Enterprise software firm HashiCorp and its executives have been sued by an investor who claims the public company's agreement to be acquired by IBM is designed to enrich corporate leaders at the expense of shareholders.

The lawsuit [PDF] was filed Monday in a federal court in Oakland, California, on behalf of Michelle Graff, a HashiCorp shareholder. It argues that HashiCorp's board of directors - Dave McJannet (CEO), Armon Dadgar (co-founder, CTO), Glenn Solomon, Susan St Ledger (president, worldwide field operations), Todd Ford, Sigal Zarmi, and David Henshall - agreed to allow the business to be acquired by Big Blue mainly for their own benefit and in breach of US law.

On April 24 HashiCorp and IBM jointly announced that Big Blue had agreed to buy HashiCorp for $35 per share in cash, at a total cost of $6.4 billion. IBM justified the deal by saying that HashiCorp's infrastructure provisioning software Terraform would be helpful with enterprise clients.

The deal, expected to close by the end of 2024, has kept HashiCorp stock up around the proposed $35 sale price and has reversed the share decline in the latter half of 2023 that followed its decision to shift Terraform away from the Mozilla Public License (MPL) to the semi-proprietary Business Source License (BSL) 1.1.

That relicensing inspired developers who wanted to continue working under an open source license to create a code fork called OpenTofu. About six months later, on April 3 HashiCorp sent a cease-and-desist letter to the nascent open source project alleging the misuse of BSL code - a charge that the OpenTofu maintainers have disputed.

Meanwhile, the planned acquisition hasn't done much for IBM, which saw its shares drop from around $184 before the deal to around $168, where the price has hovered ever since.

Even so, the investor lawsuit claims that HashiCorp insiders, who own large illiquid portions of corporate stock, will be the main beneficiaries of the acquisition.

"The breakdown of the benefits of the deal indicates that HashiCorp insiders are the primary beneficiaries of the proposed transaction, not the company’s public stockholders such as plaintiff," the complaint says. "The board and the company’s executive officers are conflicted because they will have secured unique benefits for themselves from the proposed transaction not available to plaintiff as a public stockholder of HashiCorp."

The complaint notes that McJannet, for example, holds $270 million in common stock, options, and restricted stock units, while Dadgar holds $646 million of the same, and that some portion of these assets will be exchanged in a manner not available to public stockholders.

What's more, the lawsuit claims executives have been promised significant "golden parachutes" that do not benefit shareholders.

And generally, it's alleged that the proxy statements filed with the US Securities and Exchange Commission fail to adequately disclose the post-transaction employment negotiations and other details that are necessary to properly value the acquisition.

The lawsuit argues that HashiCorp and its board violated the US securities laws by omitting material financial information from proxy statements covering the proposed acquisition. And it seeks to prevent the deal from being consummated.

HashiCorp did not immediately respond to a request for comment. ®

https://www.theregister.com//2024/06/11/ibm_hashicorp_lawsuit/