Hanover shareholders sue over Chelsey merger agreement

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Another bump in the road has appeared in cataloger Hanover Direct's journey toward a merger with its largest shareholder, Chelsey Direct LLC.

A couple of Hanover shareholders on Dec. 22 filed an amended complaint in the Delaware Chancery Court alleging that each of the Hanover directors had conflicts of interest in approving the November merger agreement between Chelsey and Hanover.

Chelsey owns 77 percent of Hanover's common stock and 92 percent of its voting stock. Hanover's properties include The Company Store and Domestications home décor titles and the Silhouettes and International Male apparel brands.

The two shareholders listed as filing the complaint are Glenn Freedman and L.I.S.T. Inc.

Their complaint also said the defendants, which include Hanover, Chelsey and Hanover's directors, breached their fiduciary duties of due care and loyalty to the minority shareholders of Hanover as well as their fiduciary duty of full disclosure.

In addition, it alleges that the valuation analysis prepared by investment bank Goldsmith, Agio, Helms & Lynner and relied on by Hanover was flawed for a number of reasons, including that it did not take into account the market price of Hanover's common stock.

Under the proposed merger agreement, Chelsey would acquire Hanover's common stock that it does not already own for 25 cents per share.

The plaintiffs seek class certification on behalf of other minority shareholders, an injunction against the consummation of the proposed merger or damages from Chelsey if the transaction goes forward.

Hanover of Weehawken, NJ, said in a statement that it believes the complaint is without merit.

The complaint amends one filed in March arising out of Chelsey's initial proposal to take Hanover private. Chelsey withdrew that proposal on May 25.

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