Marketo is facing a second class action lawsuit in connection with its proposed acquisition by Vista Equity Partners — a deal the suit contends will generate more than $58 million for company co-founder, CEO, President and Board Chair Phil Fernandez.
In a suit filed Tuesday in California federal court, shareholder Robert Rosati alleges the proxy statement fails to disclose material information about potential conflicts of interest affecting Marketo’s management, including its discussions with Vista regarding continued employment and rollover equity.
Rosati also contends the proxy fails to disclose the process leading to the merger agreement, the analysis of the board's financial adviser, Morgan Stanley & Co., and Marketo's financial projections.
"Without all material information Marketo stockholders cannot make an informed decision about whether to vote in favor of the proposed transaction or pursue their appraisal rights," the suit contends.
Shareholders are scheduled to vote on the proposal two weeks from today, July 28.
Marketo Board 'Recklessly Violated' Fiduciary Duties
Fernandez and other Marketo board members — specifically Lynne Biggar, Cambria Dunaway, Roger S. Siboni, Susan L. Bostrom, Tae Hea Nahm and Wesley R. Wasson — "are knowingly or recklessly violating their fiduciary duties, including their duties of care, loyalty and good faith owed," the suit alleges.
After a May 1 meeting to discuss the Vista offer, Marketo formed a transaction committee to supervise the strategic process. All three members of that committee — Siboni, Nahm and Dunaway —"suffered from a material conflict or a material incentive to sell the company," the complaint charged.
Siboni will receive about $2.3 million if the transaction closes, the complaint continues. It further notes a personal relationship between Siboni and Fernandez, which extends at least 17 years. Before Marketo was founded in 2006, they were both executives at Epiphany Inc., a customer relationship management (CRM) software company. The firm was acquired by SSA Global Technologies in September 2005.
Fernandez will gain more than $58 million if the deal closes, including $45.5 million in golden parachute compensation, the suit contends.
2nd Class Action Against Marketo
The federal lawsuit, filed in the U.S. District Court for the Northern District of California on behalf of Rosati and "the public stockholders of Marketo," comes on the heels of another class action suit against Marketo filed last week in Santa Clara County Superior Court in California.
In that suit, Sonila Porwal alleges Marketo’s directors breached their fiduciary duties to Marketo stockholders by seeking to sell Marketo too cheaply through an allegedly defective process.
The lawsuit seeks, among other things, to block the proposed sale and rescind the agreement to sell, which Porwal characterized as grossly inadequate and said undervalues Marketo.
'Poison Pill' Provision Benefits Vista
Both suits specifically cite a poison pill provision of the merger agreement that effectively blocks Marketo from discussions or negotiations with other potential buyers that could be willing to pay a higher return to shareholders.
In the event another buyer nonetheless makes an acquisition offer to Marketo, Vista has two business days to match it. And should Marketo refuse the counteroffer and accept a higher offer from another buyer, it is required to pay Vista a $49.2 million termination fee.
There does not appear to be any similar provision requiring Vista to pay Marketo should it elect to walk away from the deal.
Marketo's $1.79B Private Equity Deal
Vista signed a definitive agreement to acquire in a cash deal valued at $1.79 billion on May 27.
As part of the deal, Vista wants to pay $35.25 a share for each of the marketing automation company's outstanding shares, which represents a 9.5 percent premium to the closing price the day before the deal was announced, and a 64 percent premium to the May 9 closing price.
However, it is significantly lower that the company's January 2014 peak price of $42.79 per share.
Marketo stock closed yesterday at $35.01 per share.
Both lawsuits cite a CMSWire article published in May that detailed Marketo's huge platform re-architecture project, Project Orion, which it is intended to deliver big data scalability and transactional support for business-to-consumer (B2C) use cases.
The article was based on an interview between CMSWire publisher Brice Dunwoodie and three Marketo executives — Chief Scientist Shankar Venkataraman, CMO Sanjay Dholakia and Chandar Pattabhiram, Group Vice President of Marketing — following the company's Marketing Nation Summit in Las Vegas in April.