IBM-HashiCorp: Shareholder lawsuit seeks to derail $6.4 billion acquisition

IBM’s planned $6.4 billion acquisition of HashiCorp has run into an unexpected obstacle: a Hashicorp shareholder has filed a lawsuit in a US Federal court seeking to block the deal.

The complaint, filed by HashiCorp shareholder Michelle Graff, accuses the company’s board of directors of breaching their fiduciary duty by favoring their own financial gains over those of public stockholders.

IBM announced its plans for the acquisition in April, offering $35 per share in cash for HashiCorp. It said that HashiCorp’s infrastructure provisioning application, Terraform, would bolster its software business and complement its Red Hat division.

However, Graff’s lawsuit suggests a different narrative. The complaint, filed Monday with the US District Court for the Northern District of California, names several key figures on HashiCorp’s board, including CEO Dave McJannet and CTO Armon Dadgar, and other executives, accusing them of structuring the deal to secure personal financial benefits. According to the lawsuit, these insiders hold substantial amounts of illiquid stock, which will convert to cash or liquid shares, providing them with significant financial windfalls.

“Company insiders currently own large, illiquid portions of Company stock, Company options, and Company Restricted Stock Units, all of which will be exchanged for the merger consideration upon the consummation of the Proposed Transaction, not shared amongst Plaintiff and other public stockholders of the Company,” the complaint said. For example, McJannet is reported to hold $270 million in stock, options and restricted stock units, while Dadgar’s holdings are valued at $646 million, the lawsuit mentioned.

“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 said. “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 lawsuit also alleges that proxy statements filed with the US Securities and Exchange Commission (SEC) fail to disclose critical financial information and post-transaction negotiations.

This information is necessary for Plaintiff to understand potential conflicts of interest of management and the Board, as that information provides illumination concerning motivations that would prevent fiduciaries from acting solely in the best interests of the Company’s stockholders, the complaint said.

“Thus, while the Proposed Transaction is not in the best interests of HashiCorp, Plaintiff, or Company stockholders, it will produce lucrative benefits for the Company’s officers and directors,” the complaint argued.

Graff wants the court to block the acquisition and order HashiCorp’s directors to revise the proxy statements filed with the SEC.

HashiCorp did not respond to a request for comment.

The legal challenge adds another layer of complexity to the acquisition, which has already faced hurdles such as the backlash from the open-source community over Terraform’s relicensing.