Biote has reached a $60 million settlement with its founder’s ex-wife, Marci Donovitz. The lawsuit was filed June 5 and alleged that the Irving-based hormone therapy company’s executives irresponsibly agreed to a 2022 merger with a special purpose acquisition company which provided nearly no cash for the deal.
The suit filed in The Court of Chancery of The State of Delaware also alleged that Donovitz was duped into waiving a minimum cash closing condition days before the merger closed. As part of the settlement, Biote will be forced to repurchase all 8.3 million of Donovitz’s shares at $7.23 each. Donovitz’s payout will continue over the next three years.
It dates back to 2022 when Biote merged with SPAC Haymaker Acquisition Corp. III. A SPAC is a shell company that pools money together through initial public offerings to acquire or merge with another company to take it public. They’re also known as “blank check companies.”
Haymaker Acquisition Corp. III raised more than $315 million to pursue the merger. Biote went public and is currently listed on the NASDAQ at $7.41 per share. But the merger has since resulted in legal battles, most notably when founder Gary Donovitz called the the merger a ‘get-rich-quick-scheme’ which diluted his shares in the company.
“Defendants knew for months that astronomical redemptions would eviscerate almost all the cash raised by the SPAC and would cause the transaction to be destructive of value,” Marci Donovitz’s lawsuit said. “Nonetheless, Defendants proceeded with their scheme to enrich themselves.”
Biote recently settled its lawsuit with founder Gary Donovitz which has seen him sell the company, his 5.1 million shares and 13.3 million paired interest shares over three years. In total, Biote will have to buy back $77 million worth of Donovitz’s shares.
In his lawsuit, he said that he was misled by the SPAC’s sponsors about how much he’d be diluted by and that they would hold secret meetings with the goal of taking over the company. Both he and his ex-wife have since left Biote but will be selling their stock over three years.
Biote did not respond to a request for comment from The Dallas Morning News at the time of publication.
Marci Donovitz’s lawsuit also alleged that as part of the 2022 merger, Biote diverted $70 million which went to the company’s executives along with an additional $135 million and stock options.
“This settlement validates our client’s claim that the transaction was a scheme to enrich a few company ‘insiders’ — and reward them with financial and managerial benefits to which they were not entitled,” said William A. Brewer III, partner at Brewer, Attorneys and Counselors and counsel to Marci Donovitz.
SPAC’s were once very popular for companies looking to go public due to how much quicker they are compared to traditional initial public offerings. But they’ve faced scrutiny from the Securities and Exchange Commission in recent years over curbing requirements to go public and the regulator has since implemented new rules on IPOs from SPACs.
“Suppose a group of strangers came up to you and said: “I have a company. It doesn’t do much of anything, but sometime in the next two years, we’ll merge with another company. I don’t know what that company is yet,” said SEC chair Gary Gensler in a statement. “What if I told you that, if the strangers complete a merger, they get to pocket 20 percent of your investment? This essentially describes what SPACs do.”
As the SEC tightens up on SPACs and looks to put an end to the bonanza around them, Brewer hopes to see more held accountable, he said.
“Our client hopes this outcome lights a path for those victimized by similar deals,” Brewer said. “This case underscores the rights of those too often viewed as pawns in these speculative pursuits.”
