By Jerry Jordan, Editor
Information contained in the annual report for International Speedway Corporation has revealed the company, NASCAR Holdings Inc. and others including Lesa France Kennedy, James “Jim” France and Brian France are facing a class-action lawsuit for alleged breach of fiduciary duty and other allegations by the Firemen’s Retirement System of St. Louis and “others similarly situated.”
The lawsuit filed on Dec. 14, 2018, in Volusia County, Florida. came a little more than a month after NASCAR and ISC announced on Nov. 9 that NASCAR was seeking to buy out ISC shareholders at a price of $42 per share and take the now-publicly-traded company private. The offer was valued at approximately $1.9 billion, according to Bloomberg.
“Plaintiff, The Firemen’s Retirement System of St. Louis, on behalf of itself and a class of all other similarly situated public stockholders of International Speedway Corporation, brings the following class action complaint against members of ISC’s controlling stockholder, ISC’s board of directors, and ISC’s Chief Financial Officer, for breaches of fiduciary duty in connection with the proposed acquisition of ISC by NASCAR Holdings, Inc., which the France Family also controls,” states the complaint filed by Philip J. Snyderburn, Esq. with the law firm of Snyderburn, Rishoi & Swann, on behalf of the plaintiffs. “Plaintiff also brings this Complaint against NASCAR for aiding and abetting these breaches of fiduciary duty. The allegations in this Complaint are based upon the knowledge of Plaintiff as to itself, and on information and belief, including an investigation by Plaintiff’s counsel and review of publicly available information.”
The lawsuit claims the $42 per share price is “wholly inadequate” and, as such, the France Family “has deliberately caused the stock price of the company to collapse.” The lawsuit claims that ISC stock had consistently traded within a few dollars of the $42 per share offer prior to the third quarter’s earnings report on October 4 but that the France Family, “did not want ISC’ s stock price to rise in October 2018, because it would make their effort, through NASCAR, to take ISC private much more expensive.”
“Instead, to drive down ISC’s stock price in advance of NASCAR’s offer to buy ISC’s minority shares, defendants James France and Lesa France Kennedy used their positions as ISC’s controlling stockholders and Company directors and officers to cause ISC to announce substantially reduced guidance for ISC’s fiscal year on October 4, 2018,” the lawsuit states. “Predictably, ISC’s stock price fell substantially and closed at $35.30 on Oct. 4, 2018. The stock price remained in the $30s per share for the next twenty-five trading days, through Nov. 8, 2018.
On Nov. 8, 2018, James France and Lesa France Kennedy caused NASCAR to send a proposal to the Board offering to acquire all of ISC’ s outstanding shares that the France Family does not already own for $42 per share (the “Proposal”). James France and Lesa France Kennedy touted the Proposal as a 14% premium to ISC’s 30-day volume weighted average price (“VWAP”) per share. Of course, that statement ignores that the stock had consistently closed above $40 since April 2018, all the way up to the misleading October Guidance. The day after receiving the Proposal, the Board publicly announced that it had formed a four-member special committee of so-called “independent directors” to “consider” NASCAR’s Proposal. The Proposal pointedly did not suggest that the Special Committee should have the ability to “negotiate” alternative terms; rather, the Proposal merely authorized the Special Committee to “consider” the Proposal, and to “make a recommendation to the Company’s Board of Directors.” Of course, ISC’s Board is controlled by the France Family, so the Board’s freedom to reject any such “recommendation” is illusory.”
Kickin’ the Tires reported on the day of the merger the stock price for ISC closed down 44-cents at $39.06 per share – one minute before the announcement of NASCAR’s intention was made public. However, with news of the potential buyout the stock rebounded over the next several weeks.
In the initial announcement from Nov. 9, following the stock market’s closure, NASCAR released a statement with similar wording to that of a filing from ISC that, “NASCAR’s offer will be reviewed by a special committee of independent ISC board members advised by independent legal and financial advisors. In the interim, NASCAR and ISC will continue to operate separately as independent entities working to deliver great racing experiences to our fans everywhere. The outcome of this prospective offer will not impact the France family’s long-term commitment to the sport, nor its interest in maintaining its current ownership in ISC, as the France family is not interested in selling its shares of ISC at this time.”
In the ISC filing at approximately the same time, the company confirmed the independent committee stating, “The ISC Board has formed a special committee (the “Special Committee”) comprised of J. Hyatt Brown, Larry Aiello, Jr., Larree Renda and William Graves , each of whom is an independent director of the Company, to act on behalf of the Company to consider this proposal. Mr. Brown, the Company’s lead independent director, will serve as Chairman of the Special Committee. The Special Committee will be advised by independent legal and financial advisors. NASCAR’s offer will be reviewed by the Special Committee and will be subject to the approval of the holders of a majority of the Company’s outstanding common stock, other than the common stock held by the France family. In the interim, NASCAR and ISC will continue to operate as separate and independent entities.
“The Company cautions shareholders and others considering trading in its securities that the Board just received the non-binding proposal letter from NASCAR and no decisions have been made with respect to the Company’s response to the proposal. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.”
The lawsuit also alleges that two of the four members of the special committee (all have been named as defendants in the lawsuit) are closely tied to France Family. The lawsuit suggests those close personal and/or professional relationships “cripples their ability to consider the Proposal impartially and protect the interests of ISC’ s minority stockholders. And all four members of the Special Committee served on ISC’s audit committee that, according to its charter, was responsible for approving the October Guidance.
“Thus, not only did James France and Lesa France Kennedy manipulate ISC’s stock price, and initiate, structure and opportunistically time the Proposal to create the illusion that the $42 per share price was a premium offer, but the Proposal is now in the hands of a Special Committee whose members the France Family and NASCAR know lack independence and have no genuine ability to negotiate fair buyout terms for ISC’s minority stockholders.”
The lawsuit claims the reason that NASCAR is attempting to buy ISC and, more importantly, its assets in the form of its 13 racetracks, is to make NASCAR more attractive to a potential buyer. In May 2018, the lawsuit states, that the France Family initiated a “strategic review” to sell a large stake of NASCAR.
When asked about the lawsuit a representative of NASCAR and ISC said the two companies had “no comment” on the pending litigation.
A statement was made about the lawsuit in ISC’s annual report. The company does not believe there will be any adverse outcome and discusses the indemnity of its corporate officers.
“From time to time, we are a party to ordinary routine litigation incidental to our business. We do not believe that the resolution of any or all of such litigation will have a material adverse effect on our financial condition or results of operations,” reads the statement in the annual report. “Mergers, such as the one proposed in the NASCAR Offer, often attract litigation from minority shareholders. On December 14, 2018, a putative class-action shareholder lawsuit was filed in the Seventh Judicial Circuit of Volusia County, Florida by attorneys on behalf of the Firemen’s Retirement System of St. Louis related to the NASCAR Offer. The complaint names as defendants the Company, its directors, its CFO, NASCAR Holdings, and certain of the Family Stockholders, and alleges bread of fiduciary duty and for aiding and abetting those breaches. The Company currently maintains Directors & Officers Insurance Applicable insurance policies contain certain customary limitations, conditions and exclusions and are subject to a self-insured retention amount.”
Further, the report mentions that the France Family’s control of NASCAR may create conflicts of interest but does not mention the issues brought forth in the lawsuit; instead focusing on how family members interact with each company.
“Members of the France Family Group own and control NASCAR. James C. France, our Chairman of the Board, and Lesa France Kennedy, our Vice Chairwoman and Chief Executive Officer, are both members of the France Family Group in addition to holding positions with NASCAR. Each of them, as well as our general counsel, chief innovation and development officer, chief communications officer, senior vice president of human resources and chief marketing officer, spends part of his or her time on NASCAR’s business. Because of these relationships, even though all related party transactions are approved by our Audit Committee, certain potential conflicts of interest between us and NASCAR exist with respect to, among other things:
- The terms of any sanctioning agreements that may be awarded to us by NASCAR;
- The amount of time the employees mentioned above and certain of our other employees devote to NASCAR’s affairs;
- and the amounts charged or paid to NASCAR for office rental, transportation costs, shared executives, administrative expenses and similar items.”
It should be noted that although ISC stock closed below $40 per share on the day the buyout plan was announced, the stock has continued to climb and at the time of publication, is currently trading at $43.06 per share – more than a $1 above the $42 offer, according to the NASDAQ. Additionally, Q4 financial earnings were strong and the company’s annual report lays out a positive outlook.
For the fifth year in a row, ISC increased its annual dividend paid to shareholders, which was 47-cents per share, up from 43-cents per share in 2017. The 2018 dividend was more than double the dividend paid in 2014 of 22-cents per share. Revenue from the Hollywood Casino at Kansas Speedway contributed to more than $26 million to ISC’s bottom line and the continued growth of One Daytona is benefitting the company, as well, with many new venues now open. The company also benefitted significantly from the Tax Cut and Jobs Act of 2017 resulting in a tax adjustment of $145.1 million, according to its annual report.
“During the first quarter of fiscal 2018, as a result of the Tax Act, we incurred a material, non-cash reduction of our deferred income tax liabilities and a corresponding material income tax benefit of approximately $143.9 million primarily due to the Federal income tax rate reduction from 35.0 percent to 21.0 percent,” the report states.
ISC came off 2018 with the sale of all of its entitlement sponsorships for NASCAR Cup and Xfinity Series races and achieved a sales revenue goal of 95-percent of what they were expecting. Going into 2019, as of January, the company had sold all but two entitlement sponsorships for each of its top two racing series.
The plaintiffs do not list a damage amount being sought from the lawsuit.
EDITOR’S NOTE: Jerry Jordan owns one share of ISC stock.