Prospect Medical Holdings Inc Shareholder Alert – Board Under Investigation

After Prospect Medical Holdings Inc announced its takeover by an entity sponsored by Leonard Green & Partners, L.P. an investigation on behalf of investors of Prospect Medical Holdings Inc (NASDAQ:PZZ) was announced.

Prospect Medical Holdings, Inc.,located in Los Angeles, California, provides healthcare and physician services in Southern California. Prospect Medical’s revenue increased over the past four years from $135.80million in 2006, to $162.56million in 2007, to $329.54million in 2008, and $402.23million in 2009. Its shares (PZZ) traded before the news at roughly $7 per share and increased to $8.40 per share after the announcement.

On Monday, August 16, 2010, Prospect Medical Holdings, Inc. (Nasdaq: PZZ) announced that it has entered into a merger agreement to be acquired for $8.50 per share in cash by an entity sponsored by Leonard Green & Partners, L.P. in which certain stockholders of Prospect will also participate. The total transaction value is approximately $363 million, including the assumption of approximately $158 million in Prospect's net debt.

According to Prospect Medical Holdings its board of directors has approved the merger agreement and the merger price represents a 38.9% premium over the closing sale price of Prospect shares on August 13, 2010, and a 29.4% premium to the volume weighted-average closing sale price of approximately $6.57 during the 30 trading days prior to that date.

But at least one analyst set a price target for Prospect Medical stock of $16.20 per share and some directors and officers of Prospect Medical Holdings that currently own in the aggregate approximately 10.4 million shares of Prospect's outstanding common stock (representing nearly 50% of Prospect's outstanding shares ) have entered into a voting agreement in which they have agreed to vote all of their Prospect shares in favor of the adoption of the merger agreement. These stockholders also have agreed to exchange approximately 6.2 million of their Prospect shares for equity interests in the sponsored purchasing entity in lieu of their receipt of the cash merger consideration for those shares.

The investigation by a law firm “concerns whether Leonard Green & Partners, L.P. as well as the directors of Prospect Medical Holdings Inc breached their fiduciary duties by not acting in Prospect Medical Holdings Inc (NASDAQ:PZZ) shareholders' best interests in connection with the sale process of Prospect Medical Holdings Inc , whether the Prospect Medical Holdings Inc Board of Directors breached their fiduciary duty to Prospect Medical Holdings Inc (NASDAQ:PZZ) stockholders by failing to adequately shop the Company prior to entering into the agreement, whether the Board of Directors breach their fiduciary duties by not seeking a deal that will provide better value for Prospect Medical Holdings, and whether an entity sponsored by Leonard Green & Partners, L.P. is underpaying for Prospect Medical Holdings Inc (PZZ), thus unlawfully harming PZZ stockholders.”