December 19, 2005
Look Who's Talking Now
As reported in the December 16 blog entry, Quiznos is for sale and could fetch as much as $2 billion. Quiznos’ former public shareholders, whose shares were acquired when management took the company private in 2001, want to know how the company’s value changed so quickly. In this article from the Rocky Mountain News, these former shareholders state that the current potential price is further evidence that the 2001 buy-out price was not fair.
In 2001, Dick and Rick Schaden, the father and son owners of the company, announced a going-private transaction at $8.50 a share. A number of shareholders sued, protesting the low valuation. Quiznos argued that the company’s profits were falling below expectations because of increased expenses due to competitive threats from Subway, McDonald’s and Arby’s. Quiznos also argued that its future growth prospects at the time of the going-private deal should not be considered. In January 2004, Denver District Judge Robert McGahey held that the company’s fair value was $32.50 a share and that Quiznos acted in “bad faith” when it offered shareholders only $8.50. In a separate class-action suit by shareholders who failed to dissent properly to the going-private transaction, plaintiffs were to receive $12.90 a share in settlement. That settlement was ratified over the objection of some shareholders by Denver District Judge Morris Hoffman, and some of the shareholders are appealing. They say that plaintiffs’ lawyers provided inadequate counsel.
Ed Sebesta, the lead plaintiff in the separate class-action suit, referring to the current sales price stated, “It validates what we were always saying.” In 2001, Sebesta got around $100,000 for his shares at $8.50 per. Sebesta says that at today’s valuation, his shares would be worth between $5.8 million and $9 million. Sebesta contends that the 2001 price was artificially controlled by management and just too cheap.