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New Frontier Media Looking at Least Four Class Action Filings- Flynt in Cahoots with Alan Isaacman?

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from – The proposed $33 million purchase of Boulder-based New Frontier Media Inc. by one of Larry Flynt’s firms significantly undervalues the local media company, some of its shareholders claim.

In the month since LFP Broadcasting announced plans to acquire New Frontier for $2.02 per share in a cash tender offer, at least four class action lawsuits have been filed against the Boulder-based adult entertainment content provider, its board of directors and its Hollywood-based suitor.

The complaints — three of which were filed in Boulder District Court, with the fourth in federal court — bear similar allegations:

Shareholders were harmed because of the purchase price.

Board members breached their fiduciary duties by not fully considering other options and not giving an appropriate valuation for New Frontier.

Infighting within the firm, which led to the firing of CEO Michael Weiner and forced the resignation of a director, flawed the sales process.

The deal contains “onerous” deal protections that financially hinder New Frontier and limit potential for competing suitors.

The board members did not adequately ensure that no conflict of interest existed and moved forward on a deal to enrich themselves and their longtime associates.

“To the detriment of the company’s shareholders, the terms of the merger agreement substantially favor LFP and are calculated to unreasonably dissuade potential suitors from making competing offers,” attorneys for shareholder Elwood M. White wrote in a complaint filed Oct. 26 in Boulder County District Court.

The Denver-based Charles Lilley & Associates PC, the firm representing White, also filed two other class action complaints against New Frontier in recent weeks.

Officials for New Frontier declined to comment.

The class action suits follow in what has been a turbulent year and sales process for New Frontier.

The Boulder company received buyout offers from at least two firms — one from New Frontier’s largest investor, which spurred a proxy contest and legal battle. It then established a special committee to evaluate strategic alternatives and later fired its CEO and chairman and requested the resignation one of its independent directors.

The proposed transaction “appears rife with conflict,” wrote attorneys for shareholder Gopal Chakravarthy in a complaint filed Nov. 7. Because the company was not fond of an acquisition by Longkloof, it hastily entered into another agreement to avoid Longkloof being able to nominate a board member after Dec. 31, Chakravarthy’s attorneys alleged.

Other complaints also highlighted the former professional relationship between New Frontier chairman Alan Isaacman and Flynt. Isaacman represented Flynt in the 1988 Supreme Court case between Hustler Magazine and Jerry Falwell.

“As such, it is unsurprising that Isaacman’s ascension to a leadership position within the company was concurrent with the sales process sharply favoring Flynt, and ending in a deal with the Flynt-controlled LFP Broadcasting,” wrote attorneys for Craig Telke in a filing made Nov. 8 in federal court.

The number of federal class action lawsuits related to mergers and acquisitions has steadily increased in recent years, according to the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research.

Merger-and-acquisition-related class action cases jumped significantly in 2010 to 40 federal court filings, according to research from Stanford and Cornerstone. Last year, the number of acquisition-related suits increased to 43.

“The 20 percent increase in underlying M&A activity seems insufficient to explain fully the almost sixfold increase of M&A-related filings, an increase that may be largely a result of changes in plaintiff law firm behavior rather than changes in underlying market forces,” researchers wrote in the 2010 report.

The most common allegations were related to breaches of fiduciary duties, according to the Stanford and Cornerstone studies.


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