The corporate drama continues at LG Ads.
Alphonso’s founders – including several who were unceremoniously booted from the company in December – along with a group of minority shareholders are suing South Korean electronics manufacturer LG and Zenith, its US R&D subsidiary, over alleged board malfeasance.
LG acquired TV data measurement provider Alphonso in January 2021 when it took a roughly $80 million 50.1% stake in the company. Shortly thereafter, Alphonso was rebranded as LG Ads and became its ad tech division.
LG’s slim majority share in Alphonso plays a central role in the lawsuit, a sealed version of which was filed in Delaware’s Chancery Court late last week. A public version was made available on Tuesday.
The plaintiffs include Ashish Chordia, Alphonso’s former executive chairman; former CEO Raghu Kodige; and Lampros Kalampoukas, former CTO and VP of engineering, all of whom were ousted from LG Ads late last year.
Unfriendly fire
According to the lawsuit, ousting those execs was precipitated by their unwillingness to renegotiate the contract that Alphonso had originally signed with LG stating that Alphonso would have the opportunity to take the company public within five years of the deal closing.
LG’s goal, according to the suit, is to absorb 100% of Alphonso’s equity into the parent company without having to pay Alphonso’s more than 300 minority shareholders the actual value of the shares.
The suit claims that LG Electronics “became fixated” on trying to modify the terms of an inventory agreement between Alphonso/LG Ads and the LG parent company “in a way that would severely depress Alphonso’s value … by shifting margins away from Alphonso” and, eventually, force minority stakeholders to sell at an unfairly low price.
A source with knowledge who asked to remain anonymous told AdExchanger that between March and December of 2022, there were hostile meetings between Alphonso’s management and the LG Electronics team. They said that during the meetings, the latter attempted to strong-arm Alphonso’s minority share board members into changing the contract terms.
When it became clear they wouldn’t budge, the suit says, the plaintiffs were fired, and LGE took steps to remove them from the board.
On the docket
Now, the court will end up deciding the fate of that 49.9% minority stake in Alphonso ads.
The source told AdExchanger that LGE did offer a buyout to some of Alphonso’s shareholders last year, but that shares were priced based on a $125 million valuation, which is what the company was valued at in 2021 at the time of the acquisition.
According to the source, Alphonso was talking to investors in mid-December 2022 who had valued the company at around $2 billion, which would have yielded a payout eight times higher.
Also in mid-December, during what the suit refers to as a “hastily called special meeting of the board,” the LGE directors voted to terminate the plaintiffs as employees and officers using a pretext. Later that same day, according to the lawsuit, LG Electronics attempted to amend LG Ads/Alphonso’s bylaws and remove the plaintiffs from the board.
The plaintiffs are requesting the court issue a status quo order, which is a temporary protective order of custody that, as its name denotes, maintains the status quo. A status quo order would prevent LGE from, as per the lawsuit, “siphoning value” from LG Ads, “including via self-serving” amendments to their contract.
LG Ads/Alphonso generated around $100 million in 2021, nearly $300 million last year and is aiming to bring in more than $500 million this year, according to a source close to the company.
When reached for comment, LG said: “Based on the recommendations of legal counsel, we are not currently offering any commentary on this particular matter at this time. Our primary focus remains on serving our customers with best-in-class CTV advertising solutions.”
