The EDGAR filing for Summa Industries’ (SUMX) buyout by Habasit, a Swiss manufacturer of conveyor belts, reveals that discussions between the two companies about potential buyout have been on and off since 2001. So Summa’s board of directors had plenty of time to shop their company around before accepting a takeover proposal from Habasit in September. However, it appears that other than a half-hearted attempt back in 2004, they made no real attempt to find another buyer who may have been willing to pay more for SUMX than the $15 Habasit is now paying. The board did negotiate actively with Habasit raise the price from the original bid of $14.55, but if another bidder had entered the race, shareholders may very well have received a higher premium.
The SEC filing stresses twice that Summa’s legal advisers
provided the Board with advice on the Board’s fiduciary duties in considering the possible sale. […] the ability of Summa to receive (but not solicit) alternative proposals for the acquisition of Summa
Presumably this included a description of the Revlon duties, which the board chose to ignore. The unusual wording about Summa’s ability to “receive (but not solicit) alternative proposals” sounds very much like a lawyer trying telling investors that the board just would not listen.
Perhaps Habasit’s willingness to keep the current management employed helps explain the reluctance of the board to find another buyer. Another buyer may not have needed to keep the current management and would have been able to boost profits of only $1.5 million by eliminating the current four executives, who make collectively $800,000. Instead, with Habasit buying Summa, James Swartwout, the CEO and Chairman, get a raise in salary of more than 50% over 2005, if performance-based bonusses are included.
It is irrelevant that the takeout premium was 76%. Maybe a higher premium would have been possible if the board had conducted a proper auction as requied by its fiduciary responsibility.