The Promega matter involved claims of Shareholder Oppression and Corporate Governance arising from a dispute between certain minority shareholders and the company’s CEO. Founded as a private company in 1978, Promega financed its growth through a series of private equity transactions.
The plaintiffs, minority shareholders, alleged that in a 2014 share repurchase Promega’s CEO induced them to sell their shares at unfairly depressed prices—and thereby obtained and preserved effective control of the company—by leading them to believe that future liquidity opportunities would be unavailable or limited. According to the plaintiffs, the CEO implemented an internal strategy known as “Project Phoenix,” intended to keep Promega privately held indefinitely and to discourage liquidity events—such as an initial public offering, strategic sale, or merger—that could have unlocked value for minority shareholders. The plaintiffs sought to compel Promega to repurchase their shares at fair value.
On behalf of the plaintiffs, Professor Zmijewski, supported by Pavel Nikolov, estimated Promega’s fair value using a market-multiples methodology. Professor Zmijewski evaluated management’s financial projections and whether they were sufficiently reliable to conduct a discounted cash flow (“DCF”) valuation. The defendants’ expert performed both a market-multiples valuation—applying various adjustments to the observed multiples of Promega’s publicly traded peers—and a DCF valuation based on management’s projections.
In rebuttal, Professor Zmijewski analyzed the opposing expert’s adjustments to the observed peer multiples and whether they artificially suppressed those multiples and produced an unreliably low valuation of Promega’s shares.
Following years of litigation and a three-week bench trial, the Court indicated that it was strongly inclined to find Shareholder Oppression. Before final judgment was entered, the parties settled the litigation. Under the settlement, Promega repurchased the plaintiffs’ shares for more than $300 million, a substantially higher valuation than previously offered.