In 2003, the Segerdahl Corporation ESOP (the “Segerdahl ESOP”) was established, and the Segerdahl ESOP purchased 100% of the outstanding shares of common stock of Segerdahl Corporation (“Segerdahl”), an Illinois-based direct mail printer that is the “largest company focused on medium and high volume direct mail printing,” from Segerdahl’s other owners. On December 7, 2016, ICV Partners, an investment capital firm, purchased all of the shares of Segerdahl held by the Segerdahl ESOP for a quoted purchase price of $256 million (the “Purchase Transaction”).
Bruce Rush, a former Segerdahl employee, filed a class action complaint on February 5, 2019, alleging that, among other things, (i) Segerdahl’s CEO and Chairman of the Board of Directors did not market Segerdahl to many potential buyers, including competitors, who would have paid more for the Segerdahl ESOP’s shares and who would have refused to allow the CEO and Chairman to maintain control over Segerdahl’s day-to-day operations; (ii) in approving the Purchase Transaction, GreatBanc Trust Company (“GreatBanc”), in its capacity as the Segerdahl ESOP’s trustee, and Segerdahl’s ESOP Committee depended upon a valuation that considered neither the characteristics of all of Segerdahl’s potential buyers nor the price that those buyers would have paid for the Segerdahl ESOP’s shares; (iii) GreatBanc, Segerdahl’s Board of Directors, and Segerdahl’s ESOP Committee knew that ICV Partners intended to sell Segerdahl’s real estate after the Purchase Transaction, but did not ensure that the real estate’s cash value was incorporated into the purchase price; and (iv) Segerdahl’s CEO and Chairman of the Board of Directors diverted millions of dollars from the Segerdahl ESOP via transaction bonuses and payment for stock appreciation rights.1 As a result, the Segerdahl ESOP’s proceeds from the Purchase Transaction were allegedly $169 million lower than they would have been if Segerdahl had been marketed to all potential buyers, and the Segerdahl ESOP’s actual proceeds were $114 million lower than they should have been if not for the diversion of those proceeds by Segerdahl’s CEO and Chairman of the Board of Directors.
Takeaways
- Segerdahl’s CEO and Chairman of the Board of Directors neglected to market the Segerdahl ESOP’s shares to all potential buyers, including competitors, who would have paid a higher price for the shares.
- GreatBanc and Segerdahl’s ESOP Committee relied on a valuation that did not account for the fact that the Segerdahl ESOP’s shares were not marketed to all potential buyers.
- GreatBanc, Segerdahl’s Board of Directors, and Segerdahl’s ESOP Committee did not ensure that the cash value of Segerdahl’s real estate, which they knew ICV Partners was going to sell, was reflected in the purchase price of the Segerdahl ESOP’s shares.
- Segerdahl’s CEO and Chairman of the Board of Directors diverted millions of dollars from the Segerdahl ESOP for their own benefit (via transaction bonuses and payment for stock appreciation rights).
1 Class Action Complaint, Rush v. GreatBanc Trust Company, No. 1:19-cv-00738 (N.D. Ill. Feb. 5, 2019), ECF No. 1.
