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Cal-Maine Foods Shareholder Litigation

Montgomery McCracken’s Delaware office filed shareholder claims in the Delaware Court of Chancery on behalf of a consortium of investors to block a going-private transaction approved by the directors of the nation’s largest egg producer, Cal-Maine Foods, Inc. As described in a Preliminary Proxy Statement filed with the SEC, the plan involved a 1 for 2,500 reverse stock split of Cal-Maine’s common stock that would concentrate ownership in a shareholder group comprised almost exclusively of company insiders. Montgomery McCracken argued that, due to a unique convergence of market conditions, the proposed transaction came at a time when Cal-Maine’s earnings were likely to far exceed historical earnings, a fact not reflected in the freeze-out price or in the board’s disclosures; thus, the interested directors of Cal-Maine were seeking to take the company private at a time, in such a manner, and at such a price as to capitalize handsomely at the expense of the company’s minority shareholders. After negotiations with the Special Committee, intensified scrutiny by the SEC (which quoted from the complaint filed by Montgomery McCracken), and issues raised by the litigation, the company’s board abandoned the transaction. Thereafter, and to the immediate benefit of Montgomery McCracken’s clients and other Cal-Maine shareholders, the company’s stock price soared, trading at an amount three times the price contemplated by the reverse split.