Securities law firm Bleichmar Fonti & Auld LLP (BFA) announced Friday that it is investigating Soho House, its board of directors, and its controlling stockholders for potential breaches of fiduciary duty. The news comes after the private members’ club announced in December that it recieved a buyout offer from an unnamed third party.
This isn’t the first time a law firm has announced an investigation of Soho House. New York’s Fields Kupka & Shukurov (FKS) announced a similar investigation last month. Last year, Boston law firm Block & Leviton said that it was initiating an investigation of Soho House for “potential securities violations” after Wall Street research firm Glass House released a scathing report likening Soho House to WeWork, saying the former has a “broken business model” and “terrible accounting.” (Soho House disputed the findings, claiming they contained “factual inaccuracies, analytical errors, and false and misleading statements.”) Also last year, Philadelphia firm Kaskela Law and Los Angeles’ Schall Law Firm, which both specialize in shareholder rights, announced their own investigations in February and June respectively.
It’s important to note that these “investigations” are not backed by a government regulatory body like, say, the Securities and Exchange Commission. Rather, they should be seen primarily as a law firm—most often one that litigates class action lawsuits—announcing its intent to initiate a lawsuit against the company in question. BFA, for instance, has similar “investigations” active against restaurant company Dave & Buster’s, footwear company Croc’s, and ten others. None of the afforementioned firms have as yet filed formal complaints against the company. BFA did not say in its announcement when or if it would do so.
BFA and FKS’s investigations come after Soho House announced on December 1 that it had recieved a had received a buyout offer valuing it at $1.75 billion, or $9 per share. The offer arrived nearly four years after the company went public and a year after the Glass House report. The offer is reportedly conditioned on majority shareholder Ron Burkle, and his affiliated Yucaipa Companies, rolling over their equity interests in Soho House as part of the deal. In other words, they would need to forgo full liquidity from the cash price of the sale and instead pocket a chunk of the sale proceeds in the form of an equity stake in Soho House post-transaction.
BFA said in a statement that this offer arrangement “raises serious concerns about conflicts of interest that may undermine the rights of minority stockholders.” The firm added that there is “no indication that the offer is conditioned on approval by a special committee or minority stockholders, and therefore minority stockholders may not have any say on whether to approve the ultimate transaction.”
However, BFA still believes that the sales process being governed by Soho House’s board of directors might “fail to result in payment of fair value to minority stockholders.”
“[As a result, we are] investigating whether the directors, officers, and the controlling stockholders are conducting a sales process that favors the interests of the Company’s controlling stockholders at the expense of minority stockholders in breach of their fiduciary duties,” BFA said.
Soho House did not immediately respond to ARTnews’ request for comment.
In January, ARTnews questioned why the members’ club was talking up its 10,000-piece art collection in a series of press features just before it announced the buyout offer. The collection includes works by mega-stars like Damien Hirst, Rashid Johnson, and Lynette Yiadom-Boakye, whose auction records range from $3 million to $14.8 million, and countless emerging and mid-career artists. Soho House’s chief art director, Katie Bryan, has helped grow the collection, which decorates its 45 international venues, by bartering memberships for artworks. However, Bryan declined to disclose to ARTnews the total value of the collection, adding that “we don’t prioritize financial value.”
“I would hate for the artists to think that we would put a value on it. It just doesn’t work that way,” she said. “We love having artists in our houses and their work on the walls to reflect the creative community.”
