In a report filed today with the Securities and Exchange Commission, Reader's Digest disclosed, the Delaware Chancery Court dismissed a shareholder suit that had halted a proposed recapitalization of the company.
Those plans remain on hold while three other suits remain pending: Two suits were filed last week, and Reader's Digest is seeking the dismissal of a third suit filed in May.
The company's recapitalization plan would replace the Class A and B shares with one single class of stock and reduce the voting power of the Lila and Dewitt Wallace Reader's Digest Funds from 50% to 14%. The shareholder suits claim the recapitalization unfairly benefits the Wallace Funds and company directors, and will burden the company with additional debt.
The dismissed suit was brought by Levco Alternative Fund and Purchase Associates, two investment funds managed by investment firm John A. Levin & Co.
The suit had blocked a shareholder vote scheduled for Aug. 14 to approve the plan, and Reader's Digest now faces options including court action, negotiating with the dissident shareholders or leaving the plan on hold.
The court ruled against Levco after Levco was found to have acquired the Class A shares it needed to sue after the plan was announced April 15. Reader's Digest had also petitioned the court last week to dismiss a second suit filed in May, arguing the plaintiff sold her shares since filing suit and has no legal standing left. Two other suits filed Aug. 22 are also pending in the Delaware courts, and no hearings are scheduled on any of the three.
A company spokesman had no comment, but in the filing, management said it "believes the allegations in the new complaints are entirely without merit and intends to vigorously defend the actions."