I originally read in CNET's coverage that Michael Matthews, a former VP at Groove and now the CMO of Amdocs, had filed suit to try and block Microsoft's acquisition of Groove. Digging a bit more, I found more information about the deal in the Seattle Post-Intelligencer :
- The acquisition price is reportedly $120M, of which Microsoft would keep, as the largest shareholder, $80M. So their net acquisition cost is $40M.
- Since Groove has raised over $155M, only Preferred shareholders will be get a pay out. A Boston Globe article mentions that "The complaint said Ozzie would get $382,966 under the deal, while Breyer would receive about $1.7 million and Accel about $3.4 million. Microsoft, Groove's largest investor, would recoup about $80 million, it said". The other major investor in the company was Intel Capital.
- It sounds as though the most recent rounds were senior to previous ones (almost always the case), which explains why Microsoft is recouping most of its investment (Microsoft invested in the last two rounds of $38M in 2003, and $51M in 2001 according to VentureWire - sub req). Co-investors in these rounds would also get their money back. Investors in the $41M round that closed in 2000 would also have gotten a large portion of their investment back - provided that this round was senior to the others. Accel Partners, an early stage investor in the company, seems to only received a payout on its more recent follow-on investment.
- The Seattle PI also says: Groove lawyers asked Chandler to keep details of the transaction confidential. Chandler denied the request. Matthews' lawyer, M. Duncan Grant, said Groove was unjustified in trying to withhold information "that the company allegedly would be mere weeks, if not days, away from a bankruptcy filing," according to court papers filed Wednesday.
About the reasons motivating the suit, the Seattle PI says:
Former Groove employee Michael Matthews, who sued closely held Groove and its directors and seeks to block the deal, claimed that Microsoft and Ozzie "seek to eliminate the interest of junior preferred and common stockholders for no consideration," according to the suit filed March 25 in Delaware Chancery Court. Only senior preferred stockholders receive compensation under the deal, he said.
Matthews asked Judge William Chandler III to stop the buyout under its current terms, which provide $50 million in "golden parachute" payments and other benefits, including $27 million in stock grants for Ozzie. Together, Microsoft and Ozzie hold 59 percent of Groove's stock. Matthews seeks damages and legal fees.
Boston.com adds:
Because the sale price was less than the $155 million invested in Groove, the cash-for-stock deal provided no payout for an unspecified number of employees who had been given Groove shares. Groove did set aside some money to be paid to current employees who remain with the firm after the Microsoft purchase takes effect. That will come in the form of ''reward retention bonuses," half of which would be paid one year and the remainder two years after the deal is complete.
As I had hinted in my original piece on the deal: "We'll figure out at some point whether this was a strategic acquisition, or a cheap buyout of the portion Microsoft did not already own - depending on the color of Groove's operating cash flows: black or red", Groove was still burning cash and needed to be taken out or raise more cash. Whilst $40M is not negligeable, it is certainly not the kind of exit value investors and employees had hoped for.
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