SanDisk faces two lawsuits over M-Systems acquisition

The plaintiffs allege that the merger agreement is unfair to M-Systems’ shareholders.

SanDisk Corporation (Nasdaq: SNDK) has filed its 10-Q report for the second quarter with the US Securities and Exchange Commission (SEC), in which it disclosed that it was facing two lawsuits over its acquisition of M-Systems Flash Disk Pioneers (Nasdaq: FLSH). The company said in its report, filed last Thursday, that two lawsuits had been filed in the California Superior court for Santa Clara County on August 7, alleging that the terms of the deal are not fair to M-Systems shareholders. The plaintiffs are seeking an injunction halting the merger as well as compensatory and punitive damages.

In addition to claiming that the terms of the merger are unfair, the plaintiffs, who are seeking class action status on behalf of M-Systems shareholders and the company itself, allege that executives and directors at M-Systems breached their fiduciary duty by backdating stock options and sought to further their own interests by approving the merger.

The announcement sent M-Systems down 2.2% to $34.60 at the close of Friday’s trading on Nasdaq. M-Systems said in response, “Both companies are aware of the lawsuits that have been filed. It is not unusual for such actions to be brought in deals of this kind. The deal itself is likely to close within four months at the earliest, and the lawsuits constitute one of the stages that the companies will have to undergo during the process.”

M-Systems was acquired by SanDisk two weeks ago in a stock deal, reflecting a value of $1.55 billion for the Israeli company. The deal was transacted at a premium of 13% over M-Systems’ market price and is subject to the approval of shareholders and the relevant regulatory authorities. In July, M-Systems made headlines when it announced an internal investigation after detecting irregularities in its stock option grant dates, following which the SEC also entered the picture. The company’s internal committee found that 34 options allocations were improper and as a result, M-Systems restated its financial statements for the years 1999-2004 and made a write-down of $18.8 million.

Published by Globes [online], Israel business news - - on August 13, 2006

© Copyright of Globes Publisher Itonut (1983) Ltd. 2006

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