Alleging an unfair auction process, conflicts of interest and more, shareholders of TeamHealth (NYSE: TMH) have filed a class-action lawsuit attempting to block the company’s sale to Blackstone. The private equity group agreed to acquire TeamHealth, a provider of outsourced physician staffing services, in late October in a deal valued at about $6.1 billion.

Blackstone

The suit shines a light on the more conspiratorial side of the private equity industry, alleging boardroom chicanery seemingly at odds with TeamHealth’s mandate to maximize value for its shareholders.

The saga starts in 2005, when Blackstone acquired TeamHealth the first time, in a buyout from Beecken Petty O’Keefe & Company. In 2009, Blackstone helped guide TeamHealth through an IPO. After six years as a publicly traded company, TeamHealth was approached by surgery center operator AmSurg (NYSE: AMSG) about a possible takeover in 2015; the company offered $71.47 per share, but TeamHealth’s board rejected the bid.

Over the coming months, according to the lawsuit, AmSurg continued its efforts and improved its takeover offer, but TeamHealth still demurred. The lawsuit alleges that two other unnamed parties also entered bids to buy TeamHealth, to no avail.

On August 9, according to the shareholder lawsuit, TeamHealth approached Blackstone about buying the company back. In September, the firm supposedly submitted an offer of $50 per share in cash—more than $20 less than the earlier AmSurg bid—and said it wouldn’t proceed further without being granted exclusive negotiation rights.

TeamHealth acquiesced and agreed to exclusivity terms that the suit alleges were restrictive to the point of preventing any competition. A month later, with other bidders now out of the running, Blackstone lowered its offer to $43 per share, which was later revised to $43.50—nearly $28 less than the original AmSurg offer. Eight days after that, on October 30, the TeamHealth board approved the deal and entered into a merger agreement.

That’s the most basic allegation: That TeamHealth’s board essentially colluded with Blackstone to sell the company at an unfair discount. As the suit puts it: “The intrinsic value of the Company is materially in excess of the amount offered in the Proposed Transaction.”

But there’s more.

Enter Goldman Sachs: The investment bank served as the financial advisor to TeamHealth throughout the auction process. The suit argues this fact ensured the sale process could not be fairly conducted because Goldman has received some $165 million in fees from Blackstone during the past two years alone. The suit also points out that Goldman and its affiliates own nearly 5.8 million shares in Blackstone (NYSE: BX), which was trading at $29.61 at end-of-day Thursday.

If there’s anything resembling a smoking gun in the lawsuit, it’s the section that argues Goldman itself acknowledged the inadequacy of the Blackstone deal: “Goldman Sachs’ Illustrative Discounted Cash Flow Analyses yielded a present value per share of Team Health common stock as high as $74.65, substantially above the merger consideration of $43.50 per share.”

On top of all that, TeamHealth’s shareholders are accusing the company of misleading them about the proposed deal—most notably via a proxy statement filed November 23 with the SEC outlining the details of the transaction. Specifically, the suit argues TeamHealth omitted important information about the company’s own finances as well as relevant data regarding earlier takeover bids from other parties.

As redress, the lawsuit is asking for the transaction to be rescinded and for company shareholders to be awarded damages, for TeamHealth to submit a proxy statement “that does not contain any untrue statements,” and for the defendants to be declared in violation of the Securities Exchange Act of 1934.

One ship, though, has already sailed. With its efforts to buy TeamHealth rebuffed, original suitor AmSurg has turned elsewhere: In June, the company merged with a different provider of physician services, Envision Healthcare, in a deal worth some $10 billion.

Article by Kevin Dowd, PitchBook