Hilton and Its Board Made False Statements to Shareholders About Diamond Resorts Acquisition Potential Contract Cancellation
Hilton Grand Vacations Inc. (Hilton) and its board of directors have been hit with a lawsuit for allegedly lying to shareholders and misleading them in the company’s acquisition of Diamond Resorts.
The lawsuit was filed on May 7 in New York by lead Plaintiff Marina Clough, who alleges that the company and its board have violated the Securities Exchange Act.
In March, Hilton announced that it had entered into a definitive agreement to acquire Diamond Resorts International, Inc. from funds managed by affiliates of Apollo and Reverence Capital Partners, and other Diamond stockholders, in a stock-based transaction.
According to the lawsuit, a proxy statement recommended that Hilton shareholders vote in favor of the proposed transaction, that would see Apollo Funds and other Diamond stockholders receive 34.5 million shares of Hilton common stock to a value of $1.4 billion.
Upon transaction close, existing Hilton shareholders will own approximately 72 percent of the combined company and the Apollo Funds will own approximately 28 percent of the combined company, according to the lawsuit.
However, the claim states that the proxy statement omits and misrepresents material information concerning Hilton’s and Diamond’s financial projections; the financial analyses performed by Hilton’s financial advisor, Bank of America Securities, Inc. in connection with its fairness opinion; and potential conflicts of interest involving Bank of America (BOA).
The claim says that BOA failed to disclose the true earnings of Diamond Resorts and the true revenue and cost projections, and it also failed to disclose possible conflicts of interest.
“With respect to the [Hilton Grand Vacations] HGV Forecasts, Adjusted Diamond Forecasts, and HGV Pro Forma Forecasts for Combined Company, the Proxy Statement fails to disclose: (1) all line items underlying (i) Total Revenues (Excluding Cost Reimbursements), (ii) Adjusted EBITDA, and (iii) Unlevered Free Cash Flow; (2) Hilton’s, Diamond’s, and the pro forma combined company’s net income projections;1 and (3) a reconciliation of all non-GAAP to GAAP metrics,” the claim states.
According to the lawsuit, disclosure of that information is material because it would provide the company’s shareholders with a basis to project the future financial performance of the Hilton and Diamond Resorts, and would allow shareholders to better understand the financial analyses performed by the company’s financial advisor in support of its fairness opinion.
“Shareholders cannot hope to replicate management’s inside view of the future prospects of the Company.”
The deal is expected to close in the summer of 2021. In the event the transaction is consummated, Clough may seek to recover damages resulting from Hilton’s misconduct, the claim states.
Clough is suing for violations of the Securities Exchange Act and seeks an order of enjoinment, possible damages, legal fees, and a jury trial.
Hilton isn’t the only company facing legal action for alleged violations of the Securities Exchange Act. Recently, shareholders of online luxury-goods marketplace The Real filed a class action lawsuit alleging that members of the company’s executive team, board of directors, and underwriting banks lied to shareholders, artificially inflating share prices.
Do you hold shares in a company that you think has violated the Securities Exchange Act? Let us know in the comments section!
Clough is represented by Daniel Sadeh and Zachary Halper of Halper Sadeh LLP.
The Hilton Securities Exchange Act Violations Lawsuit is Clough. v. Hilton Grand Vacations Inc., et al., Case No 1:21-cv-02583, in the United States District Court Eastern District of New York.
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