Rewards Network Inc. Investor Lawsuit Over Buyout Imminent?

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Company Name(s): 
Rewards Network
Affected Securities: 
NASDAQ: DINE

Only hours after Rewards Network Inc. announced to be acquired for $13.75 investigations on behalf of investors of Rewards Network Inc. (Public, NASDAQ:DINE) over possible breaches of fiduciary duties by Rewards Network Inc. and its directors were announced.

The investigations by law firm concern whether EGI Acquisition, LLC , an affiliate of Equity Group Investments, LLC, Rewards Network Inc and its Board breached their fiduciary duties owed to Rewards Network Inc. (Public, NASDAQ:DINE) investors in connection with the proposed takeover.

On Thursday, October 28, 2010, Rewards Network Inc. (NASDAQ: DINE) announced that Rewards Network and EGI Acquisition, L.L.C. , an affiliate of Equity Group Investments, L.L.C., have entered into a merger agreement under which EGI Acquisition LLC will offer to acquire all of the shares of Rewards Network common stock (DINE) not owned by EGI Acquisition LLC for $13.75 per share in cash. The transaction values Rewards Network on a fully diluted share basis at approximately $126 million. Rewards Network Inc said the $13.75 per share consideration represents an approximately 39% premium over the closing price of Rewards Network's common stock on June 8, 2010, the day before Rewards Network issued a press release noting that it had received indications of interest in pursuing a strategic transaction.

But the investigations by the law firm concern whether offered price and the sale process are unfair to the shareholders of Rewards Network Inc. (Public, NASDAQ:DINE).

Shares of Rewards Network Inc. jumped in response to the June 08 announcement from $9.90 to $13.67 per share the following day, but as early as May 17 DINE shares traded at $13.58, on April 29, 2010 as high as $14.77, on April 15, 2010 as high as $14.84, and durchin March 2010 even over $15 per share. Rewards Network Inc shares traded as high as almost $14.50 per share just days before the announcement and fell in response to the buyout news to $13.84 per share.

In addition Rewards Network reported over the past four years relatively consistent 12months total revenue ranging from $214.38million to $246.18million. Rewards Network was able to come out of a Net Loss of $15.15million in 2006 and report from 2007 to 2009 Net Income ranging from $4.81million to $6.96million. For the first two quarters in 2010 Rewards Network reported $26.42million, respectively $28.89million in total revenue.

Further more Rewards Network Inc announced also that EGI Acquisition LLC currently already owns approximately 14.2% of the outstanding shares of Rewards Network common stock and certain other affiliates of Equity Group Investments, L.L.C. collectively own another approximately 12.1% of the outstanding shares of Rewards Network common stock and have already agreed to tender such shares in the offer.

Therefore the investigations concern whether the Rewards Network Board of Directors undertook an adequate and fair sales process to obtain fair consideration for all shareholders of Rewards Network Inc. (NASDAQ:DINE) and breached their fiduciary duties to Rewards Network (DINE) shareholder by failing to adequately shop the Company before entering into the transaction with EGI Acquisition, LLC.