A shareholder lawsuit has been filed in U.S. District Court in Madison to try to stop Great Wolf Resorts, of Madison, from being sold to Apollo Global Management, a New York investment firm, for $5 a share plus assumption of Great Wolf's debt, a total $703 million deal.
Meanwhile, a hearing on a request for an injunction to halt the acquisition is scheduled April 4 in Delaware, where two other shareholder lawsuits were filed earlier.
In the Wisconsin case, stockholders, identified as Broad Street Partners, filed suit March 22 claiming the merger agreement violates federal securities laws because it contains "materially misleading and incomplete information," including:
• The $5 a share price is too low.
• Great Wolf executives will "disproportionately benefit" from the deal.
• Apollo received favored treatment in the sale process.
• Deutsche Bank Securities, Great Wolf's financial adviser, had a conflict of interest.
The lawsuit, filed by attorneys Stacy Taeuber, Madison, and Richard Brualdi, New York, lists Great Wolf's recent financial results and claims it is "a strong company with the potential for greater future growth." The indoor waterpark company reported a net loss of $25.7 million for 2011, but that was half of its $51 million loss for 2010. Revenues last year totaled $296.7 million, up from $276 million, and total revenue per available room rose 9.3 percent.
The lawsuit also cites a letter by PWK Partners Atlas Funds to the Great Wolf board expressing "serious concerns" about the proposal and asking for its immediate withdrawal.
PWK Partners called the $5 a share offer "woefully inadequate" and "not in the best interest of the company or its shareholders." The firm said Great Wolf's 11 waterpark resorts and other holdings are worth more than $1 billion and shares could be trading at $17 by 2015.
The fact that shares have sold as high as $5.73 since the deal was announced shows investors think it is worth more, the letter says. The stock closed Friday at $5.72.
A spokesman for Apollo declined comment Friday.
The Broad Street Partners lawsuit says Great Wolf chief executive Kim Schaefer stands to receive $7.76 million if the sale goes through and her job ends, and directors will receive cash payments of undisclosed amounts.
It says during the negotiation process, Apollo received "favored" treatment even though offers from two other bidders were higher, and while Deutsche Bank was Great Wolf's advisor in the talks, it also was acting as lender on a $400 million term loan for an Apollo affiliate.
No hearings are scheduled yet. Brualdi said depositions are under way and he expects to ask for an injunction, perhaps as soon as next week.
Others also have valued Great Wolf shares higher than $5. Neuberger Berman Group, the company's fifth largest shareholder, told the Wall Street Journal the stock could be worth $8 to $9 a share. Deutsche Bank valued the stock as high as $7.98 a share, one of the Delaware lawsuits says.
Analyst Jeffrey Thomison, of Hilliard Lyons, in a March 14 research report, said, "The proposed transaction value is a bit lower than we would have anticipated in an acquisition scenario." Thomison had estimated a two-year price target of $6 before Apollo's offer.
Stockholders are supposed to turn in their shares by April 10, and it will take "50 percent plus one" share for the transaction to be approved, a company spokesman said.
If Great Wolf decides to cancel the deal, it could have to pay Apollo up to $7 million in breakup fees. If Apollo bows out, it would be required to pay up to $20 million to Great Wolf, under the agreement.