Shareholders sue over PDS buyout deal

Grace Leong

Friday, March 7, 2003 | 11 a.m.

Two shareholders of PDS Gaming Corp. sued to block a nearly $98 million plan by its three top executives to buy out the Las Vegas gaming company, alleging they are trying to acquire the company at "an unfair price, under unfair terms, through improper means, and with inadequate disclosure."

The Las Vegas law firm of Beckley Singleton, on behalf of PDS shareholder David Carlson, brought class action claims in Clark County District Court last week against the company, Johan Finley, its chairman and chief executive officer, Peter Cleary, its president and chief operating officer and Lona Finley, its executive vice president.

A second lawsuit was filed last week by the Las Vegas law firm of Albright Stoddard Warnick & Albright on behalf of PDS shareholder Ken Adelson against the same defendants and three other PDS executives, alleging they violated their fiduciary obligations to maximize shareholder values.

The three PDS executives, who own 31 percent of PDS stock, announced an agreement on Feb. 24 with the company to acquire the remaining 69 percent of the company's outstanding stock. The managers would pay $1.25 per share plus $1.50 in deferred cash payment rights for the 2.6 million shares they do not already own.

PDS said the stock and rights portion of the deal is valued at $7.7 million. The transaction also includes the assumption of about $90 million in debt.

But Carlson said the proposed purchase price "doesn't represent the true value of the assets and future prospects underlying each share of PDS Gaming."

"At $1.25 per share offering price, the proposed going private transaction will cost the defendants about $3.2 million to purchase the 2.6 million shares. In fact, the book value of PDS Gaming is $2.58 per share. ... Just 18 months ago, PDS stock traded as high as $5.29 per share," the suit said.

"As of Sept. 30, 2002, PDS Gaming had $3.2 million in cash and cash equivalents. This means the defendants can acquire the outstanding shares and consummate the transaction without spending any of their own money," the suit said.

Carlson said the defendants violated their fiduciary duty to the shareholders by failing to "renegotiate or reformulate the terms of the offer" and failing to find independent bidders for the company.

But PDS disputed the allegations as being "without merit" and plans to "vigorously defend" the lawsuit.

PDS, which has 30 employees in Las Vegas and 45 in Reno and finances and leases gaming equipment to operators nationwide, said it continues to negotiate a definitive buyout agreement.

The buyers must still receive the approval of the company's independent directors as well as that of the state Gaming Control Board, the consent of the company's lenders, secure financing, and receive a favorable fairness opinion from an investment bank.