2 File Suit to Block Big O Tires From Weighing Buyout Proposal

Two shareholders have filed a lawsuit seeking to block Big O Tires from considering a proposed $62.1-million buyout offer from a group of the company’s managers and dealers.

AKH Co., a privately held Anaheim-based chain of 130 retail tire stores in four western states, has made a cash offer for Big O.

Terms of the AKH offer, which reportedly is still pending, have not been disclosed. But Philip Teigen, Big O’s general counsel and secretary, said the management group “is negotiating with the board to enter into a definitive merger agreement.”

The lawsuit, seeking class-action status on behalf of all shareholders, was filed in a Nevada state court in Las Vegas on Dec. 6, a day after the management group led by Steven Cloward, president and chief executive officer, offered to buy Big O for $18.50 a share.

The shareholders, identified as Murray Zucker and Barbara Gerber, seek to block implementation of the recently adopted shareholder rights plan. They also want the court to order company directors to effectively auction Big O Tires to the highest bidder.

John Siipola, Big O’s chairman, said the company thinks its investment bankers adequately looked at all alternatives for enhancing the company’s value to shareholders before entering negotiations on the management buyout offer.

“We believe that this represents the best transaction that we have evaluated,” Siipola said.

Big O, based in Englewood, Colo., has 370 stores in 18 states, primarily in the West and Midwest.

If the company proceeds with the transaction, Zucker and Gerber asked that the court rescind the buyout and award damages to shareholders.

Teigen said Wednesday that the company had no knowledge of the individuals who filed the lawsuit.

“We looked at our shareholder list, and they aren’t on it. Of course, the shares they own may be held under a ‘street’ account at a brokerage,” Teigen said.

Jules Brody, a New York attorney who serves as lead counsel for the plaintiffs, would not comment on the lawsuit.

The board of directors’ investment committee, which was formed in June after a successful proxy fight forced the company to consider alternatives for enhancing shareholder value, is considering both the management offer and the proposal made in November by AKH, which had already started its due diligence review.

The management buyout offer has the backing of Big O’s largest individual shareholder, Kenneth Pavia, general partner of the Balboa Investment Group in Newport Beach. His successful proxy fight forced the board to consider selling the company.

“The proposed management-dealer buyout is clearly in the shareholders’ best interest,” Pavia said in a company statement.

Big O attorneys are still studying the pleadings it received Dec. 15 and will file an answer shortly, Teigen said.

The company had 3.35 million shares outstanding at the end of the third quarter.

Since the wrangling over a possible sale of Big O, one of the largest independent retail tire and auto service franchisers in North America, the company’s stock has risen from a low of $12.75 a share on Jan. 27 to a 52-week high of $17.875 on Nov. 1.