01/05/2011 5:15PM

IEAH shareholders considering takeover offer

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LEXINGTON, Ky. – Michael Iavarone, president of the racehorse ownership group International Equine Acquisitions Holdings, confirmed Wednesday that the company’s shareholders are considering a takeover offer. The proposed sale takes place as a IEAH’s major financial backer, James Tagliaferri’s TAG Virgin Islands, is facing a $60 million lawsuit by an IEAH shareholder.

“We are in negotiations to make a sale to a New York Stock Exchange Company that we put to our shareholders as of yesterday,” Iavarone said. He declined to identify the proposed buyer. “We’re very hopeful that this deal can go forward. It’s very lucrative to our shareholders and a very positive event for us.”

Under the deal, Iavarone said, the stable would remain as it is but as a wholly owned subsidiary of “a bigger entity.” Iavarone would remain in his position. The shareholder vote takes place Jan. 14, according to Iavarone, and, if approved, would close Jan. 31.

“The stable would have a significant amount of capital to go forward and put itself back at the top,” he said. “Nothing would change other than we’d have a much larger source of capital.”

But an IEAH investor, Red Hat founder Matthew Szulik, claims in a new court filing that IEAH’s sale could constitute “additional fraud” against IEAH shareholders. Last month, Szulik filed a $60 million suit against Tagliaferri, alleging that Tagliaferri and associates of his TAG Virgin Islands investment group defrauded Szulik and his family by investing in high-risk ventures like IEAH without the Szuliks’s knowledge or consent. According to that suit, Tagliaferri used about $20 million of the Szuliks’s money to finance IEAH.

Tagliaferri has not commented publicly on the suit. The U.S. District Court in North Carolina’s Eastern district has referred the case for mediation, which is not unusual in federal courts and won’t necessarily prevent the case from continuing.

On Monday, Szulik filed an application in a Florida circuit court to force IEAH to provide documents relating to the Tagliaferri suit and to the proposed IEAH sale. On Dec. 29, 2010, according to the filing, Iavarone and IEAH attorney Mark Frimmel informed the Szuliks’s attorney that “a transaction was being negotiated between IEAH and another entity whereby the other entity would acquire all of the assets of IEAH in a manner designed to deprive shareholders of their approval rights with respect to the transaction and to leave IEAH effectively insolvent.

“The Szuliks are well aware of the individuals behind this deal (including Jason Galanis, Gary Hirst, and James Tagliaferri), the illicit character of these individuals’ past dealings, and the absence of any benefit or gain to be conferred on IEAH’s shareholders should the deal be consummated.

“Given the previous fraud in which IEAH was complicit and the potential future fraud that may be brought about by the above-referenced acquisition of IEAH, the Szuliks have, and have had for some time, reason to believe that IEAH is not being operated for the benefit of its shareholders.”

Jason Galanis is a venture capitalist who has been associated with investments in Penthouse Media Group. Hirst is president of Gerova Real Estate Group, also affiliated with Galanis. The Szuliks’s suit against Tagliaferri also alleges that Tagliaferri provided millions of the Szuliks’s money to Penthouse-related holdings, including a Mexico City club and a private residence in California.

But Iavarone said Wednesday that IEAH’s proposed buyer group did not involve Galanis or Hirst.

“The company that’s acquiring us is rolling up several institutions, and management that they’re bringing in is very, very highly renowned,” he said. “At the end, I find a lot of the accusations Szulik has been making to be quite not true.”

IEAH Stables campaigned 2008 Kentucky Derby and Preakness winner Big Brown and other high-profile horses, such as Kip Deville, Stardom Bound, Eldaafer, and Trickmeister.

Szulik alleges IEAH helped defraud the Szulik family by paying about $1.6 million in what he termed “kickbacks” to TAG Virgin Islands associates.

Iavarone disputed the term “kickbacks” and said that the payments to TAG were “compensation for investment banking for providing capital to us. We paid just under 10 percent, which is extremely standard.”

“As far as the lawsuit with the Szuliks and Tagliaferri, I see it as a shame, because they’ve been friends since 1980,” Iavarone said. “I think a business issue has grown into a personal issue. Fortunately, it looks like the suit has been referred to mediation, so I’m pretty comfortable that these two guys will sit down at the table and work it out.

“I just don’t like being collateral damage, as you can understand,” he added.