Advance America, Cash Advance Centers (NYSE:AEA) Investor Files Lawsuit Against Directors to Stop Buyout

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Company Name(s): 
Advance America Cash Advance Centers
Case Name: 
Advance America Cash Advance Centers Deal Case 02/24/2012
Case Status: 
Lawsuit Filed
Affected Securities
NYSE: AEA
Lawsuit Overview
Type of Lawsuit: 
Mergers and Acquisition
Date Filed: 
02/24/2012
Summary: 

San Diego, Feb. 24, 2012 (Shareholders Foundation) -- An investor in NYSE:AEA filed a lawsuit in State Court against members of the board of directors of Advance America, Cash Advance Centers in effort to block the proposed takeover of Advance America, Cash Advance Centers by Grupo Elektra, S.A.B. de C.V. for $10.50 per NYSE:AEA share.

On Wednesday, February 15, 2012, after the market closed Advance America, Cash Advance Centers, Inc. (“Advance America“) (NYSE: AEA) and Grupo Elektra, S.A.B. de C.V. (“Grupo Elektra”) (BMV: ELEKTRA) announced that Advance America and subsidiaries of Grupo Elektra have entered into an agreement under which Grupo Elektra will acquire control of all of the outstanding shares of Advance America, a leading U.S. short-term lender, for $10.50 per share in cash. The total transaction value is approximately $780 million, including the Company's outstanding debt as of December 31, 2011.
Advance America, Cash Advance Centers, Inc. said the $10.50offer represents a 32.7% premium to the Company's closing price of $7.91 on February 15, 2012.

Following the takeover news NYSE:AEA stocks jumped from $7.91 on Wednesday to $10.54 on Thursday, February 16, 2012.

However, the plaintiff alleges that the $10.50offer undervalues Advance America, Cash Advance Centers. In fact, at least one analyst has set the high target price for NYSE:AEA stocks at $11, thus above the current offer. Furthermore, NYSE:AEA shares traded as recently as December 2011 at $9.33 per share, leaving some AEA stockholders with only a meager premium.

Additionally, the plaintiff says, "Advance America's financial performance has been strong in multiple areas, including an increasing stock price, solid financial position with reasonable debt levels, attractive valuation levels, expanding profit margins (with gross profit at 35.00%), growth in earnings per share (which improved by 31.8%), and robust earnings growth." Indeed, Advance America, Cash Advance Centers has performed well in the past for its investors. Advance America, Cash Advance Centers annual Revenue ranged over the past annual filing periods from $600.23million to $709.56million and its Net Income ranged from $35.76million to $54.38million. Its third quarter Revenue in 2011 rose slightly from $154.23million last year to $158.88million and its third quarter Net income increased from $1.4million to $14.57million in 2011.

Furthermore, so the lawsuit, defendants agreed to preclusive deal protection devices, such as a hefty termination fee provision ranging from $10 to 22million, that are unattractive to other potential buyers.