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In re Primedia, Inc. Shareholders Litigation

Court of Chancery of Delaware

December 20, 2013

IN RE PRIMEDIA, INC. SHAREHOLDERS LITIGATION

Submitted: October 28, 2013

Jessica Zeldin, ROSENTHAL, MONHAIT & GODDESS, P.A., Wilmington, Delaware; James S. Notis, Jennifer Sarnelli, GARDY & NOTIS, LLP, Englewood Cliffs, New Jersey; Judith L. Spanier, ABBEY SPANIER, LLP, New York, New York; Harold B. Obstfeld, HAROLD B. OBSTFELD, P.C., New York, New York; Attorneys for Plaintiffs.

A. Thompson Bayliss, ABRAMS & BAYLISS LLP, Wilmington, Delaware; Meredith E. Kotler, Boaz S. Morag, CLEARY GOTTLIEB STEEN & HAMILTON LLP, New York, New York; Attorneys for Defendants Primedia, Inc., Charles J. Stubbs, TPG Capital, L.P., Pittsburgh Holdings, LLC, and Pittsburgh Acquisition, Inc.

Martin S. Lessner, Danielle Gibbs, Lakshmi A. Muthu, YOUNG CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; Adam Offenhartz, Gabrielle Levin, GIBSON, DUNN & CRUTCHER LLP, New York, New York; Attorneys for Defendants Beverly C. Chell, David A. Bell, Meyer Feldberg, H. John Greeniaus, Daniel T. Ciporin, and Kevin J. Smith.

William M. Lafferty, R. Judson Scaggs, Jr., Susan Wood Waesco, Matthew R. Clark, MORRIS, NICHOLS, ARSHT & TUNNELL, LLP, Wilmington, Delaware; Lewis R. Clayton, Andrew G. Gordon, Jonathan H. Hurwitz, PAUL, WEISS RIFKIND, WHARTON & GARRISON LLP, New York, New York; Attorneys for Defendants Kohlberg Kravis & Roberts & Co. L.P., KKR Associates, LP, KKR 1996 GP LLC, Perry Golkin, Thomas Uger, and Dean B. Nelson.

MEMORANDUM OPINION

LASTER, VICE CHANCELLOR.

The plaintiffs allege that defendant Kohlberg Kravis Roberts & Co. L.P. ("KKR-) traded on inside information when purchasing shares of preferred stock of Primedia, Inc. ("Primedia" or the "Company"). The plaintiffs originally asserted derivative claims against Primedia's board of directors and KKR (the "Derivative Claims"). While the Derivative Claims were pending, TPG Capital, L.P. ("TPG") acquired Primedia through a reverse triangular merger (the "Merger"). The closing of the Merger extinguished the plaintiffs' standing to maintain the Derivative Claims, which were dismissed.

The plaintiffs countered by filing this action, which asserts direct claims challenging the Merger on behalf of a class of Primedia's minority stockholders (the "Class Claims"). According to the class complaint, Primedia's board failed to obtain any value in the Merger for the Derivative Claims. The Merger thus conferred a unique and material benefit on KKR by transferring control over the insider trading claims to an acquirer that would never assert them, and the consideration yielded an unfair price for Primedia's minority stockholders. The defendants moved to dismiss the Class Claims, claiming that the plaintiffs lacked standing to pursue them and that they failed to state a claim on which relief could be granted. That motion was denied. See In re Primedia, Inc. S'holders Litig. (Primedia II), 67 A.3d 455 (Del. Ch. 2013).

The defendants now move for judgment on the pleadings. They argue that the doctrine of laches barred the Derivative Claims, so there was no underlying litigation asset to confer a unique and material benefit on KKR or to render the Merger consideration unfair. KKR's purchases of preferred stock fall into two categories: (i) purchases made shortly before the public announcement of a material sale of assets and (ii) purchases made in July 2002, before Primedia reported earnings that materially exceeded expectations. As to the former category of purchases, the motion is granted. As to the latter category, the motion is denied.

I. FACTUAL BACKGROUND

The facts are drawn from the Consolidated Amended Class Action Complaint (the "Class Complaint" or "CC") and the documents it incorporates by reference, including the Third Amended and Consolidated Derivative Complaint (the "Derivative Complaint" or "DC"), which was the operative complaint framing the Derivative Claims at the time of the Merger. For purposes of this decision, the Class Complaint's allegations are assumed to be true, and the plaintiffs receive the benefit of all reasonable inferences.

A. Primedia, KKR, And The Preferred Stock

From Primedia's founding until the Merger, KKR was always Primedia's controlling stockholder. At the time of the Merger, two KKR affiliates—KKR Associates, LP and KKR GP 1996 LLC—served as the general partners for investment funds that owned approximately 58% of Primedia's outstanding common stock. Consistent with its status as Primedia's controlling stockholder, KKR maintained a significant presence on the Primedia board.

During the latter half of the 1990s, Primedia raised capital by issuing preferred stock. Three series are pertinent to this case: the Series D Preferred, the Series F Preferred, and the Series H Preferred (collectively, the "Preferred Stock"). The terms of each series contemplated a period during which Primedia would have the option to redeem the Preferred Stock at a premium, followed by a period during which Primedia could redeem without paying a premium, then finally by a date when Primedia was obligated to redeem at a predetermined value. Each series paid annual cash dividends that accrued and were payable in arrears. Each series fixed the annual dividend at a specific amount or as a percentage of ...


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