Plaintiff Unable to Prove that Common
Shareholders Should Have Received
Consideration
In Re TRADOS Incorporated
Shareholder Litigation, Consol. C.A.
No. 1512-VCL (August 16, 2013)
On July 21, 2005, Marc Christen (the
“Plaintiff”), a common shareholder
with 5% ownership of TRADOS
Incorporated’s (“Trados’” or the
“Company’s”) common stock, sued
Trados’ Board for an appraisal of
his shares after he did not receive
consideration as part of SDL’s
acquisition of Trados.
Background
In April 2004, Trados’ Board began
considering options to sell the
Company by hiring JMP Securities
(“JMP”). One of the initial offers was
from SDL, but was rejected. In July
2004, Trados hired a new CEO to help
turn around the Company and by
September, the Company ended its
relationship with JMP while Trado’s
CEO obtained new financing to keep
Trados independent.
By the end of the year, the
Board approved to implement a
management incentive plan (“MIP”)
as a result of an existing considerable
liquidation preference that did
not give the management team
“sufficient incentives to remain in
the Company’s service.” SDL again
indicated its interest in acquiring
Trados and in January 2005, SDL
offered $10 million in cash and $30
million in stock for Trados. Trados’
CEO, whose stand-alone business
plan called for $30 million in 2005
revenue, believed that Trados’ should
accept no offer less than $55 million.
By February 2005, SDL offered $50
million in cash and $10 million in
stock. Later that month, SDL put
the deal on hold as its due diligence
revealed poor financial performance
from Trados; however, SDL ultimately
decided to resume the deal process.
SDL submitted its LOI in April, which was
little changed from February’s offer.
By June 2005, the deal was approved
by Trados’ Board and shareholders.
Preferred shareholders received $52.2
million, which was less than their
liquidation preference of $57.9 million—
the difference being used to satisfy MIP
payments. The common shareholders
received no proceeds prompting the
Plaintiff to sue Trados’ Board.
Experts’ Valuations
The Plaintiff and Defendant each
hired a valuation expert. The
Plaintiff’s expert used three valuation
methodologies that were based on
comparable company transactions.
However, the Court found two of these
methodologies unreliable as multiples
were not adjusted downward for their
synergies as Fair Value should not
include unique synergies.
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Valuation Vantage
Spring-Summer 2015
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