Judge OKs Medley lawsuit settlement with hedge fund FrontFour

After New York-based MCC faced vociferous opposition to its original internal merger proposal, the firm reworked its offer and is moving ahead with an altered proposal.

Medley Capital Corporation has won approval for a settlement it reached with FrontFour Capital Group to resolve a lawsuit the latter brought against the former, in which it alleged a breach of fiduciary duties in connection with MCC’s internal merger, according to regulatory filings.

The Court of Chancery of the State of Delaware signed off on the agreement, which includes the creation of a settlement fund consisting of $17 million cash and $30 million of stock in the merger’s surviving parent entity, Sierra Income Corporation. MCC was also ordered to pay $3.5 million in attorney fees for FrontFour and Stephen Altman, another plaintiff in the case, along with an additional $100,000 fee to FrontFour’s counsel upon closing of the merger.

Medley declined to comment, while FrontFour could not be reached.

Medley announced a merger with SIC, an MCC affiliate and non-traded business company, in August 2018 though failed to consummate the original plan after dissent emerged from a group of hedge fund shareholders, which included FrontFour. In July, MCC announced an amended merger, which is still pending. The firm announced the end of its go-shop period in mid-October, saying no higher and better offers were received.

The reworked merger consideration allows for MCC shareholders to receive 0.66-0.68 shares of SIC stock for each share of MCC stock and a portion of the settlement funds for those included in the settlement. Under the original agreement, MCC stockholders were to receive 0.8050 shares of SIC stock per share of MCC stock.