Datacenter operator Switch hit with claims it misled investors over $11b buyout
Complainants say financial projections were not disclosed, rendering SEC filing false and misleading
Datacenter operator Switch Inc is being sued by investors over claims that it did not disclose key financial details when pursuing an $11 billion deal with DigitalBridge Group and IFM Investors that will see the company taken into private ownership if it goes ahead.
Two separate cases have been filed this week by shareholders Marc Waterman and Denise Redfield in the Federal Court in New York. The filings contain very similar claims that a proxy statement filed by Switch with the US Securities and Exchange Commission (SEC) in regard to the proposed deal omitted material information regarding Switch's financial projections.
Both Redfield and Waterman have asked the Federal Court to put the deal on hold, or to undo it in the event that Switch manages in the meantime to close the transaction, and to order Switch to issue a new proxy statement that sets out all the relevant material information.
The agreement in question was announced in early May. Switch, which operates datacenters built around high-performance compute infrastructure, disclosed that it had entered into a definitive agreement with DigitalBridge Investment Management and global infrastructure investor IFM Investors.
This deal would see the two investment companies acquire all outstanding common shares of Switch in an all-cash transaction valued at approximately $11 billion, including the assumption of debt, and was expected to close sometime in the second half of 2022.
In the complaints, Redfield and Waterman maintain that the proxy statement filed by Switch omitted material information relating to the deal, which rendered it false and misleading, in violation of the US Securities Exchange Act of 1934.
Specifically, they claim that the proxy statement omitted vital details of the analysis performed by Goldman Sachs, one of the financial services companies acting as financial advisor to the company during the agreement.
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The details said to have been omitted include the individual inputs and assumptions underlying the financial projections regarding Switch, such as the net debt used in the analysis and the fully diluted shares used in the analysis.
As stated in Waterman's filing, this projected financial information was material to the transaction because it provides stockholders with a basis to project the future financial performance of a company, and also allows them to better understand the financial analysis performed by the financial advisor in support of its fairness opinion.
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Or in other words, if a financial advisor is giving the sale of a company the green light, those with a stake in the outcome should be able to see the information on which that opinion was founded in order to make their own judgement.
Redfield and Waterman also claim that the proxy statement fails to disclose the terms of engagement involving Morgan Stanley, the other company acting as financial advisor. The amount of compensation Morgan Stanley can expect to receive was not specified, and neither was it made clear whether payment would depend upon the successful closure of the transaction.
The filed complaints state that any omissions and false or misleading statements in the proxy statement are material, in that this is vital information that the stockholders will need to consider when deciding whether to vote for or against the proposed transaction going ahead.
Switch Inc was not immediately available for comment when contacted for this article. ®