Shareholder lawsuits against big corporations are quite common. But rarely does a corporation turn around and sue its stockholders.
That’s what’s happening at Viacom, which on Friday sued former stockholders of ex-subsidiary Harmonix Music Systems with demands to be repaid more than $131 million.
Harmonix is the studio that created the Rock Band video games. The company was acquired in 2006 by Viacom at the height of the boom in games that allowed players to simulate the experience of singing and playing musical instruments.
The market for these games then crashed, leaving Viacom unable to make a profit on Rock Band. Earlier this year, Viacom sold the company for pennies and took a huge tax write-off.
Meanwhile, Viacom has been battling with Harmonix stockholders.
First, the original Harmonix owners sued Viacom for more than $13 million for alleged unfair business practices. In reaction, Viacom made regulatory filings with the SEC that claimed it was owed a “refund of a substantial portion of amounts previously paid.”
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Now, Viacom has followed up on those claims with an actual lawsuit filed in Delaware federal court that alleges that earn-out payments were miscalculated. The company is now seeking $131,827,980 of the original $149,770,149 payment to Harmonix at the time of the merger.
Earn outs are common in large corporate transactions between buyers and sellers, bridging valuation differences and incentivising original ownership to stay affiliated with the sold company. Typically this happens by allowing management to share in the rewards of strong financial performance past the merger.
According to experts, corporations don’t typically attempt to recover earn-outs, but Viacom is pursuing the remedy nonetheless.
This dispute has been in a Resolution Accounting proceeding since December, but the talks have not yielded any agreement among the parties. The Harmonix shareholders dispute that they owe any refund, and in fact claim to be owed more than the $150 million they got from Viacom.
Viacom sees this attitude as a repudiation of the merger agreement between the companies. Viacom claims unjust enrichment on the part of the stockholders.