May 16, 2014
Contentious Mergers are Heating Up
Here’s news from ISS’ Chris Cernich:
On Friday, May 9, TIG Investors, a 9.5 percent holder of Zale Corp, filed preliminary soliciting materials and an investor presentation urging other shareholders to resist what it called an “undervalued” sale of the company. TIG points out that, while Zale shareholders are getting almost $300 million in premium – that’s 40 percent – the buyer’s shareholders got a $1.4 billion premium from the market when the deal was announced. This indicates that the value being created by the combination is not being appropriately shared between buyer and seller. TIG proposes that the company renegotiate to include a stock component as well as cash – its proposal would be worth about $28.50, versus the current $21 per share cash offer – which would allow Zale shareholders to participate in the upside of the combined company.
There are signs of growing support among other Zale shareholders, including about a 5 percent rise in Zales share prices, to $22, though no other shareholders have yet gone public. The Zale meeting will be held May 29.
There has also been progress, of a sort, in the Pershing Square/Valeant Pharmaceuticals unsolicited bid for Allergan. As expected, the Allergan board on Monday turned down the bid as undervalued. And, also as expected, Pershing Square and Valeant began taking their case directly to shareholders.
What wasn’t expected, however, was the tactic; Pershing Square is calling a sort of town hall, in lieu of an actual Special Meeting of shareholders, to create a referendum on whether the Allergan board should negotiate with Valeant in good faith. It’s not as strong a move as proposing a dissident slate of directors; but, since Allergan’s bylaws don’t allow for proposals at a special meeting which repeat business on which shareholders have already voted in the past year, it seems unlikely Pershing Square and Valeant can actually run a contest for board seats before May of 2015. As this plebiscite tactic is not an official corporate meeting, it is unclear whether “voting” would be required under ERISA.