APPENDIX 4
Shareholder Complaint against Winn-Dixie Board et al.
IN THE CIRCUIT COURT OF THE FOURTH JUDICIAL CIRCUIT IN AND FOR DUVAL COUNTY, FLORIDA CIVIL DIVISION
SCHULTZE ASSET MANAGEMENT, LLC, Individually and On Behalf of All Others Similarly Situated, Plaintiff,
vs.
WINN-DIXIE STORES, INC., BI-LO LLC, OPAL HOLDINGS, LLC, OPAL MERGER SUB, INC., BI-LO HOLDING, LLC, LONE STAR FUND V (U.S.), L.P., PETER L. LYNCH, EVELYN V. FOLLIT, CHARLES P. GARCIA, JEFFREY C. GIRARD, YVONNE R. JACKSON, GREGORY P. JOSEFOWICZ, JAMES P. OLSON, TERRY PEETS and RICHARD E. RIVERA, Defendants.
Case No.
DIRECT SHAREHOLDER CLASS ACTION COMPLAINT BASED UPON SELF DEALING AND BREACH OF FIDUCIARY DUTY
CLASS REPRESENTATION
DEMAND FOR JURY TRIAL
SHAREHOLDER CLASS ACTION COMPLAINT BASED ON SELF-DEALING AND BREACH OF FIDUCIARY DUTY
Plaintiff Schultze Asset Management, LLC (“Plaintiff”), by its undersigned attorneys, for this class action complaint, alleges as follows:
INTRODUCTION
1. Plaintiff, a significant long-term shareholder of Winn-Dixie Stores, Inc., (“Winn-Dixie” or the “Company”), brings this shareholder class action on behalf of itself and the other holders of Winn-Dixie common stock against the Company, members of its board of directors (the “Board” or the “Individual Defendants”), and BI-LO, LLC (“BI-LO”) and certain of its affiliates identified herein for breaches of fiduciary duty and aiding and abetting breaches of fiduciary duty arising out of the proposed sale of Winn-Dixie to BI-LO through an unfair process and at an unfair and wholly inadequate price (the “Proposed Transaction”).
2. This action seeks equitable relief under Florida law for Defendants’ self-dealing and breaches of their fiduciary duties by approving the Proposed Transaction.
3. On December 19, 2011, Winn-Dixie and BI-LO jointly announced that they had entered into a definitive merger agreement (the “Merger Agreement”) through which BI-LO would acquire and take private the Company in a transaction valued at approximately $560 million.
4. Under the terms of the Proposed Transaction, Winn-Dixie shareholders will receive $9.50 in cash per share of Winn-Dixie common stock.
5. The $9.50 per share price offered to Winn-Dixie shareholders in the Proposed Transaction has been touted by certain Defendants as a significant premium of 75 percent over the Company’s closing price on the last trading day prior to the announcement. To the contrary, the true premium (if any) is substantially lower and is the product of a fundamentally flawed process that is woefully inadequate for Winn-Dixie shareholders.
6. First, the Company has reported a book value of $14.98 per share, for the most recent quarter. Second, Winn-Dixie shares traded as high as $10.08 as recently as July 21, 2011. Third, several equity research analysts recently set a price target of $11.00 for Winn-Dixie shares, a value that far exceeds the offer price in the Proposed Transaction. Indeed, the valuation of Winn-Dixie offered in the Proposed Transaction has been criticized by analysts and investors alike, with some calling it “hardly awe-inspiring.”
7. Moreover, basic principles of business valuation strongly suggest that Winn-Dixie is worth much more than $9.50 per share. For example, the Proposed Transaction values Winn-Dixie at 2.75 times earnings before interest, tax, depreciation and amortization (“EBITDA”) in the past 12 months. In comparison, the current average EBITDA multiple for Winn-Dixie’s competitors is 6.58 times EBITDA, and the median multiple for supermarket merger and acquisition deals globally since 2000 is 7.9 times EBITDA.
8. In addition, the Board agreed to burdensome deal protection provisions that will deter or otherwise preclude superior offers for the Company. The Merger Agreement includes, among other things, a $19.6 million termination fee that Winn-Dixie must pay BI-LO if the Company enters into an agreement with a superior proposal. The Board must also keep BI-LO apprised of any competing offers, and allow BI-LO time to make a counter-offer if the Board accepts a superior proposal. The Merger Agreement additionally includes a No-Shop provision, which bars Winn-Dixie from initiating, soliciting or encouraging superior proposals.
9. If the Proposed Transaction is consummated, BI-LO and Company insiders would enrich themselves by acquiring the public shareholders’ interest in the Company without paying a fair and adequate price, thereby irreparably harming Plaintiff and the other Winn-Dixie shareholders not affiliated with BI-LO.
10. In addition, consummation of the Proposed Transaction will trigger change-of-control provisions in the employment agreements of certain of the Individual Defendants that will bestow windfall payments upon certain of the Individual Defendants in the millions of dollars. The change-of-control payments provide additional financial incentives to these individuals to consummate the Proposed Transaction that are not shared by Winn-Dixie’s public shareholders.
11. Business relationships between Winn-Dixie’s sole financial advisor in pursuing the Proposed Transaction, Goldman, Sachs & Co. (“Goldman”), and the group of private equity funds (the “Lone Star Funds”) that include the parent company of BI-LO, also create conflicts of interest which further suggest that the process leading up to the Proposed Transaction was unfair to Winn-Dixie’s public shareholders.
12. As described below, both the price contemplated in the Proposed Transaction and the process by which BI-LO proposes to consummate the Proposed Transaction are fundamentally unfair to Plaintiff and Winn-Dixie’s other public shareholders. The Proposed Transaction and Defendants’ acts constitute a breach of the Individual Defendants’ fiduciary duties owed to Winn-Dixie’s public shareholders, and a violation of applicable legal standards governing Defendants’ conduct.
13. For these reasons and as set forth in detail below, Plaintiff seeks judicial intervention to prevent the consummation of the Proposed Transaction, which will result in irreparable injury to Plaintiff and the Class. This action seeks to enjoin Defendants’ unlawful conduct and to compel the Company’s Board to take the steps necessary to redress their breaches of fiduciary duty by: (i) undertaking a sales process that is designed to maximize shareholder value, rather than serve the interests of the Individual Defendants and BI-LO; and (ii) providing Winn-Dixie shareholders the information necessary to properly value the Company and decide whether to vote their shares for or against the Proposed Transaction.
JURISDICTION AND VENUE
14. This action is brought as a class action pursuant to Florida Rule of Civil Procedure 1.220.
15. The Court has jurisdiction over each defendant because they conduct business in, reside in, and/or are citizens of the State of Florida.
16. Venue is proper in Duval County, Florida because the causes of action asserted herein occurred and/or accrued in Duval County, Florida. Venue is also appropriate in this Court because Winn-Dixie is incorporated in the State of Florida and maintains its principal place of business in Duval County, Florida.
PARTIES
17. Plaintiff is a specialist alternative investments firm founded by George Schultze in 1998. Plaintiff is, and at all times relevant hereto has been, a significant long-term shareholder of Winn-Dixie. Plaintiff currently holds 711,000 shares of Winn-Dixie common stock.
18. Defendant Winn-Dixie is a Florida corporation with principal executive offices located at 5050 Edgewood Court, Jacksonville, Florida 32254-3699. Founded in 1925, Winn-Dixie operates approximately 480 retail grocery locations, including approximately 380 in-store pharmacies, in Florida, Alabama, Louisiana, Georgia and Mississippi. The Company employs approximately 46,000 people. The Company’s common stock trades on the NASDAQ exchange under the symbol “WINN.”
19. Defendant Peter L. Lynch (“Lynch”) has served a served as director of the Company since 2004, and Chairman of the Board since 2007. Lynch has also served as the President and Chief Executive Officer of Winn-Dixie since 2004.
20. Defendant Evelyn V. Follit (“Follit”) has served as a director of the Company since 2006. Follit is also a member of the Audit Committee.
21. Defendant Charles P. Garcia (“Garcia”) has served as a director of the Company since 2006. Garcia is also a member of the Audit Committee and Nominating and Corporate Governance Committee.
22. Defendant, Jeffrey C. Girard (“Girard”) has served as a director of the Company since 2006. Girard is also Chairman of the Audit Committee.
23. Defendant Yvonne R. Jackson (“Jackson”) has served as a director of the Company since 2006. Jackson is also Chairwoman of the Compensation Committee.
24. Defendant Gregory P. Josefowicz (“Josefowicz”) has served as Lead Director of the Company since 2006. Josefowicz is also a member of the Audit Committee.
25. Defendant James P. Olson (“Olson”) has served as a director of the Company since 2007. Olson is also a member of the Compensation Committee and the Nominating and Corporate Governance Committee.
26. Defendant Terry Peets (“Peets”) has served as a director of the Company since 2006. Peets is also Chairman of the Nominating and Corporate Governance Committee and a member of the Compensation Committee.
27. Defendant Richard E. Rivera (“Rivera”) has served as director of the Company since 2006. Rivera is also a member of the Compensation Committee.
28. By virtue of their positions as directors and/or officers of Winn-Dixie, the Individual Defendants named in paragraphs 19 through 27 above have, and at all relevant times had, the power to control and influence, and did control and influence and cause Winn-Dixie to engage in the practices complained of herein.
29. Defendant Opal Holdings, LLC, (“Parent”) is a Delaware limited liability company. Parent is a wholly-owned subsidiary of BI-LO Holding, LLC.
30. Defendant Opal Merger Sub, Inc., (“Merger Sub”) is a Florida corporation and a wholly-owned subsidiary of Parent.
31. Defendant Lone Star Fund V (U.S.), L.P. (“Lone Star Fund V”), a Delaware limited partnership, is a private equity fund that is the indirect owner of BI-LO. Lone Star Fund V is a member of the Dallas-based investment group Lone Star Funds. Lone Star Fund V has arranged for capitalizing BI-LO with cash.
32. Defendant BI-LO Holding, LLC (“BI-LO Holding”), a Delaware limited liability company, is a majority owned subsidiary of Lone Star Fund V, and is the holding company of BI-LO.
33. Defendant BI-LO, a Delaware limited liability company, is a regional supermarket chain with 205 stores in the Carolinas, Georgia, and Tennessee. BI-LO’s brands include national names, as well as BI-LO’s own, including the following: Southern Hearth Bakery items, Full Circle natural and organic foods, Top Care health and beauty aids, and Paws Premium pet foods. Founded in 1961 by Frank Outlaw, the chain is majority-owned by the Lone Star Funds, which acquired BI-LO LLC and its former sister chain Bruno’s Supermarkets in 2005.
34. Parent, Merger Sub, BI-LO Holding, Lone Star Fund V, and BI-LO LLC are collectively referred to herein as the “BI-LO Defendants.”
THE FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
35. By reason of their positions with Winn-Dixie as directors and/or officers, the Individual Defendants are in a fiduciary relationship with Plaintiff and the Company’s other public shareholders and owe Plaintiff and the other members of the Class the duty of highest good faith, fair dealing, loyalty, and full and adequate disclosure.
36. Each of the Individual Defendants is required to act in good faith, in the best interests of the Company’s shareholders and with such care, including reasonable inquiry, as would be expected of an ordinarily prudent person. In a situation where the directors of a publicly traded company undertake a transaction that may result in a change in corporate control, the applicable state law requires the directors to take all steps reasonably required to maximize the value shareholders will receive rather than use a change of control to benefit themselves. To diligently comply with this duty, the directors of a public corporation may not take any action that:
1. adversely affects the value provided to the corporation’s shareholders;
2. contractually prohibits them from complying with or carrying out their fiduciary duties;
3. discourages or inhibits alternative offers to purchase control of the corporation or its assets; or
4. will otherwise adversely affect their duty to search and secure the best value reasonably available under the circumstances for the corporation’s shareholders.
37. As described herein, the Individual Defendants have breached their fiduciary duties by taking actions designed to deter higher offers from other potential acquirers so as to ensure that one bidder and one bidder only, BI-LO, acquires the Company on terms preferential to BI-LO and certain Individual Defendants, and harmful to the public shareholders of Winn-Dixie who will be permanently deprived of their share in the Company’s future growth. The Individual Defendants have, with recklessness, breached their fiduciary obligation to act reasonably.
CLASS ACTION ALLEGATIONS
38. Plaintiff brings this action pursuant to Rules 1.220(a) and 1.220 (b)(1) and (b)(2) of the Florida Rules of Civil Procedure, individually and on behalf of all other shareholders of the Company (except the Defendants herein and any persons, firm, trust, corporation, or other entity related to or affiliated with them and their successors in interest), who are or will be threatened with injury arising from Defendants’ actions, as more fully described herein (the “Class”).
39. This action is properly maintainable as a class action for, among others, the following reasons:
A. The Class is so numerous that joinder of all members is impracticable. As of October 19, 2011, there were over 56 million shares of Winn-Dixie common stock outstanding. It is reasonable to assume that holders of Winn-Dixie’s common stock are geographically dispersed throughout the United States.
B. There are questions of law and fact which are common to the Class and which predominate over questions affecting any individual class member. The common questions include, inter alia, the following:
1. whether the Individual Defendants have engaged and are continuing to engage in a plan and scheme to benefit themselves and/or BI-LO at the expense of the members of the Class;
2. whether the Individual Defendants have fulfilled, and are capable of fulfilling, their fiduciary duties to Plaintiff and the other members of the Class, including their duties of good faith, fair dealing, loyalty, due care, and candor;
3. whether the Individual Defendants’ breach of their fiduciary duties of good faith, fair dealing, loyalty, due care, and candor were done in a willful, reckless and wanton manner;
4. whether BI-LO aided and abetted the breach of fiduciary duties by the Individual Defendants; and
5. whether Plaintiff and the other members of the Class would be irreparably damaged if Defendants are not enjoined from consummating the Proposed Transaction.
40. Plaintiff is committed to prosecuting this action and has retained competent counsel experienced in litigation of this nature. Plaintiff is an adequate representative of the Class.
41. A class action is superior to any other method available for the fair and efficient adjudication of this controversy since it would be impractical and undesirable for each of the members of the Class, who has suffered or will suffer damages, to bring separate actions.
42. Moreover, Defendants have acted and will continue to act on grounds generally applicable to the Class, thereby making appropriate final injunctive or corresponding declaratory relief with respect to the Class as a whole.
SUBSTANTIVE ALLEGATIONS
Background of the Company
43. Winn-Dixie is one of the largest food retailers in the nation and ranks 340 on the FORTUNE 500® list. The Company’s stores offer grocery, dairy, frozen food, meat, seafood, produce, deli, bakery, floral, health and beauty, and other general merchandise items. Winn-Dixie stores also provide pharmacies, distilled spirits, and fuel products. The Company offers national brands, as well as its own private-label products in its stores.
44. Winn-Dixie has a competitive market share with locations in some of the most attractive and fastest growing regions of the southeastern United States with high population density. The Company’s unique Customer Reward Card program allows it to capture and utilize proprietary data to merchandize its stores to cater to various customer trends. Among its many initiatives, Winn-Dixie has merchandising efforts to target Hispanic, African-American, and kosher consumer sub-groups.
45. On February 22, 2005, Winn-Dixie filed for Chapter 11 bankruptcy to address financial and operational challenges.
46. On November 21, 2006, Winn-Dixie emerged from Chapter 11 protection with $725 million in exit financing and a new board of directors.
47. Leading up to, and as part of its reorganization plan, Winn-Dixie shed many of the over 1,000 stores the Company owned at its peak. Winn-Dixie placed a major part of its turn-around strategy on modernizing a smaller number of existing stores, projecting the remodeling would drive growth and volume to stores. Since that time, the remodel strategy has struggled to launch the Company forward.
48. Winn-Dixie’s goal for 2011 has been to complete 17 transformational remodels this year. Further, the Company has stated that approximately 60 percent of the store base could be remodeled over time.
49. In a November 8, 2011, equity analysts at Jefferies & Co. stated that, “while the equity is clearly depressed, [Winn-Dixie]’s relatively clean balance sheet, focused management team and the early success of the remodel program could help improve long-term performance.”
50. In its most recent quarter, Winn-Dixie’s revenues rose 3.1 percent year-over-year, yet the Company posted a loss of approximately $24 million. The Company was able to narrow its losses from last year’s $76.8 million loss in the same period.
51. Rather than complete the Company’s re-model strategy, or engage in other strategies to create long-term value for Winn-Dixie shareholders, the Individual Defendants acted for their own benefit and the benefit of BI-LO, and to the detriment of the Company’s public shareholders, by entering into the Proposed Transaction. In so doing, the Individual Defendants have prevented Winn-Dixie shareholders from reaping the benefits of its long-term strategy, selling the Company at a time when the Company’s stock price was trading below its historical averages, and when the Company’s remodel strategy was showing signs of profitability.
The Proposed Transaction
52. On December 19, 2011, Winn-Dixie filed a Form 8-K with the Securities and Exchange Commission (“SEC”) in which it announced that the Company had entered into the Proposed Transaction and that the Individual Defendants had unanimously approved the transaction.
53. The resulting combined private company will have about 690 stores and 63,000 workers in eight states. Winn-Dixie will become a privately held subsidiary and its ticker will be removed from the NASDAQ stock exchange.
54. Ironically, the Board, which has been focused on reducing the number of stores after a tumultuous bankruptcy, has agreed to become part of a behemoth grocery chain that apparently offers few synergies. In commenting on the footprint of stores created in the Proposed Transaction, Randall Onstead, Chairman of BI-LO state there was “no overlap” in the Winn-Dixie and BI-LO markets.
55. Pursuant to the terms of the Proposed Transaction, BI-LO will acquire all of the outstanding common stock of Winn-Dixie for $9.50 per share in cash, valuing the Company at approximately $560 million. The Proposed Transaction is expected to close in the first or second quarter of 2011.
56. BI-LO intends to fund the Proposed Transaction with financing from Deutsche Bank Trust Company Americas, Citigroup Global Markets Inc. (“Citi”), and capital from the Lone Star Funds.
57. The share price of Winn-Dixie stock surged upwards upon news of the Proposed Transaction. Barron’s reported “the market appears to be expressing slight skepticism about the deal, as shares are currently up about 71 percent to $9.30.”
The Fundamentally Unfair Process Does Not Maximize Shareholder Value
58. In the press release announcing the Proposed Transaction, Defendants imply that the $9.50 price per share offered in the Proposed Transaction represents a generous premium for Winn-Dixie’s outstanding shares. Defendants emphasize that the price is a 75 percent premium to Winn-Dixie’s closing stock price on the last trading day prior to the announcement. A closer look at Winn-Dixie’s historical stock prices, recent target prices, and EBITDA, however, shows that the $9.50 per share offer price is far from adequate and that any alleged premium does not reflect the true intrinsic value of the Company.
59. Indeed, the price offered in the Proposed Transaction actually represents a 6 percent discount to Winn-Dixie’s $10.08 per share trading price just five months ago. In addition, the Company has reported a book value of $14.98 per share, $168 million in cash, and no debt for the most recent quarter.
60. Additionally, recent analysts’ price targets for Winn-Dixie indicate the offer price under the Proposed Transaction severely undervalues the share price and underscores the flawed process employed by Defendants. On June 1, 2010, Citi, which is providing financing for the Proposed Transaction, published an analyst report titled “Plenty of Fruit Left on the Vines to Harvest: Buy WINN.” In its report, Citi put a price target of $11.00 on the Company. A Barclays Capital research note on August 31, 2011 maintained a price target of $11.00 for Winn-Dixie. On November 2, 2011, Citi additionally maintained its price target for the Company at $11.00. The Proposed Transaction’s “valuation is hardly awe-inspiring,” commented John Heinbockel, an analyst at Guggenheim Securities LLC in New York.
61. The valuation implied by the Proposed Transaction further demonstrates the Board’s inability to maximize shareholder value, as it suggests that Winn-Dixie is valued at 2.75 times EBITDA for the past twelve months.1
This is substantially lower than the current average 6.58 times EBITDA multiple for Winn-Dixie’s competitors. Further, according to data compiled by Bloomberg, the median EBITDA multiple for supermarket deals globally since 2000 is 7.9 times EBITDA.
62. Further, in bankruptcy, Blackstone, a financial advisor to Winn Dixie, valued the Company at between $625 and $890 million. This valuation was included in the Company’s Disclosure Statement when it emerged from reorganization and is much higher than the value offered to Winn-Dixie shareholders in the Proposed Transaction.
63. For Winn-Dixie shareholders that have been participating in the Company’s successful turnaround, the Proposed Transaction does not offer them an opportunity to participate in the future success of the Company. Indeed, Winn-Dixie shareholders have not been given the option of rolling over their shares into shares of the new combined entity, but instead will be forced to cash out at a fixed price of $9.50 per share.
64. Moreover, the Proposed Transaction ascribes no value to Winn-Dixie’s substantial tax asset. To wit, Winn-Dixie has a net operating loss carry-forward tax asset (“NOL”) which is available to offset over $750 million in future federal taxable income and over $850 million in future state taxable income (a combined NOL of over $1.6 billion).2 The Proposed Transaction appears to assign negligible value to this valuable NOL asset.
65. BI-LO’s offer price is designed to capitalize on Winn-Dixie’s slow turn around by instituting the Proposed Transaction at an unreasonably opportunistic time and a price that undervalues the Company and is fundamentally unfair to the public shareholders of Winn-Dixie common stock.
66. Put simply, Defendants utterly failed to maximize shareholder value by, inter alia, failing to undertake a fair process to sell the Company and locking up the Proposed Transaction with preclusive deal protection measures. The net result is that Winn-Dixie shareholders will not be paid full fair value of their equity stake and be prohibited from taking part any future success of the Company. This irreparable harm cannot be addressed through any remedy at law. The only remedy for this is an injunction to prohibit consummation of the Proposed Transaction.
Change-of-Control Payments to Certain of the Company’s Officers and Directors
67. Although Defendants are duty-bound to protect the interests of Winn-Dixie’s public shareholders by obtaining the maximum value reasonably available in any sale or merger of the Company, Defendants entered into the Proposed Transaction at a woefully inadequate price. Despite the insufficient consideration offered in the Proposed Transaction, certain of the Company’s executive officers, including Defendant Lynch, stand to receive lucrative change-in-control payments following consummation of the Proposed Transaction.
68. For example, according to Winn-Dixie’s Form DEF 14A filed with the SEC on September 27, 2011, Defendant Lynch would receive approximately $6 million following a termination by the Company without cause or for good reason two years following a change in control.
69. A press release announcing the Proposed Transaction suggests that Winn-Dixie’s top managers will keep their jobs for the time being and that Winn-Dixie management will be needed under the new company structure:
BI-LO and Winn-Dixie do not currently expect any store closures as a result of the combination. The combined company’s executive management team structure and headquarters location will be decided as the companies move closer to finalizing the transaction; however, it is expected that the combined company will maintain a presence in both Greenville and Jacksonville.
70. The Proposed Transaction is thus a very profitable deal that offers numerous benefits for Winn-Dixie insiders—but these are benefits in which Plaintiff and the Class do not share. In addition, the Proposed Transaction’s timing and structure also call into question the impartiality of the Individual Defendants in negotiating the Proposed Transaction.
The Proposed Transaction Is Inherently Flawed as a Result of Conflicts of Interest
71. The Individual Defendants have created a sales process that is inherently flawed as a result of a conflict of interest between Winn-Dixie’s financial advisors and BI-LO’s financial backers. Goldman is acting as exclusive financial advisor to Winn-Dixie. However, Goldman and Lone Star Funds, the private equity partner behind the Proposed Transaction, have a long-time working relationship. Lone Star Funds joined Goldman in the acquisition of a string of struggling golf courses in Japan after the country’s economic bubble burst in the 1990s. The Lone Star Funds made recent news with its plans to divest of some of those assets.
72. The Individual Defendants were aware of this conflict, yet chose to pursue the Proposed Transaction at the advice of Citigroup.
The Board Agreed to Unreasonable Deal Protection Provisions in the Merger Agreement
73. The Board, in addition to agreeing to an unfair price, took steps to secure the Proposed Transaction through unreasonable deal protection provisions. For example, the Merger Agreement contains a “No Solicitation” (or “No-Shop”) provision that prevents the Board from soliciting any competing superior bids for the Company. This prohibitive No-Shop provision drastically limits the Board’s ability to entertain superior strategic alternatives, thereby preventing Winn-Dixie shareholders from receiving maximum value for their shares.
74. The Merger Agreement also grants BI-LO a limited right to respond to any competing offers. In the event of a proposal from a third-party bidder, Winn-Dixie must provide the BI-LO with notice and afford it five business days to revise its proposal or persuade the Board not to change its recommendation on the Proposed Transaction. The term provides the BI-LO the opportunity to make repeated bids to counter any superior offers. This provision, which assures that BI-LO can piggy-back upon the due diligence of the second bidder, is disadvantageous to Winn-Dixie public shareholders since it serves to dissuade any potential rival from submitting a superior bid.
75. Finally, the Board agreed to pay BI-LO a $19.6 million termination fee (the “Termination Fee”) if the Company accepts a superior proposal from another bidder, or under other certain events. Because the Termination Fee is payable by any third-party acquirer, it drives up the cost of any competing offer, thereby serving as a further deterrence. In addition, the Termination Fee potentially transfers money to the BI-LO Defendants that otherwise could have been paid to Winn-Dixie shareholders as additional merger consideration.
76. Together, the No-Shop, counter-bid rights, and Termination Fee provisions serve to deter competing parties from making bids and prevent the Board from properly exercising its fiduciary duty to maximize shareholder value.
77. The deal protections erect barriers to competing offers and substantially increase the likelihood that the Proposed Transaction will be consummated, leaving Winn-Dixie shareholders with limited opportunity to consider a superior offer. When viewed collectively, and in light of the inadequate offer price currently being offered to Winn-Dixie shareholders, these provisions cannot be justified as reasonable or proportionate.
78. The deal protection provisions unreasonably limit the Board’s ability to freely pursue alternative transactions. Taken together, these various provisions render it unreasonable to expect that the Board will fulfill, or is even capable of fulfilling, its fiduciary obligations to the Winn-Dixie shareholders. Accordingly, the deal protections are unfair and should be rejected as an unlawful abandonment of the Board’s fiduciary obligations.
79. By virtue of the foregoing, Defendants have engaged in unfair self-dealing toward Plaintiff and the other members of the Class and have engaged in and substantially assisted and aided each other in breach of their fiduciary duties owed by them to Plaintiff and the Class.
80. Aided and abetted by Defendant BI-LO, the Individual Defendants have timed the Proposed Transaction to capture Winn-Dixie’s future potential for BI-LO without paying an adequate or fair price to the Company’s public shareholders.
81. Unless enjoined by this Court, the Individual Defendants will continue to breach their fiduciary duties owed to Plaintiff and the Class in a willful, reckless and wanton manner, and will consummate the Proposed Transaction to the irreparable harm of Plaintiff and the Class.
FIRST CAUSE OF ACTION
Willful, Reckless and Wanton Breach of Fiduciary Duty (Against the Individual Defendants)
82. Plaintiff repeats and realleges each allegation set forth herein.
83. The Individual Defendants have thus far failed to announce an active auction, open bidding, or other procedures best calculated to maximize value to Winn-Dixie shareholders. Instead of attempting to obtain the highest price reasonably available for Winn-Dixie’s shareholders, the Individual Defendants have taken actions that will only serve their own interests and the interests of BI-LO while inhibiting the maximization of shareholder value.
84. The Individual Defendants were and are under a duty:
A. to fully inform themselves of the market value of Winn-Dixie before taking, or agreeing to refrain from taking, action;
B. to act in the best interests of the equity owners;
C. to maximize shareholder value;
D. to obtain the best financial and other terms when the Company’s independent existence will be materially altered by a transaction; and
E. to act in accordance with their fundamental duties of good faith, fair dealing, due care and loyalty.
85. By the acts, transactions and courses of conduct alleged herein, the Individual Defendants, individually and as part of a common plan and scheme, or in breach of their fiduciary duties to Plaintiff and the other members of the Class, are willfully, recklessly and wantonly implementing and abiding by a process that will deprive Plaintiff and other members of the Class of the true value of their investment in Winn-Dixie.
86. Winn-Dixie shareholders will, if these Defendants’ actions are allowed to stand, be deprived of the opportunity for substantial gains that an active auction or open bidding process would provide, if as part of such process Defendants are forced to negotiate in good faith with other interested suitors.
87. By reason of the foregoing acts, practices and course of conduct, the Individual Defendants, in a willful, reckless and wanton manner, failed to exercise ordinary care and diligence in the exercise of their fiduciary obligations toward Plaintiff and the other Winn-Dixie public shareholders and were assisted, aided and abetted in that failure by Defendants Winn-Dixie, and the BI-LO Defendants, which knowingly assisted the Individual Defendants’ wrongful acts.
88. In light of the foregoing, Plaintiff demands that the Individual Defendants, as their fiduciary obligations require, immediately:
A. undertake an independent evaluation of Winn-Dixie’s worth as an acquisition candidate;
B. rescind any and all agreements that inhibit the maximization of shareholder value, including but not limited to the Proposed Transaction, the Termination Fee provisions of the Proposed Transaction, any amendments to the Company’s rights agreement, and any agreements to obtain employment for Winn-Dixie insiders;
C. appoint a truly independent committee of persons so that the interests of Winn-Dixie’s public shareholders will be protected and any subsequent offers will be considered and negotiated in the interest of Winn-Dixie’s public shareholders; and
D. negotiate, in good faith, with any interested third party, regarding the sale or merger of Winn-Dixie.
89. As a result of the Individual Defendants’ failure to take such steps to date, Plaintiff and the other members of the Class have been and will be damaged in that they have been and will be prevented from obtaining a fair price for their shares.
90. The Individual Defendants are not acting in good faith toward Plaintiff and the other members of the Class, and have breached and are continuing to breach their fiduciary duties to Plaintiff and the members of the Class.
91. As a result of the Individual Defendants’ unlawful actions, Plaintiff and the other members of the Class will be irreparably harmed in that they will not receive fair value for Winn-Dixie’s assets and business and will be prevented from obtaining the real value of their equity ownership in the Company. Unless the Individual Defendants’ actions are enjoined by the Court, the Individual Defendants will continue to breach or aid and abet the breach of their fiduciary duties owed to Plaintiff and the members of the Class, and will engage in a process that inhibits the maximization of shareholder value.
92. Plaintiff and the other members of the Class have no adequate remedy at law.
93. Plaintiff seeks to obtain a non-pecuniary benefit for the Class in the form of injunctive relief against Defendants. Plaintiff’s counsel are entitled to recover their reasonable attorneys’ fees and expenses as a result of the conference of a non-pecuniary benefit on behalf of the Class, and will seek an award of such fees and expenses at the appropriate time.
SECOND CAUSE OF ACTION
Aiding and Abetting the Individual Defendants’ Breach of Fiduciary Duty (Against the BI-LO Defendants)
94. Plaintiff repeats and re-alleges each allegation set forth herein.
95. The BI-LO Defendants are sued herein for aiding and abetting the breaches of fiduciary duties outlined above by the Individual Defendants.
96. The Individual Defendants breached their fiduciary duties of good faith, fair dealing, loyalty and due care to the Winn-Dixie shareholders by failing to:
A. fully inform themselves of the market value of Winn-Dixie before entering into the Proposed Transaction;
B. act in the best interests of the public shareholders of Winn-Dixie common stock;
C. maximize shareholder value;
D. obtain the best financial and other terms when the Company’s independent existence will be materially altered by the Proposed Transaction; and
E. act in accordance with their fundamental duties of good faith, fair dealing, due care and loyalty.
97. Such breaches of fiduciary duties could not and would not have occurred but for the conduct of the BI-LO Defendants, who, therefore, aided and abetted such breaches via entering into the Proposed Transaction with Winn-Dixie.
98. The BI-LO Defendants had knowledge that it was aiding and abetting the Individual Defendants’ breach of their fiduciary duties to Winn-Dixie shareholders.
99. The BI-LO Defendants rendered substantial assistance to the Individual Defendants’ in their breach of their fiduciary duties to the Winn-Dixie shareholders.
100. As a result of the BI-LO Defendants’ conduct of aiding and abetting the Individual Defendants’ breaches of fiduciary duties, Plaintiff and the other members of the Class have been and will be damaged in that they have been and will be prevented from obtaining a fair price for their shares.
101. As a result of the unlawful actions of the BI-LO Defendants, Plaintiff and the other members of the Class will be irreparably harmed in that they will not receive fair value for Winn-Dixie’s assets and business and will be prevented from obtaining the real value of their equity ownership in the Company. Unless the actions of the BI-LO Defendants are enjoined by the Court, they will continue to aid and abet the Individual Defendants’ breach of their fiduciary duties owed to Plaintiff and the members of the Class, and will aid and abet a process that inhibits the maximization of shareholder value.
102. Plaintiff and the other members of the Class have no adequate remedy at law.
103. Plaintiff seeks to obtain a non-pecuniary benefit for the Class in the form of injunctive relief against the BI-LO Defendants. Plaintiff’s counsel are entitled to recover their reasonable attorneys’ fees and expenses as a result of the conference of a non-pecuniary benefit on behalf of the Class, and will seek an award of such fees and expenses at the appropriate time.
PRAYER FOR RELIEF
WHEREFORE, Plaintiff demands judgment and preliminary and permanent relief, including injunctive relief, in Plaintiff’s favor and in favor of the Class and against Defendants as follows:
A. declaring that this action is properly maintainable as a class action, and certifying Plaintiff as class representative and Plaintiff’s counsel as class counsel;
B. declaring and decreeing that the Proposed Transaction was entered into in breach of the fiduciary duties of the Individual Defendants and is therefore unlawful and unenforceable;
C. enjoining Defendants from proceeding with the Proposed Transaction;
D. enjoining Defendants from consummating the Proposed Transaction unless and until Defendants implement procedures to obtain the highest possible price for the Company;
E. directing the Individual Defendants to exercise their fiduciary duties to obtain a transaction which is in the best interests of shareholders until the process for the sale or auction of the Company is completed and the highest possible price is obtained;
F. awarding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and experts’ fees; and
G. granting such other and further relief as this Court may deem just and proper.
DEMAND FOR JURY TRIAL
Plaintiff hereby demands a trial by jury on all issues so triable.
DATED: December _____, 2011
ROBBINS GELLER RUDMAN & DOWD LLP
STUART A. DAVIDSON
Florida Bar No. 0084824
CULLIN A. O’BRIEN
Florida Bar No. 597341
MARK J. DEARMAN
Florida Bar No. 982407
CHRISTOPHER C. MARTINS
Florida Bar No. 88733
___________________________
STUART A. DAVIDSON
120 East Palmetto Park Road, Suite 500
Boca Raton, FL 33432
Telephone: (561) 750-3000
Facsimile: (561) 750-3364
ROBBINS GELLER RUDMAN & DOWD LLP
RANDALL J. BARON
A. RICK ATWOOD, JR.
DAVID T. WISSBROECKER
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: (619) 231-1058
Facsimile: (619) 231-7423
MOTLEY RICE LLC
JOSEPH F. RICE
ANN K. RITTER
WILLIAM S. NORTON
DAVID P. ABEL
28 Bridgeside Boulevard
Mt. Pleasant, SC 29464
Telephone: (843) 216-9000
Facsimile: (843) 216-9450
Attorneys for Plaintiff
1. Plaintiff calculates this multiple by netting Winn-Dixie’s $535.2 million in equity value ($9.50 per share for 56.34 million shares) by the $168.5 million in cash that Winn-Dixie has on its balance sheet.
2. Moreover, using a highly discounted value for the $1.6 billion NOL tax asset held by Winn-Dixie, the transaction multiple described above drops to just 2.26 times EBITDA.