Liz Swain 9:30 a.m., May 29
Manchester sued over sale of NextWave Wireless
Douglas Manchester and board of directors for NextWave Wireless involved in class-action lawsuit over deal with AT&T
Douglas "Papa Doug" Manchester has become infamous for ignoring the rules. Whether that be violating FCC rules by installing unlicensed cell-phone towers at the Grand Del Mar, building a vintage auto museum inside the headquarters of the U-T San Diego without permission from the City of San Diego, or by racking up permit violations, one for building an illegal helistop at his resort, Manchester has proved that no rule is too big or small to break.
Now comes another case where Doug Manchester has allegedly ignored the law, or in this case, the financial interests of stockholders who invested in NextWave Wireless.
On September 5, 2012 Manchester and other NextWave's board members were named in a class-action lawsuit. The lawsuit was filed by the company's shareholders after Manchester and company sold the wireless service to communications giant AT&T.
In the lawsuit, NextWave's board of directors were accused of breaching their fiduciary duty to the shareholders by selling common shares at a discounted rate while selling their own for a much higher price.
On August 2, 2012, NextWave announced that the company would be merging with AT&T.
It was a chance for the company, most importantly their board of directors, to right what appeared to be a sinking ship.
In 2008, NextWave went through a massive overhaul. "...the company issued subordinate notes and third lien notes from various sources including several of the company's insiders, such as [NextWave chairman Allen Salmasi] and Manchester," reads the lawsuit.
Four years later, the company revealed that it owed $1.1 billion "under its notes."
In the deal, AT&T acquired the estimated 25 million common shares of Nextwave at the low price of $1.00 per share, including a stipulation which may have added an additional $.95 cents in interest.
"Even if NextWave shareholders were to receive the entire $1.95 consideration, which appears unlikely, the proposed consideration is inadequate," states the lawsuit. "According to Yahoo! Finance, the median price target for [NextWave] is $10.00 per share -- far above the proposed consideration."
Needless to say, the $1.95 per share price tag was a screaming deal for AT&T, who had for years had been on the search for additional wireless spectrum in order to serve the heavy demand for wireless services.
But AT&T wasn't the only winner in the deal. NextWave's board of directors were handed a huge financial windfall.
"In negotiating the Proposed Transaction, the NextWave Board placed the interests of the Company's noteholders ahead of the Company's shareholders," reads the lawsuit. "Allen Salmasi abd Douglas Manchester, each members of the Board of Directors, are indirect and direct holders of NextWave third lien notes and [NextWave's Holding Company] third lien notes. As a result, Salmasi and Manchester will be entitled to receive a pro rata share of the amounts paid by AT&T."
And that's not all. Manchester and Salmasi would also get reimbursed for any legal fees accrued during negotiations as well as the opportunity for "lucrative" severance packages.
Then, on October 8, 2012, the two sides announced a possible settlement in a related case heard in the State of Delaware.
"This action should be stayed pending final approval of the settlement by the Court of Chancery of the State of Delaware, Plaintiff will voluntarily dismiss the California actions with prejudice."
A status conference on the case will be held at the Superior Court in downtown on March 1, 2013.
More like this:
- U-T Manchester's foundation gives out of town — May 9, 2013
- Investor Says NextWave Price Too Low — Aug. 31, 2012
- NextWave, Manchester Investment, to be Sold to AT&T — Aug. 2, 2012
- NextWave Dodges Bankruptcy — for Now — July 19, 2011
- Nextwave's Reverse Split Not Working — July 19, 2010