Lerach Seeks to Stop Westcorp Buyback
By RAJIV VYAS
Westcorp Inc.’s bid to buyback WFS Financial Inc. has hit a big snag: Bill Lerach.
Lerach, a partner of San Diego-based Milberg Weiss Bershad Hynes & Lerach LLP, has filed a class action lawsuit against Irvine-based WFS Financial Inc. and its board of directors.
The lawsuit stems from Irvine-based Westcorp’s decision to buy back the shares of WFS Financial it doesn’t already own. Westcorp owns 84% of WFS Financial through another of its holdings, Western Financial Bank, and is now looking to buy the rest.
The suit was filed last week in Superior Court of California in Orange.
Lerach is famous for suing companies, typically after a sharp share-price drop or a buyout. Many executives consider the suits a form of legal extortion. Lerach has taken on many of Silicon Valley’s biggest technology companies, including Apple Com-puter Inc. He’s sued Orange County companies such as Fluor Corp., Western Digital Corp. and PacifiCare Healthcare Systems Inc.
WFS Financial makes auto loans and packages them as bonds. Westcorp is a publicly traded holding company whose principal subsidiaries are WFS Financial and Western Financial Bank.
The lawsuit alleges that WFS Financial and its directors used improper means to seek the management-led buyout and that preferential treatment was provided to certain insiders and directors at the expense of the shareholders.
“Together with its management, Westcorp is seeking to squeeze WFS shareholders out of their 16% ownership of the company,” the lawsuit reads.
Lerach’s firm, which specializes in class action lawsuits against publicly traded companies, is representing plaintiff Margaret Burgess Revocable Trust. Burgess filed the case on behalf of herself and other shareholders of WFS Financial.
Company officials who have been named in the suit include Thomas Wolfe, chief executive of WFS, and Ernest S. Rady, chairman and chief executive of Westcorp as well as WFS Financial’s chairman.
Neither officials from Westcorp nor lawyers from Milberg Weiss were available for comment.
The lawsuit was filed less than a week after Westcorp announced its plan to buy back 6.6 million shares of WFS Financial that it does not own.
On July 17, Westcorp said that it plans to acquire the outstanding minority interest in WFS Financial by folding WFS Financial into Western Financial Bank.
Under terms of Westcorp’s proposal, shareholders of WFS would receive 0.92 shares of Westcorp common shares for each WFS common share outstanding in a tax-free transaction. This represented a value of $22.45 per share of WFS or a 5% premium based on closing price on July 16.
The lawsuit alleges that the plan to cash out WFS’s public shareholder is “unlawful” and is for a “grossly inadequate consideration.”
“Each of the defendants violated applicable law by directly breaching and/or aiding the other defendants’ breaches of their fiduciary duties of loyalty, due care, independence, good faith and fair dealing,” the suit says.
Besides the lower buy-back price, the other allegation is that the firm announced its record second-quarter results less than eight hours after it had capped the price of WFS Financial’s stock for the buy back.
“Defendants sought to cap the price with the acquisition announcement to prevent the acquisition from being more expensive,” the lawsuit alleges.
“Defendants, and each one of them, knew these were record results and would have had a positive impact on the price of the company’s share’s.”
