A shareholder of Indianapolis-based Fortune Industries Inc. is seeking to stop a proposed management-led buyout that would take the publicly traded professional employer organization private.

Mark Haagen filed a lawsuit against Fortune Industries on April 9 and is seeking class-action status on behalf of certain shareholders, charging that the price offered for each share they own in the company is too low.

Terms of the sale announced March 30 call for shareholders who own 500 shares or fewer to receive 61 cents per share, which Fortune Industries said represents a 22-percent premium over the 200-day moving average share price as of March 20.

Shares of the thinly traded company are fetching 24 cents each but have been priced as high as 90 cents apiece during the past year.

Haagen claims that Fortune Industries, if properly shopped on the open market, would bring a price “materially in excess of the amount offered in the buyout transaction.”

The company is set to be purchased by CEP Inc., a holding company led by Fortune Industries CEO Tena Mayberry and Chief Financial Officer Randy Butler, in a buyout that values the company at $30.5 million. The new ownership would retain the Fortune Industries name.

Carter M. Fortune, the chairman and majority shareholder, would sell CEP his preferred shares, which would be converted to common stock. Upon completion of the stock conversion, total outstanding common stock of the company is expected to exceed 50 million shares.

“The buyout represents an opportunistic effort to free Mr. Fortune from future dealings with Fortune’s public shareholders at a discount from the fair value of their shares,” Haagen charged in the complaint. “The merger price does not represent fair value, and is the product of an inadequate and unfair process, thereby damaging the company’s shareholders.”

The lawsuit filed in Marion Superior Court does not indicate what company stockholders think would be a fair price for Fortune Industries to offer for their shares.

The suit names as defendants Fortune, Mayberry and company directors Paul J. Hayes, David A. Berry and Richard F. Suja, in addition to Fortune Industries and CEP.   

Haagen wants a judge to stop the transaction or, if the sale is completed, to award them damages based on charges that executives and directors breached their fiduciary duty by approving the purchase.

Calls to Fortune’s headquarters at 6402 Corporate Drive on the city’s northwest side were not returned.

Also under the terms of the sale, stockholders of Fortune Industries who own 501 or more shares would receive an equal number of shares in the new company.

Haagen’s lawsuit argues on behalf of those shareholders that they, too, should be compensated for relinquishing control in the company to management.

Shareholders are represented locally by Indianapolis law firm Cohen & Malad LLP, which has built a national reputation representing plaintiffs in class-action disputes. Lead counsel is New York-based Brower Piven.

Including Brower Piven, at least six law firms have released statements since Fortune Industries announced the sale, saying that they’re investigating the transaction on behalf of company shareholders. The firms say the conversion of stock may be unfair to shareholders, as well as the process by which directors considered the transaction.
 
Shareholders of Fortune Industries are set to vote on the transaction after all regulatory conditions are met, including any comments from the Securities and Exchange Commission.

A company executive said in March that directors voted to take Fortune Industries private because it has realized no benefits from being publicly traded and has incurred significant costs complying with federal regulations.

In its last fiscal year ended June 30, Fortune Industries earned $1.3 million on revenue of $64.3 million.

Founded in 2000, the company has shifted its focus the past three years from a diversified holding company to a professional employer organization. It has clients in 47 states.