Medallia Inc. Sued Over Proposed Buyout

A shareholder has taken issue with the proposed acquisition of Medallia, a customer and employee experience management company, by affiliates of Thoma Bravo L.P. as announced in late July. The proxy statement Medallia filed in connection with the transaction omits information critical to an informed shareholder vote, Tuesday’s Southern District of New York complaint says.

The filing explains that in exchange for $34.00 in cash for each share of Medallia common stock, Thoma Bravo, a leading software investment firm, will purchase the company, converting it to a privately held business. Medallia, the complaint says, uses “proprietary artificial intelligence and machine learning technology to automatically reveal predictive insights that drive powerful business actions and outcomes.” According to the companies’ merger announcement reprinted in the complaint, Medallia will benefit from Thoma Bravo’s capital support and extensive sector experience.

The lawsuit asserts that the proxy statement filed with the Securities and Exchange Commission fails to disclose information regarding Medallia’s financial projections. It takes issue with several, including the proxy statement’s failure to disclose line items used to calculate the projections and a reconciliation of all non-GAAP (Generally Accepted Accounting Principles) to GAAP metrics.  

The complaint also faults financial advisor Morgan Stanley & Co. LLC for excluding material information in a handful of the analyses it performed. For example, in its “Discounted Equity Value Analysis,” the proxy statement fails to disclose “(i) the net cash used in the analysis; (ii) the estimated fully-diluted shares outstanding used in the analysis; and (iii) the individual inputs and assumptions underlying the discount rate.”

This is problematic, the shareholder alleges because a banker’s assessment of the fairness of a transaction is touted to shareholders. Thus, the complaint says, “the valuation methods used to arrive at that opinion as well as the key inputs and range of ultimate values generated by those analyses must also be fairly disclosed.”

The complaint seeks an order halting the transaction until Medallia files a corrected proxy statement, or undoing the transaction should it be consummated without the requested information. The plaintiff seeks his attorneys’ fees and costs and is represented by Rigrodsky Law P.A.