Buyouts Compared: Cablevision Systems and Affiliated Computer

Several weeks ago the shareholders of Cablevision Systems rejected a buyout bill in which the purchaser was the controlling shareholder, the Dolan family.  The independent directors of the board of Cablevision supported the bid (after rejecting two lower bids), with advise from Morgan Stanley and Lehman  Brothers.  The Dolans said they would not sell the company to anyone but themselves, a declaration that necessarily constrained the price.  Yesterday the independent directors of the board of Affiliated Computer delayed acceptance of a bid that included participation by the CEO to look for other bidders.  The search for other bidders failed and the ACS management wrote them a letter demanding that they each resign. And they did. The board now cannot accept any deals in which the CEO participates because it has no independent directors; the CEO now must get the remaining inside directors to appoint new outsider directors who judgment will not be conflicted (this is choice, who will take the job???) or wait until the next elections. 

These buyouts in which insiders or controlling shareholders participate have always had a stinky odor and the courts have struggled to craft rules that allow those that are legitimate and disallow those that are not.  Right now, the rules are too lenient.   Insider buyouts (MBOs) that fail should carry a stronger individualized, financial penalty for the insiders that attempted to steal their company from the minority shareholders.