminal values utilized by Morgan Stanley; (ii) the inputs and assumptions underlying the discount rates and multiples utilized by Morgan Stanley; and (iii) the fully diluted shares utilized by Morgan Stanley. Regarding Morgan Stanley’s discounted equity value analyses, the registration statement fails to disclose the inputs and assumptions underlying the discount rates and multiples utilized by Morgan Stanley. Regarding Morgan Stanley’s discounted analyst price targets analysis, the registration statement fails to disclose: (i) the price targets utilized by Morgan Stanley; (ii) the sources of the price targets utilized by Morgan Stanley; and (iii) the inputs and assumptions underlying the discount rates utilized by Morgan Stanley.”
The suit claims that the omissions and false and misleading statements in the registration statement are material, in that a reasonable stockholder will consider them important in deciding how to vote on the proposed merger.
For counts of violating Section 14(a) of the Exchange Act and Rule 14a-9, in addition to violating of Section 20(a) of the Exchange Act, the plaintiff is seeking the following reliefs:
• Preliminarily and permanently enjoining defendants and all persons acting in concert with them from consummating the proposed merger;
• In the event defendants consummate the proposed merger, rescinding it and setting it aside or awarding rescissory damages;
• Directing the individual defendants to disseminate a registration statement that does not contain any untrue statements of material fact and that states all material facts required in it or necessary to make the statements contained therein not misleading;
• Declaring that defendants violated Sections 14(a) and/or 20(a) of the Exchange Act, as well as Rule 14a-9 promulgated thereunder;
• Awarding plaintiff the costs of this action, including reasonable allowance for attorneys’ and experts’ fees; and
• Granting such other and further relief as this Court may deem just and proper, in addition to a trial by jury.
The plaintiff is represented by Joshua H. Grabar of Grabar Law Office, in Philadelphia.
The defendants have not yet obtained legal counsel.
U.S. District Court for the Eastern District of Pennsylvania case 2:22-cv-01079
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nick.malfitano@therecordinc.com