The two lawsuits allege that Legato executives, and the company's board of directors in particular, timed the announcement of the acquisition to shed a positive light on the $1.3 billion bid by storage systems manufacturer EMC and to potentially increase their own income potential rather than protect the interests of shareholders.
Filed in California at the Santa Clara County Superior Court by San Diego-based law firms Milberg Weiss Bershad Hynes & Lerach and Robbins Umeda & Fink, the lawsuits claim Legato executives manipulated details of the EMC buyout to protect an executive retention bonus plan. The lawsuits also contend company leaders chose to announce the EMC deal ahead of Legato's second-quarter financial results, due out later this month, to improve the likelihood the deal would be accepted.
Neither of the defendant law firms returned repeated calls seeking comment on the pending litigation.
Legato general counsel Noah Mesel called the lawsuits "meritless" and said documents related to the EMC merger that the company must file to the Securities and Exchange Commission will "detail facts contrary to the assertions made regarding the bonus plans." Mesel also refuted the idea that Legato shifted the timing of its earnings announcement.
"As the market knows, (Legato) reports earnings late in the month, and nothing about that has changed," he said. "We plan to make every piece of information regarding the acquisition available to shareholders, and they will get to vote and decide on the deal for themselves."
Industry analysts were puzzled by the lawsuits filed against Legato but said that few mergers go completely unchallenged. Ray Paquet, storage analyst for research firm Gartner, said merger-related lawsuits have become "par for the course."
Paquet said he wonders what misgivings the Legato shareholders might have, based on the sizable stock offer made by EMC, which he considers fair.
"You have to look at that number--$1.3 billion--and ask yourself how these people expect Legato shares might perform," Paquet said. "It's not like you have a number of companies lining up to make such a big acquisition, and there was no better fit out there for Legato than EMC."
EMC executives said they do not expect either lawsuit to interfere with the completion of the Legato acquisition.