Health Grades (Nasdaq: HGRD) Shares Up 28% on Acquisition News; Prompts Legal Investigation

Health Grades (Nasdaq: HGRD) had a busy day after filing an 8-K announcing an acquisition agreement with Vestar Capital Partners V, L.P. Talk about fireworks...after the news surfaced a buying frenzy began and carried on throughout the day with shares closing up 28% at $8.12 on volume of over 13 million shares. Not a surprising run though after the two parties agreed on a strike price of $8.20 per share. Apparently some shareholders were not pleased with this announcement though as we saw a barrage of legal investigation press releases come out from various law firms looking to collect as many shareholders as possible for a class action lawsuit.

The investigation seeks to determine whether Health Grades and its Board breached their fiduciary duties by entering into the agreement without properly shopping for a deal that would provide better value for shareholders.

From one press release: "On July 28, 2010, the companies announced that they had entered into a definitive agreement under which all outstanding Health Grades shares would be acquired for $8.20 per share by a Vestar affiliate. The merger is a two step process where the Vestar affiliate will attempt to gain at least a majority of Health Grades’ shares on a fully-diluted basis through an initial tender offer. Following the completion of the tender offer, any remaining publicly-held shares of Health Grades would be acquired by the Vestar affiliate at $8.20 per share. Executive officers of Health Grades beneficially owning approximately 21% of Health Grades’ fully diluted shares have already agreed to either tender or otherwise sell their shares to the Vestar affiliate."

From the 8-K: " On July 27, 2010, Health Grades, Inc., a Delaware corporation (the “Company”), Mountain Acquisition Corp., a Delaware corporation (“Parent”), Mountain Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of Parent (“Purchaser”), and Mountain Acquisition Holdings, LLC, a Delaware limited liability company, entered into an Agreement and Plan of Merger (the “Merger Agreement”). Pursuant to the Merger Agreement, and upon the terms and subject to the conditions thereof, Purchaser has agreed to commence a cash tender offer to acquire all of the shares of the Company’s common stock (the “Offer”) for a purchase price of $8.20 per share in cash (the “Offer Price”). Parent is controlled by a private equity fund associated with Vestar Capital Partners V, L.P. (“Vestar”). Purchaser has agreed to commence the Offer within 10 business days after July 27, 2010, and the Offer will remain open until at least the later of the date that is 20 business days after the date the Offer is commenced and September 9, 2010."


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