In Defense Of Securities Class Actions

September 24, 2008

Former shareholders of Chaparral Resources should receive the proceeds of the settlement with Lukoil (LUKOY) in the next few days. The settlement checks were mailed on Monday, we were told by a lawyer involved in the case. We have written about Lukoil’s shenanigans in the acquisition of Chaparral Resources before. As majority shareholder, Lukoil manipulated Chaparral to depress its stock price and acquire it at a low price. Shareholders filed a class action and are now, two years after the fact, finally receiving compensation. Read the rest of this entry »


Which Bank’s Problems Will Sink Angelica’s Buyout?

July 15, 2008

Angelica buyout mergerIn the pending buyout of Angelica (AGL) shareholders have not just the usual worry about the debt funding, but in an odd twist the equity portion could also be at risk. The financing consists of equity from an entity affiliated with stressed Lehman (LEH), while most of the debt is provided by struggling Regions Bank (RF), with some help from Apollo Investment Corporation (AINV) . Read the rest of this entry »


KeyBanc’s Poor Fairness Opinion In Max & Ermas Restaurants’ Buyout

June 24, 2008

Max & Erma'sLast week’s announcement that Max & Ermas Restaurants (MAXE) had a rough second quarter, with the weak economy and the March blizzard hurting top and bottom lines, made us wonder whether we should expect yet another busted buyout. After all, bad quarterly results have triggered quite a few merger cancellations, for the most part unjustifiedly. However, when we saw KeyBanc’s (KEY) deplorable fairness opinion we were convinced that the buyer is getting such a good deal that there is a lot of room for deteriorating performance before the deal will be called off. Read the rest of this entry »


Restoration Hardware Class Action Payout Still Leaves Shareholders Short Of Full Value

June 18, 2008

Restoration Hardware Logo

Shareholders of Restoration Hardware (RSTO) are the beneficiaries of a class action lawsuit against the buyout that saw the firm go to the low private equity backed bid rather than the higher bid from Eddie Lampert’s Sears Holdings (SHLD). Shareholders will receive an extra $0.19 per share from the litigation in addition to the $4.50 merger consideration. After legal fees, total payout should be roughly $4.63, a 2.9% increase over the price negotiated by the board. Nothing to make you rich, but a lot more than the annual dividend yield of the S&P index. The extra payout explains why Restoration Hardware trades currently a few cents above the $4.50 merger consideration.

Read the rest of this entry »


American Capital Strategies Pulls Out Of Merisel Buyout

June 10, 2008

Merisel logo

Another addition to the graveyard of busted mergers: business development company American Capital Strategies (ACAS) has terminated its agreement to buy Merisel (MSEL) under the “material adverse change” clause that has become a standard excuse for buyer’s remorse. After the exchang of multiple letters between the two firms, Merisel stock reacted predictably with a steep drop and now has a market capitalization below its net cash, despite generating positive earnings and cash flow in 2007. Read the rest of this entry »


Watchguard Private Equity Antitrust Litigation: The Sequel

May 19, 2008

Watchguard BuyoutThe dismissal of the anti-trust litigation against Watchguard and private equity funds Vector Capital and Francisco Partners got all the headlines (here, here, here) a couple of months ago, but a recently filed amendment to the lawsuit over directors’ breach of fiduciary duty makes much more fascinating reading than the somewhat dry anti-trust case. It is also likely to be another milestone in the unraveling of the private equity bubble, because it illustrates to what lengths some managers were able to go to do buyouts on their terms and not in the best interest of shareholders. Read the rest of this entry »


Insider Trading In Busted Buyout Of Trans World Entertainment?

May 13, 2008

Trans World EntertainmentOne of the risks of investing in small caps is lack of liquidity, and shareholders of Trans World Media Entertainment (TWMC), operator of f.y.e. (For Your Entertainment) stores, were reminded of how illiquid their stock is when CEO Robert J. Higgins withdrew his proposal to acquire the firm. The stock fell not only after the announcement, but was down already some 10% during the day just prior to the press release. Some shareholders seem to have known the news before it was published.

Read the rest of this entry »


Merger Arbitrage Is Dead (Yet Again)

April 8, 2008

Declining returns on merger arbitrage funds Once or twice every decade, M&A markets go through a bust and returns of merger arbitrage and event-driven funds slip. It does not take long until pundits and performance chasing hedge fund investors ask: Is merger arbitrage dead? Read the rest of this entry »


Chaparral Resources Litigation Update: Lukoil’s Settlement Payment Coming Soon

March 13, 2008

The settlement of the shareholder litigation after Lukoil (ticker: LUKOY) bought out the minority shareholders of Chaparral Resources, Inc. has been approved by the court this morning. We documented the litigation and Lukoil’s egregious behavior in September 2006, and wrote about the settlement this January.

The net settlement available for public shareholders should come to $1.80 per share. This represents a 31% increase over the price Lukoil paid minority shareholders and shows quite clearly the success, albeit temporary, of the oil giant’s attempts to depress Chaparral’s stock price. Eligible to receive it are only shareholders who held Chaparral stock at the closing of the merger in September 2006. Anyone who sold before the closing will not be eligible to receive a payment.

Claim forms must be received by the claims administrator by April 12. Payment should be made shortly thereafter, but the exact timing will depend on the number of claim forms that need processing.

Thomas Kirchner manages the Pennsylvania Avenue Event-Driven Fund (PAEDX), which owned shares in Chaparral Resources, Inc. through the closing of the merger.


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Beware Of Litigious State-Owned Banks

February 29, 2008

Large financial institutions tend to be reluctant to get involved in lawsuits, even when it would benefit their clients or shareholders. German state-owned banks are a notable exception to the rule.

Michael L GordonJohn AngeloFormer shareholders of National Home Health Care Corp, which was acquired by Angelo Gordon last year, Read the rest of this entry »


SCPIE Merger Should Get A Higher Hostile Bid

February 19, 2008

SCPIE logoHedge fund activist Joseph Stilwell has been so busy trying to block the acquisition of SCPIE Holdings (ticker: SKP) by privately held The Doctors Company that he lost sight of the forest amid the trees. Investors don’t get an answer to the obvious question of why no higher bid has been made, even though Stilwell insists that a higher bid was available. The reason: the potential buyers all signed standstill agreements that prevent them from making acquisition proposals without the board’s approval. Read the rest of this entry »


Buyout Of American Community Properties Trust As Slow As That Of Wilshire Enterprises

February 12, 2008

American Community Properties TrustShareholders of American Community Properties Trust (ticker: APO) are eerily reminded of the stalled sale of Wilshire Enterprises (ticker: WOC). Chairman and CEO Michael Wilson proposed a going-private transaction in July, and it has dragged on for half a year without any visible progress. Read the rest of this entry »