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Avantax CEO Chris Walters

Avantax CEO Chris Walters Will Step Down After Merger With Cetera

The news comes as Avantax faces three lawsuits and "multiple" demand letters from stockholders asking the company for additional financial disclosures.

In September, executives of Avantax, the tax-focused wealth management firm formerly known as Blucora with some $83 billion in client assets, announced they would sell the firm in an all-cash transaction to Cetera Holdings for $26 a share, or $1.2 billion.

According to an SEC filing on Monday, Avantax CEO Chris Walters will step down from his role after the deal closes. Avantax CFO, Treasurer Marc Mehlman and Chief Legal Officer and Corporate Secretary Tabitha Bailey will also leave the company, according to the filing.

"Chris believes that Avantax’s tax-focused approach to financial planning is a winning wealth management model, and he has complete confidence that Avantax will continue to support its Financial Professionals in exemplary ways in service of their clients," said a spokesman for Avantax, in a statement.

In the same filing, Avantax said it is now facing three lawsuits from shareholders claiming the deal with Cetera may shortchange shareholders, that the proxy statement given to shareholders to vote for the deal "omitted material information" and is "false and misleading," and that the deal with Cetera should be prohibited until the proper disclosures were made. The firm said it had received "multiple" demand letters from shareholders asking for additional financial disclosures before shareholders are asked to vote to approve the deal, and threatening lawsuits of their own.

The lawsuits claim the proxy statement filed by Avantax omits or misrepresents information about managements' conflicts of interest, including post-employment agreements and some financial projections for Avantax, as well as valuation data on which the purchase price of Avantax was based. The lawsuits claim the company failed to disclose the valuation for the company based on EBITDA both before and after stock-based compensation was taken into account, as well as the firm's unlevered free cash flow and certain non-GAAP earnings per share. A previous filing revealed Walters may receive a $21.5 million "golden parachute" once the deal with Cetera closes. 

While denying the additional disclosures were legally required, Avantax filed an amended regulatory statement that included the information the shareholders required.

“The Company believes that the claims asserted in the Lawsuits and the Demand Letters are without merit," the Monday SEC filing said. "However, in order to moot the unmeritorious disclosure claims, alleviate the costs, risks and uncertainties inherent in litigation and provide additional information to its stockholders, the Company has determined to voluntarily supplement the Proxy Statement as described in this Current Report on Form 8-K.” 

Shareholders are set to vote on the proposed merger agreement on Nov. 21. Avantax stockholders will be cashed out at $26 per share. After hitting a high of nearly $30 per share in mid-February, Avantax stock has vacillated between $27 and $21 throughout 2023.

Focus Financial Partners faced a similar lawsuit this summer, prior to finalizing its deal to go private via an acquisition by Clayton, Dubilier & Rice. A shareholder filed a lawsuit against the company, claiming its proxy statements were misleading. After Focus filed a supplement to the proxy, the shareholder dropped the complaint.

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