Ex-Holder Sues Gillette Over Ad Run During Proxy Fight

A former Gillette Co. stockholder filed suit in federal court Tuesday, claiming that thousands of shareholders lost money because they sold stock after Gillette used a misleading advertisement in a proxy fight against a New York investment firm.

The class-action suit is the latest chapter in a seven-month saga involving Coniston Group’s failed efforts to gain control of the personal care giant that appeared over when the parties settled out of court last week.

The suit, filed in U.S. District Court on behalf of former Gillette shareholder Harold Brown, claims that Coniston’s slate of candidates to the Gillette board was defeated in the April 21 proxy vote because of a Gillette advertisement questioning the investment firm’s makeup.

Stock Fell After Vote

“The defendants intended to and did create a false and misleading impression that Coniston’s slate of candidates should not be elected . . . and would not be able to sell Gillette at a premium over market prices, which misstatements deflated the market prices of Gillette common stock,” the suit states.

Coniston, which had acquired 5.8% of Gillette’s 112 million outstanding shares, had sought to gain one-third of Gillette’s 12 board seats and then sell the razor blade maker to the highest bidder.

The suit claims that “at least several thousand persons” took a loss when they dumped Gillette shares after the company won the proxy battle. It seeks unspecified compensation for the losses.

Gillette stock, which had been trading around $40 a share before the vote, dipped to a low of about $36 in the days after Gillette announced a narrow victory on May 3, analysts said.

But the stock climbed back above $40 after U.S. District Judge Mark L. Wolf ruled on July 7 that the ad was misleading and later said he was inclined to order a new election. The stock nose-dived again immediately after the two sides on Aug. 1 announced a settlement in which Gillette agreed to buy back an estimated 16 million shares from Coniston at $45 each, or about $720 million.

Gillette stock fell 37.5 cents a share to $35 in composite trading Tuesday on the New York Stock Exchange.

The lawsuit claims that in the three days after the ad was published, Gillette received 642,000 proxies revoking prior ballots submitted for Coniston. The difference would have closed a 52% to 48% gap but not reversed the outcome.

The suit represents people who lost money selling Gillette stock between April 19, the date of the advertisements, and July 6, when Wolf ruled that the ads contained “false and misleading” information about Coniston.

The ads, which appeared in the New York Times and the Wall Street Journal, said Coniston was controlled by a “complicated web” of foreign and domestic firms involved in its effort to control Gillette.

“As a result of that, the proposal was defeated and the stock dropped,” said David Berger, a Philadelphia securities lawyer who is representing Brown, an attorney with an office in Boston. “In order to minimize the damage, my client sold out.

“(Stockholders’) expectations were Coniston’s proposal would be have been approved by the shareholders and the stock would have gone up.”

Berger said Brown sold all of his more than 20,000 shares of Gillette stock after the company withstood the Coniston bid.

Gillette spokesman David Fausch said about the suit: “We’re not surprised. This is a litigious world.”

Analysts said they did not expect the latest legal challenge to Gillette to affect the company.