Applied Signal Technology, Inc. Investor Files Lawsuit In Effort To Block Buyout

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Company Name(s): 
Applied Signal Technology
Case Name: 
Applied Signal Technology Deal Case 01/11/2011
Case Status: 
Lawsuit Filed
Affected Securities
NASDAQ: APSG
Lawsuit Overview
Type of Lawsuit: 
Mergers and Acquisition
Date Filed: 
01/11/2011
Summary: 

An investor in APSG shares filed a lawsuit in State Court against directors of Applied Signal Technology and Raytheon Company alleging breach of fiduciary duties arising out of the attempt to sell Applied Signal Technology too cheaply via an unfair process to Raytheon Company.

On December 20, 2010, Applied Signal Technology, Inc. (NASDAQ: APSG) announced that it has entered into an agreement to be acquired by Raytheon Company (NYSE:RTN) in an all cash tender offer for $38.00 per share
Applied Signal Technology said ths price represents a premium of 8.5% to APSG’s closing price of $35.02 on December 17, 2010 and a premium of 37.0% to APSG’s closing price of $27.73 on October 21, 2010, the date prior to which the Company disclosed its intention to explore strategic alternatives to enhance shareholder value.
But the plaintiff claims that the 8.5% premium is only “miniscule” and, if Raytheon meets a co-called “minimum tender condition” of 76.3% of the total number of outstanding shares of Applied Signal’s common stock, the defendants will cash out Applied Signal’s shareholders through a coercive “top up option”, whereby defendants will grant Raytheon millions of additional shares in order to cross the 90% threshold and complete the short-form merger. But the plaintiff says that if the minimum condition is not satisfied, defendants still intend to effectuate the proposed acquisition, but through a one-step merger rather than through the quicker two step tender offer and short form merger and these provisions are illegal and directly violate the California General Corporation Law.
Further, so the plaintiff, in order to secure inherently personal benefits for certain board members and company management the defendants constructed a merger agreement designed to ensure that only Raytheon has an opportunity to acquire Applied Signal Technology. The plaintiff says that the “merger agreement creates a playing Field that is unfairly tilted in favor of Raytheon and effectively chills any potential auction process for Applied Signal, though its inclusion of a No shop provision, a matching rights provision, a $17.3 million termination fee, tender and voting agreements with the board and the illegal top-up option”.