Bloomberg News

Primedia Investor Suits Over KKR Share Buybacks Revived by Court

June 22, 2011

June 22 (Bloomberg) -- Primedia Inc. must face claims by investors that share buybacks unfairly benefited buyout firm KKR & Co., the controlling shareholder of the publisher of free auto and real-estate guides, a court ruled.

The Delaware Supreme Court reinstated Primedia shareholders’ lawsuits seeking to recoup monies for the company tied to the KKR buybacks. The state’s highest court found in a June 20 ruling that a Delaware Chancery Court judge erroneously threw out the cases last year after concluding investors had to prove KKR’s actions harmed the company.

“Actual harm to the corporation is not required” for investors to state breach-of-fiduciary duty claims like those leveled against KKR, Chief Justice Myron Steele said in a 25- page ruling.

The decision comes a month after Primedia agreed to sell itself to an affiliate of TPG Capital, the buyout firm co- founded by David Bonderman, in a deal valued at about $525 million. Primedia investors are slated to receive $7.10 in cash for each share.

KKR officials don’t comment on pending litigation, Kristi Huller, the firm’s spokeswoman, said in a telephone interview. Jeff Grossman, a Primedia spokesman, didn’t immediately return a call for comment yesterday.

Joseph Rosenthal, a Wilmington, Delaware-based lawyer representing Primedia investors in the case, didn’t return calls for comment on the ruling.

Magazine Sale

Norcoss, Georgia-based Primedia once published popular consumer magazines, such as Soap Opera Digest, until the company sold off many of its titles starting in 2002 to wipe out almost $2 billion in debt. It now focuses on free apartment-rental and auto-sale publications and related websites.

The company sold about 70 magazines including Motor Trend, Hot Rod and Surfer to Source Interlink Co., a company controlled by billionaire investor Ron Burkle, for about $1.2 billion in cash in 2007.

Investors alleged that Primedia officials were forced to sell off profitable magazines to finance the buybacks that benefited KKR, which owns 58 percent of the publisher’s shares. Shareholders contend in their suits the buybacks resulted in at least $150 million in profits for KKR.

The suits also allege that KKR officials had inside information about Primedia’s earnings and sales of one of the company’s units that helped them profit from the buybacks.

Investors allege that KKR officials “traded on this information during period July 8 to Nov. 5, 2002,” Steele noted in the decision.

No Harm Necessary

Chancery Court Judge Travis Laster ruled in June 2010 investors couldn’t proceed with their derivative claims because they couldn’t show KKR’s actions caused actual harm to Primedia.

The Supreme Court found that Delaware law didn’t require such a showing and investors may be able to proceed with claims seeking to recoup KKR’s profits from the buy-back deals. The court sent the case back to Laster for his reconsideration.

“We find no reasonable public policy ground to restrict the scope of disgorgement remedy,” Steele said in the ruling.

The Supreme Court case is Kahn and Spiegal v. Kolberg Kravis Roberts & Co. LP and Primedia Inc., No. 436, 2010, Delaware Supreme Court (Dover). The chancery court case is In re Primedia Inc. Derivative Litigation, 1808-N, Delaware Chancery Court (Wilmington).

--With assistance from Christian Baumgaertel in Boston. Editors: Glenn Holdcraft, Peter Blumberg

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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