Wake up, babe! A new LG Ads lawsuit just dropped.
Lampros Kalampoukas, one of the co-founders of TV data measurement startup Alphonso, is suing risk and financial advisory services firm Kroll for allegedly deliberately undervaluing the company by nearly $100 million in order to benefit LG Electronics in its legal battle with Alphonso’s minority shareholders.
The suit – click here to read it – was filed on July 15 in the Manhattan Supreme Court and accuses Kroll of professional misconduct for manipulating the valuation process to suppress Alphonso’s value and allow LGE to acquire shares at below-market prices.
AdExchanger reached out to LG Ads and Kroll for comment. LG Ads declined, and Kroll never responded.
But to understand why Kroll would allegedly do such a thing requires a whole bunch of backstory.
So let’s rewind for a sec.
How did we get here?
In early January 2021, LGE acquired a controlling stake in Alphonso, which was later rebranded as LG Ads and became LGE’s ad tech and TV data analytics division.
But the relationship between LGE and Alphonso’s founding leadership soured almost immediately.
In 2023, less than two years after the acquisition, the co-founders of Alphonso, including Kalampoukas, Raghu Kodige and Ashish Chordia, sued LGE twice for breach of contract and for orchestrating a boardroom coup to oust founder-aligned directors and strip minority shareholders of their rights ahead of a planned LG Ads IPO.
They won both of their cases.
Two courts in Delaware ruled that LGE had booted Alphonso’s founders from the LG Ads board on bad faith. The courts restored the founders to the board, upheld their IPO rights and imposed restrictions on LGE to prevent it from diluting minority shareholders or interfering with the IPO process.
One of the main issues at the heart of those suits was a valuation dispute over Alphonso’s worth, which the founders claimed was being lowballed by LGE in an attempt to force minority shareholders to sell their stakes at unfairly low prices.
The disagreement over Alphonso’s value is now also at the heart of the recent suit brought by Kalampoukas against Kroll.
Numbers game
When LGE acquired Alphonso, it had initially promised to make a series of scheduled tender offers to minority shareholders and allow Alphonso to take itself public within five years.
The stockholders agreement requires LGE to pay a price per share equal to Alphonso’s fair market value at the time of each tender offer.
According to the successful 2023 suit, LG Ads generated $270 million in revenue by 2022 at a more than $1 billion valuation, which was nearly 10 times its valuation at closing.
But as Alphonso/LG Ads grew more valuable, the suit claims that LGE sought to adjust the terms in its favor. In 2023, Kroll was brought in to provide an independent valuation of Alphonso, but, as per the suit, “significantly undervalued Alphonso’s shares by deviating from standard valuation practices.”
Instead of considering total cash, which encompasses all cash on hand, Kroll applied a narrower definition of cash contributions that excluded excess cash and other cash reserves, leading to the reduced valuation and a $10 decrease in the price per share.
“This was done,” the suit alleges, “to align the valuation more closely with Alphonso’s opposing party in the dispute, likely to maintain favorable relationships and secure future business.”
In other words, to allegedly curry favor with LGE.
Kroll’s calculations reduced Alphonso’s equity value by almost $100 million, according to the suit, “dramatically reducing the value of its shares for its shareholders” and, somewhat ironically, for LGE itself.
Delayed debut
The Kalampoukas suit is almost like a companion suit to the complaints that Alphonso’s co-founders have already argued and won against LGE.
The allegations help explain the full scope of what was at stake in those earlier lawsuits, namely the determination of Alphonso’s actual worth, which directly impacts the company’s future in the public market.
Kalampoukas is asking for a declaration that Kroll breached its contractual and fiduciary duties and an order requiring a proper and fair valuation. He’s also looking for damages for any financial harm caused by the alleged undervaluation.
But putting aside any damages the court decides to dole out, a lot of the “damage has already been done here to some extent,” Chordia told AdExchanger.
Chordia was the architect of the founder-led lawsuits against LGE in 2023, although he’s not a party to the suit against Kroll.
“This is not going to get fixed overnight, and a court case like this can go on for months if not years,” Chordia said. “But, regardless, it’s important to make a statement, because what Kroll did was absolutely flawed. It’s a clear violation, and this is a strong claim.”
And regardless of what happens with this lawsuit, LG Ads is still actively pursuing an IPO.
The original timeline, which had been to go public by the end of Q2, was delayed due to some resistance from LGE, Chordia said. But now the wheels are turning again.
LG Ads hired RBC Capital Markets to handle the IPO process and expects to file its S-1 soon.
