Investor sues Parlux, claiming sales price is too low

By Simon Pitman

- Last updated on GMT

Fragrance company Parlux is being sued by a shareholder who is claiming that chairman Frederick Purches has undervalued the sale price of the company to the proposed buyers.

Shareholder Jose Dias has filed a law suit against Purches and the proposed buyer of, a company called Perfumania, at the Delaware Chancery Court in Wilmington, Delaware, in a case that was made public yesterday.

Perfumania Holdings operates a fragrance retail chain that is present throughout the United States and also happens to be one of Parlux’s biggest customers, supplying premium fragrance brands that are made under license using high profile celebrity names such Paris Hilton, Rihanna and Jessica Simpson.

Favorable purchase price

Dias claims that the business connection between the two companies means that Perfumania has been able to negotiate a favorable purchase price for the business, which is not in the best interest of shareholders, including himself.

Dias states in the lawsuit: “Perfumania was able to use the company’s dependence on them to negotiate a deal that allowed it to pick up the company at an unfair price and under unfair terms.”

New York-based Perfumania announced that it has signed a merger agreement with Florida-based Parlux Fragrances at the beginning of January.

As part of the merger, Perfumania had stated it will buy all of Parlux’s outstanding shares worth $170m, which is expected to close in the first half of 2012.

Transaction expected to offer improved competivity and efficiencies

At the time the companies said that the transaction was expected to form a more efficient and competitive company that will be able to provide better service to customers and value to shareholders, according to a company statement.

Under the conditions of the sale, Parlux shareholders can choose to take $4 in cash per share and a 0.20 share of perfumania or 0.53 of a share value in Perfumania. Parlux shares are currently trading at around $5.30 on the NASDAQ.

However, since the deal was announced the price of Perfumania shares has dropped significantly, a situation that could potentially leave Parlux shareholders with a lower return on their investment.

Dias’s suit also claims that Parlux executives have not been transparent enough about the sale proposal, which is not in the best interests of the shareholders.

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