Directors of Indianapolis-based Fortune Industries Inc. have agreed to enter into a management-led buyout that will take the publicly traded professional employer organization private.
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. The new ownership would retain the Fortune Industries Inc. name. The buyout values the company at $30.5 million.
Terms of the agreement call for Carter M. Fortune, the majority shareholder and chairman of the company, to sell CEP his preferred shares, which will 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.
But the acquisition could face challenges. Since the company announced it on Monday, at least six law firms have released statements saying that they're investigating the transaction on behalf of company shareholders. They say the conversion of stock may be unfair to shareholders, in addition to the process by which directors considered the transaction and potential conflicts of interests among Fortune Industries’ board members, the firm said in a statement.
Shareholders of Fortune Industries who own at least 501 or more shares will receive an equal number of shares in the new company. Shareholders who own 500 shares or fewer will receive 61 cents per share, which represents a 22-percent premium over the 200-day moving average share price as of March 20, the company said.
Fortune Industries shares opened trading Friday morning at 29 cents each.
Carter Fortune will retain a 20-percent minority stake in CEP and will retire as chairman of Fortune Industries, but continue serving as a director.
Shareholders of Fortune Industries will vote on the transaction after all regulatory conditions are met, including any comments from the Securities and Exchange Commission.
Once the transaction closes, the company will become private, Butler said in a prepared statement.
“We have not realized the benefits often associated with being a publicly traded company, as such status hasn't enhanced the value of our stock for our shareholders, yet we have incurred the significant costs of complying with regulations of a publicly held company,” he said.
In its last fiscal year ended June 30, Fortune Industries earned $1.3 million on revenue of $64.3 million.
Following the acquisition, Butler will remain as CFO and Mayberry as CEO. She has been in that position since 2010. Previously, she served a dual role as president of Fortune and subsidiary Century II Inc., a Brentwood, Tenn.-based provider of human resources services.
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.