Match Will Pay $441 Million to Settle Suit Over Tinder Valuation
Match Will Pay $441 Million to Settle Suit Over Tinder Valuation
(Bloomberg) -- Match Group Inc. said it will pay $441 million to resolve a hard-fought legal battle with Tinder’s founders over the valuation of the mobile dating app, ending a nearly monthlong trial just before it went to the jury.
Match announced the settlement on Wednesday morning, a day before the parties were to give closing statements in the trial over a lawsuit brought by Tinder founder Sean Rad and other early executives and employees against Match and its controlling investor, IAC/InterActiveCorp.
Rad, who created Tinder during a hackathon at IAC’s Hatch Labs incubator, and the other plaintiffs in the case say they were cheated by the companies, which valued Tinder at $3 billion in 2017, instead of the $13.2 billion they claim it was actually worth.
Match “dodged a major bullet” with the settlement, as the company continued to face “significant” risk as the trial progressed, and could have been hit with as much as $2 billion in damages if the jury found in favor of Rad’s group, Tom Claps, a litigation analyst with Susquehanna International Group, wrote in a note to investors.
“The biggest surprise to me is that a deal took this long,” said Bloomberg Intelligence analyst Matthew Schettenhelm, who estimated Match had a 70% chance of winning. “This is a substantial settlement, but letting a jury decide a billion-dollar question simply carries too much risk. This removes the issue as an overhang and should let the company move on.”
Shares in Dallas-based Match fell $2.51, or 1.9%, to $133.69 on Wednesday in New York. IAC fell $5.27, or 3.9 percent, to $128.38.
The contentious trial featured testimony from witnesses including Rad, IAC Chairman Barry Diller and former Match Group Inc. chairman and chief executive officer Greg Blatt.
“The trial included testimony from both sides that painted diametrically opposed views of what occurred during the valuation, and we believed plaintiffs were successful in raising significant doubt” whether Match and IAC properly handed the valuation process, Claps said.
Rad and other early employees and executives sued IAC and Match in 2018, alleging the companies provided false information about the app’s financial prospects to the banks that were hired to estimate its market value, in order to produce a assessment well below the $13 billion they claim it was worth.
The lawsuit said they were granted options that entitled them to more than 20% of the company under a 2014 agreement that required Match to hire investment banks to independently value Tinder on four specific dates between May 2017 and May 2021.
Lowball Valuation?
They alleged Match and its controlling investor, IAC, engineered a lowball valuation of the app by feeding information to the banks that underplayed its future growth prospects while excluding Rad from the process -- then terminated the agreement, merged Tinder into its parent company and launched a new premium service, Tinder Gold, the next day.
“We are very pleased that this valuation dispute has been settled,” Orin Snyder and Josh Dubin, attorneys for the plaintiffs, said in a statement. “It was a long and hard battle and our clients are grateful that they had the opportunity to have their voices heard and achieve this outcome.”
IAC and Match contended that the banks independently assessed Tinder’s value after considering information from both sides. The companies said Rad fully participated in the process and that the plaintiffs sold their options for more than $700 million, which included $400 million for Rad, and are simply bitter that they missed out on Tinder’s explosive growth.
The case is Rad v. IAC/InterActiveCorp, 654038/2018, Supreme Court of the State of New York (Manhattan).
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