Shareholder Sues InFocus, Alleging Board Acted ‘Recklessly’
A shareholder is suing InFocus, alleging that its proposed $39 million sale to Image Holdings resulted from a “flawed process” that barred competing offers.
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In a complaint in Clackamas County Circuit Court in Oregon, David Donovan called InFocus’ board “reckless” in efforts to sell the company to Image, controlled by eMachines founder John Hui. But in an SEC filing, InFocus said an adviser to Hui, Diana Maranon of Averil Capital Markets Group, first contacted the company about buying it in August. Discussions continued throughout the fall with Hui affiliate Joui International signing a confidentiality agreement, InFocus said. InFocus hired financial adviser Thomas Weisel Partners in December. Weisel had discussions with 50 potential buyers and signed confidentiality agreements with 12, InFocus said. Ten made presentations to InFocus management, the company said. Hui created Image to buy InFocus.
InFocus said it has received a competing offer since Image announced its bid in April. InFocus has said little about the second bid, which it called a “takeover proposal.” The competing offer didn’t involve InFocus founder Steve Hix, who in December had expressed interest in forming a group to buy the company, David Woolf, vice president of marketing, told us. Hui offered $1 a share for InFocus in February, but lowered the bid to 85 cents March 19, after a due diligence raised issues, InFocus said. InFocus rejected the 85-cent bid, which Hui increased to 95 cents April 2, InFocus said. InFocus’ stock, trading at 26 cents in early March, rose to 70 cents by the end of the month, the company said.
“The company believes there’s no basis” for Donovan’s lawsuit, Woolf said. It alleged that InFocus board members were using the deal to “aggrandize their own financial position.”
InFocus would be kept separate from Joui, which develops office supplies, Hui told us. He said he wouldn’t discuss his plans for InFocus further until the purchase closes this quarter.
InFocus posted $188 million in losses over four years and hasn’t turned an annual profit since 2004, the company said. Cash and equivalents had declined to $7.9 million March 31, from $16.8 million Dec. 31 and $84.1 million a year before that, it said. InFocus’ Q1 net loss widened to $8 million from $1.8 million a year earlier, as revenue dropped to $44.4 million from $61 million. Gross margins decreased to 14.1 percent from 20.4 percent a year earlier. Its order backlog slipped to $3.3 million from $5.2 million Dec. 31. InFocus took $1 million in restructuring charges against Q1 earnings, largely tied to losses on leases at vacant facilities, it said. InFocus’ profit from its Motif joint venture with Motorola shrank to $209,000 from $1.2 million a year ago.
InFocus said it’s battling in court in Norway over a $1.4 million 2003 tax refund claim. Norwegian authorities have argued that InFocus isn’t entitled to the refund, a position supported by the state court, InFocus said. InFocus will appeal the decision to the country’s Supreme Court, it said. It had until Friday to file the appeal, the company said. InFocus entered Norway by buying front-projector supplier Ask, of Fredrikstad.