YNOT – New Frontier Media Inc., the publicly traded Boulder, Colo.-based broadcaster and distributor of adult entertainment that in March became the target of an unsolicited buyout offer and subsequent proxy battle threat, has sued its aggressive suitor and several other related entities and people.
The federal lawsuit, filed in late May in the U.S. District Court for the District of Colorado, alleges violations of U.S. federal securities laws and seeks declarative and injunctive relief from the hostile takeover efforts of a publicly traded South African conglomerate, several of its wholly owned subsidiaries, and officers, employees and other affiliates of the companies. According to documents filed with the court, the named individuals and companies — most of which are located in Europe and South Africa — have engaged and continue to engage in a civil conspiracy to manipulate the stock market and force New Frontier to accept a buyout offer first tendered by in March by Longkloof Limited.
Named as respondents in the lawsuit are South African conglomerate Hosken Consolidated Investments Limited; Hosken Executive Chairman Marcel Golding; Hosken subsidiaries Longkloof Limited, Mile End Limited and Sabido Investments; Longkloof representative Adam Rothstein, and Eric Doctorow, Mahomed Khalik Ismail Sheriff, Willem Deon Nel and Barbara Wall. Doctorow, Sheriff, Nel and Wall are affiliated with various Hosken subsidiaries including Sabido Investments and composed a slate of nominees Longkloof submitted in April for the four of six New Frontier board-of-directors seats that face election this year.
In the complaint, New Frontier alleges Hosken, Longkloof, Golding, Rothstein and the other defendants acted as a “group” in order to acquire available New Frontier stock and present the buyout offer, then mount a proxy fight when the offer was not accepted. In so doing, according to the lawsuit, the defendants violated Section 13(d) of the Securities Exchange Act of 1934 by not properly reporting their identity and activities as a group. Court documents also allege the entire conspiracy was conceived and coordinated by Rothstein, formerly a friend and confidant of New Frontier Chairman and Chief Executive Officer Michael Weiner.
According to a prepared statement distributed by New Frontier, the company “believes the defendants’ threatened proxy contest, together with [Longkloof’s] numerous inflammatory statements attacking [New Frontier and its board of directors], is an attempt to pressure [New Frontier] to pre-empt its ongoing process for reviewing strategic alternatives, give favorable consideration to the Hosken / Rothstein group’s unsolicited, non-binding, conditional acquisition proposal and, accordingly, further the self-interested agenda of the Hosken / Rothstein group to gain control of New Frontier Media.”
The lawsuit seeks “truthful and accurate” disclosures of all relationships under U.S. Securities Exchange Commission regulations, as well as an injunction preventing the defendants from “acquiring additional shares of New Frontier Media common stock until accurate and compliant Schedule 13D disclosures have been filed” with the SEC.
New Frontier also wants the court to order the defendants to “divest themselves of any and all shares of New Frontier Media common stock that they unlawfully acquired in violation of the federal securities laws.” According to previously published communications from New Frontier, its board, and the special committee reviewing Longkloof’s buyout offer, the defendants compose the largest voting bloc among the company’s shareholders, with combined ownership of slightly less than 20 percent of New Frontier’s common shares. Longkloof alone owns more than 2.5 million shares. According to New Frontier, many of those shares were obtained within the past 18 months, allegedly in preparation for exactly the scenario that has played out thus far.
Finally, New Frontier asks the court to find Longkloof’s board-of-directors nominees invalid because the nomination intentionally violated SEC rules and New Frontier’s bylaws.
Ironically, about a week before New Frontier filed suit, Longkloof raised its per-share cash offer by 40 cents per share, tendering the new offer along with a letter that raised the specter of legal action against New Frontier.
“[Is the New Frontier board] looking to further delay the [presumed buyout] process (such as by delaying the annual meeting) or force a time-consuming and value-destroying litigation when we clearly have the best interests of all shareholders in mind?” the Longkloof letter asked.
