Xperi Board Sued for Keeping TiVo Merger on Track Despite Virus

Xperi Corp.'s directors were hit with a Delaware lawsuit Friday for keeping its proposed all-stock $2.4 billion merger-of-equals with TiVo Corp. on track without determining if the coronavirus undermined its logic.

“The spreading pandemic has caused significant damage to the U.S. economy, but the Xperi board has not met to consider whether its effects have caused a material adverse effect and become an intervening event,” the suit says. “The board cannot determine whether an IE or MAE has occurred without meeting.”

The Chancery Court complaint, filed by a union pension fund, offers a new wrinkle after a wave of suits asking courts to block would-be acquirers from backing out of mergers, with the coronavirus scrambling business deals worldwide.

Some of those cases involve the $5.8 billion acquisition of a hotel chain; the purchase of Victoria’s Secret; a business unit sale from Bed Bath & Beyond to 1-800-Flowers; a franchise buyout by CorePower Yoga; a CMX Cinemas merger; and a private equity transaction over the world’s top cake decorations wholesaler.

But the Xperi suit appears to be the first by a shareholder seeking to stop a company from going through with a deal that may no longer make sense in light of the Covid-19 pandemic.

In addition to alleging a general dereliction of duty for failing to meet, it accuses the Xperi directors of misleading public investors by continuing to rely on financial projections from December, when the merger agreement was signed, that can’t possibly be accurate.

Despite a demand for revised information by the pension fund plaintiff, the board released regulatory filings and a deal “update” that allegedly failed to include any concrete information about the pandemic’s actual or potential impact.

“Xperi and TiVo have now abandoned their projections for 2020, but have refused to provide updated figures,” the suit says. “To use estimates that the companies know are not accurate is deliberately misleading stockholders.”

That’s despite “ominous disclosures” by TiVo that hint at a significant impact, according to the complaint.

The proposed shareholder class action also accuses Xperi’s board of “hastily” rejecting a competing $1.2 billion all-cash buyout offer in February from investment firm Metis Ventures LLC, where Xperi’s former CEO is now a managing member.

The arguments previewed in the complaint echo those being made in the suits seeking to close deals by court order.

The outcome in each case will likely hinge in part on whether the merger’s material adverse event clause excludes “general” business downturns—even those based on unforeseen calamities—and whether the reneging party can show the deal has been disproportionately affected by the pandemic, relative to the broader economy.

Cause of Action: Breach of fiduciary duty.

Relief: Class certification, damages, costs, and fees.

Potential Class Size: Hundreds or thousands of holders of 50.5 million outstanding Xperi shares.

Response: Xperi didn’t immediately respond to a request for comment Friday.

Attorneys: The pension fund is represented by Prickett Jones & Elliott PA and Kessler Topaz Meltzer & Check LLP.

The case is Local 464A United Food & Commercial Workers Union Pension Fund v. Antonellis, Del. Ch., No. 2020-0376, complaint filed 5/15/20.