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Board of OnDeck Sued Over Alleged Pandemic ‘Fire Sale’ to Enova

Sept. 8, 2020, 6:16 PM

OnDeck Capital Inc.'s board was hit with a Delaware lawsuit blasting its plans to let Enova International buy the online lender as part of a $90 million “fire sale” at “a remarkably terrible time.”

The board breached its duties in signing off on the purchase while the company’s price is at “historic lows,” instead of buckling down to “endure” the Covid-19 pandemic, according to the Chancery Court complaint..

“On Deck has the cash on hand and has renegotiated agreements with lenders that it could remain a standalone entity,” the suit says. “Yet as a result of the frantic and unreasonable timing of the sale, the consideration offered for On Deck is woefully inadequate.”

The shareholder suit accuses OnDeck’s board of caving to pressure tactics by activist investor Voce Capital LLC, which waged a “withhold-the-vote campaign” against its members and threatened a proxy contest after they rebuffed a proposal aimed at “significant cost reductions and a culling of strategic priorities.”

“The pandemic disrupted Voce’s plans for the company, and a fire sale became its only means to recoup its investment,” the suit says. “The very public dispute turned into a desperate push for a sale—with the non-insider stockholders suffering as a result.”

The deal to sell OnDeck “at a fraction of its intrinsic value, even a fraction of its book value,” would give its directors “exorbitant personal compensation,” including “severance packages, accelerated stock options, performance awards,” and “golden parachutes,” according to the proposed class action.

Some board members would also allegedly get jobs at Enova, in which OnDeck’s top institutional investors—Dimensional Fund Advisors LP, BlackRock Inc., and Renaissance Technologies LLC—also hold large stakes.

Because they stand on both sides of the deal, those firmswill come out on top even if it rips off OnDeck, according to the complaint, which doesn’t name them as defendants.

Moreover, “for good measure,” the transaction will allegedly include “restrictive and preclusive deal protection devices” that “impede the company’s ability to obtain a better offer,” including a termination fee and a “no solicitation” provision.

“The current macro environment makes it a particularly precarious time to sell,” the suit says, “and this all but ensures no better offer will be forthcoming.”

Meanwhile, regulatory filings seeking shareholder approval omit “critical” information, including details about the circumstances under which OnDeck’s financial projections were prepared, according to the complaint.

The suit was filed Sept. 4.

Cause of Action: Breach of fiduciary duty.

Relief: An injunction, damages, costs, and fees.

Potential Class Size: The holders of 77 million outstanding OnDeck shares.

Response: An OnDeck spokesman said the company doesn’t comment on active litigation.

Attorneys: The plaintiff is represented by Cooch & Taylor PA and Monteverde & Associates PC.

The case is Doaty v. Breslow, Del. Ch., No. 2020-0763, complaint filed 9/4/20.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Steven Patrick at spatrick@bloomberglaw.com

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