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Ladish Shareholders Sue To Block $778M Allegheny Buy

December 01, 2011

Ladish Shareholders Sue To Block $778M Allegheny Buy

By Leigh Kamping-Carder

Law360, New York (December 01, 2010, 1:47 PM ET) -- A Ladish Co. Inc. shareholder has launched a putative class action seeking to stop the $778 million acquisition of the Wisconsin metal components producer by specialty metals manufacturer Allegheny Technologies Inc.

Irene Dixon filed a complaint Tuesday in the U.S. District Court for the Eastern District of Wisconsin, alleging that the consideration Ladish shareholders would receive is “woefully inadequate.”

The suit, filed by Jason R. Oldenburg and Kathleen F. Goodrich of Previant Goldberg Uelmen Gratz Miller & Brueggeman SC and Nadeem Faruqi and Juan E. Monteverde of Faruqi & Faruqi LLP, alleges that the Ladish board of directors engaged in self-dealing.

Under the terms of the deal, Allegheny will pay Ladish shareholders $24 in cash plus 0.445 percent of a share of Allegheny stock in exchange for each share of Ladish stock. The consideration amounts to $48 per share based on the average trading price of Allegheny stock in the 10 days leading up to the Nov. 17 announcement, the companies said.

Since then, however, the Allegheny share price has dropped from the mid-$50 range to $48.50, cutting into the value for Ladish shareholders, according to Dixon. Meanwhile, Ladish is set to improve its financial outlook as the economy recovers, the complaint claims.

Based in Cudahy, Wis., Ladish experienced a dip in 2009, with a 25 percent drop in sales compared to 2008. But in July, the company reported something of a rebound.

Ladish President and CEO Gary J. Vroman, who is named as a defendant, said in October that every Ladish product “has new opportunities lined up in 2011 which will drive growth.”

Dixon also claims that Vroman and Vice President of Law and Finance Wayne E. Larsen stand to benefit from the transaction through lucrative severance packages. Larsen and Vroman, who have worked for the company for nearly 30 years, do not own significant Ladish stock, according to the suit.

The merger agreement also includes certain provisions — including a nonsolicitation clause and a $31 million termination fee — that make the Allegheny acquisition a “fait accompli,” the suit said. Ladish's financial adviser, which owns Allegheny stock, has a conflict of interest, Dixon claims.

Larsen and a spokesman for Allegheny did not immediately respond to requests for comment on Wednesday.

Dixon, a New York native, brought the suit on behalf of all Ladish shareholders. She alleges the Ladish board of directors breached their fiduciary duties of loyalty, due care, diligence, good faith and fair dealing and independence.

The transaction, which is still subject to approval from Ladish shareholders, is expected to close in early 2011.

Ladish engineers, manufactures and markets technologically advanced metal parts for the jet engine, aerospace and industrial markets. Its top three customers — Rolls-Royce Motor Cars Ltd., United Technologies Corp. and General Electric Co. — account for more than half its revenues, with the bulk of the remainder coming from contracts with the U.S. and foreign governments, according to the complaint.

In announcing the Allegheny acquisition, Vroman said, “new markets are well within our reach that were previously a stretch for us. Without question, this merger significantly improves the long-term outlook for Ladish.”

L. Patrick Hassey, Allegheny's chairman and CEO, said the combination of his company's product portfolio and Ladish's forging, investment casting and machining capabilities would create a “more integrated, stable and sustainable supply chain for the aerospace, defense and industrial markets.”

Dixon is represented by Previant Goldberg Uelmen Gratz Miller & Brueggeman SC and Faruqi & Faruqi LLP.

Counsel information for the defendants was not immediately available.

The case is Dixon v. Ladish Co. Inc. et al., case number 2:10-cv-01076, in the U.S. District Court for the Eastern District of Wisconsin.

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