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London hedge fund sues Brightpoint over failed acquisition

September 30, 2009
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A London-based hedge fund has sued Brightpoint Inc. over a $10 million loan it alleges the Indianapolis-based cell phone distributor fraudulently brokered in anticipation of an acquisition in France that never materialized.

Sofaer Global Hedge Fund alleges Brightpoint CEO Bob Laikin persuaded it to lend $10 million to Hong Kong-based Chinatron Group Holdings Ltd., a company that invests in wireless communications firms. In Sofaer’s complaint, Laikin is described as a founding shareholder and former director of Chinatron.

According to the lawsuit, Brightpoint has been a Chinatron customer for a decade. The complaint alleges that Chinatron owed Brightpoint $5.4 million, resulting from a line of credit extended during a previous business deal, but lacked funds to repay it.

“If Chinatron could not repay its debt to Brightpoint by the end of 2007, Brightpoint would be forced to record it as ‘bad debt’ on its books, which would be subject to scrutiny by Brightpoint’s audit committee, a situation Laikin very much wanted to avoid,” Sofaer’s complaint reads.

The lawsuit alleges that Laikin had been in discussions with Chinatron throughout 2007 about the possibility of Brightpoint purchasing Chinatron subsidiary Mobiltron France for $14 million by March 2008. Mobiltron France owns and operates a factory in Etrelles, France.

According to the suit, Chinatron CEO John Maclean Arnott originally relayed Brightpoint’s acquisition intent to Sofaer, which Laikin then confirmed in a conference call.

Sofaer loaned Chinatron $10 million, in anticipation of a $12 million repayment due in March 2008 from the proceeds of the Mobiltron deal.

The lawsuit alleges that, on Dec. 17, 2007, Laikin and Arnott held a conference call finalizing details of the loan with Sofaer.

“Laikin told Sofaer on this call that the deal for Brightpoint to purchase Mobiltron France for [$14 million] by the end of March 2008 was ‘as good as a done deal,’ that the deal was ’99.9 [percent] done’ and that Laikin was ‘99.9 [percent] certain’ that the deal would go through by the end of March 2008,” Sofaer’s complaint reads.
 
The lawsuit also alleges that Laikin called the deal a “relatively small deal for Brightpoint,” and that Laikin claimed he had authority to enter into it without board or management approval. The complaint alleges that Laikin told Sofaer he didn’t want the deal to appear “pre-arranged” to Brightpoint’s board and management, even though it was “as good as done.”

“When asked to provide written confirmation, Laikin refused, but reassured Sofaer that the deal would go through, repeatedly saying ‘my word is my bond,’” the complaint reads.

Sofaer made the $10 million loan to Chinatron in December 2007, according to the complaint, which Chinatron then used to repay the $5.4 million it owed Brightpoint.

According to the complaint, subsequent Brightpoint due diligence led the company to eventually offer just $6.25 million for Mobiltron France.

“Laikin, contrary to his earlier statements, stated that Brightpoint could ‘not simply pay a set price’ for Mobiltron France and that Brightpoint’s European management had to ‘find out what the factory [was] worth’ before committing to a deal,” Sofaer’s complaint reads.

Chinatron allegedly turned down the $6.25 million offer, because it was insufficient to repay its loan from Sofaer. Sofaer alleges that Laikin had always intended to induce a “fire sale” of Mobiltron France. Sofaer’s suit seeks damages and attorneys fees.

Laikin this morning declined to comment about the suit, saying Brightpoint’s longstanding policy is not to comment on litigation. Brightpoint vice president and general counsel Steven Fivel said the same.

Brightpoint stock was down almost 2 percent in midday trading, to 8.82 a share.

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