In 2009, Ideation Acquisition entered into a merger agreement with SearchMedia Holdings Ltd. The agreement was worth more than $175 million. After the merger went through, SearchMedia reported that it would need to restate its 2007 and 2008 financial statements: the previous statements were no longer reliable.

SearchMedia’s stock declined significantly.

Ideation Acquisition filed a proposed class action lawsuit in September 2010 in the U.S. District Court for the Central District of California.

The lawsuit alleges that SearchMedia, an advertiser that operates in-elevator networks and outdoor billboards in China, improperly recognized revenue. It also states that some of the in-elevator advertising accounts were uncollectible. In addition, the lawsuit claims that SearchMedia did not ensure that its financial results would be prepared in accordance with generally accepted accounting principles.

A SearchMedia co-chairman says that the lawsuit does not belong in California; rather, it should be heard in Florida. Ideation had an office in California at one time, and two of the SearchMedia defendants live in the state; five of 13 defendants live in Florida, however, as do SearchMedia’s in-house corporate attorneys. Many documents that are relevant to the case were drafted in Florida. SearchMedia argues that the case should be heard in the U.S. District Court for the Southern District of Florida.

A court will have to decide whether SearchMedia made false and misleading statements while it was in negotiations with Ideation, thereby breaching its fiduciary duty during the merger process. Whether or not the motion to transfer venue is granted, the battle between Ideation and SearchMedia will be one to watch.

Source: Westlaw News & Insight, “Ad firm exec says investor suit over merger talks belongs in Miami” 2/28/2011