ENGLEWOOD, Colo.-Two groups of Big O Tires Inc. shareholders have filed separate class action lawsuits to permanently stop the company's acquisition by a management-dealer coalition, charging that the deal is fraudulent, undervalued, and a conflict of interest. The plaintiffs also are trying to halt implementation of the firm's recently adopted shareholder rights plan or ``poison pill,'' designed to make a hostile takeover of the company more difficult.
Defendants in the suits include: Big O President and CEO Steven P. Cloward, who heads a group of current senior management and franchised dealers attempting to purchase the company's outstanding stock for $18.50 per share; and the company's nine-member board of directors, including Chairman John E. Siipola.
Big O's board announced Dec. 23 that its Investment Committee had agreed to enter into a period of exclusive negotiations with the Cloward group and would not solicit other offers while it attempts to reach a purchase agreement.
Prior to the Cloward group's offer, announced Dec. 5, Big O had been approached with a purchase proposal-for $18 per share-by AKH Co. Inc., a large, privately owned tire retailer in California. The firms had already begun a due diligence exchange of information.
AKH has since advised Big O's Investment Committee that it ``would contemplate deferring any further proposal as long as management's bid remains under active consideration.''
The two suits, filed in separate U.S. district courts in Nevada, where Big O is incorporated, seek class action status on behalf of all public stockholders of Big O, estimated to number about 750.
Both actions also call for unspecified damages and disclosure of Big O's internal forecasts.
Plaintiffs in the first lawsuit, filed Dec. 5, are Big O share-holders Murray Zucker and Barbara Gerber. In the second, filed a day later, the plaintiffs are Michael Knopf and Norma Knopf, who hold 1,500 shares of Big O.
The plaintiffs want the sale of Big O to take place through a more competitive bidding process and have asked the court to order the company's directors to do all they can to enhance the firm's ``attractiveness'' as a merger/acquisition candidate.
If the deal with the Cloward group is consummated, the suits ask that the courts rescind it and also award rescissionary damages.
Both lawsuits also charge that the Cloward group's possession of information about Big O's assets, businesses and future prospects give it an inherently unfair advantage over other bidders.
The Zucker-Gerber suit claims the Cloward group's stock offer ``does not represent a significant premium over the price the stock has traded at over the last two months,'' and that $18.50 per share is ``grossly inadequate.''
In recent weeks, the price of Big O stock has generally fluctuated between $15 and about $17.125 per share. There are approximately 3.36 million shares outstanding.
That suit also contends the proposed bid ``does not mention that Big O is on the verge of reporting sustained increased profits.''
Meanwhile, the Knopf suit claims the present Big O board is ``incapable'' of acting independently and demands that a ``disinterested'' committee be chosen to evaluate purchase offers.
It also accuses the defendants of ``carrying out a preconceived plan to entrench themselves in office and to thwart a potential acquisition of the company.''
And the Knopf suit states that the defendants have failed to disclose to stockholders the terms of the AKH offer.
Mr. Siipola said the board believes it ``will prevail in this litigation. Our investment bankers have investigated and reviewed many contacts over the (past) several months....
``We believe that (the Cloward group's proposal) represents the best transaction that we have evaluated.''
But Mr. Siipola added that the committee will ``continue to exercise its fiduciary obligations in the shareholders' best interests.''
One shareholder not a party to the lawsuits is Kenneth W. Pavia Sr., a general partner in Balboa Investment Group L.P., Newport Beach, Calif., Big O's second-largest public shareholder, with a 9.6-percent stake.
Last June Mr. Pavia instigated the proxy fight that forced Big O to hire an investment banker to explore ways to enhance the firm's value.
But in a statement released recently by Big O, Mr. Pavia said ``the proposed management-dealer buy-out is clearly in the shareholders' best interest.''
The two suits also seek to rescind Big O's ``Stockholders Rights Plan,'' which the board approved last August. That plan, designed to protect the company against a hostile takeover, gave stockholders of record as of Sept. 12 the right to purchase steeply discounted shares, should a person or group not approved by the board gain at least 15-percent control of Big O.
That plan, the lawsuits allege, ``creates an unlevel playing field'' between potential bidders and Big O management, giving the latter an unfair advantage.
The Zucker-Gerber suit maintains that, due to the Cloward group's influence on the Big O board, no third party, including AKH, ``can attempt any competing bid for Big O'' because such a bid would require the consent and cooperation of the board.