Tuesday, May 22, 2007
Today, MMI Investments L.P., the hedge fund and Acxiom’s second largest stockholder owning 8.2% of the company, disclosed a letter delivered to the Acxiom board of directors in opposition to Acxiom's agreement last week to be acquired by Silver Lake Partners and ValueAct Capital Partners in a transaction valued at $3 billion (the letter is annexed to MMI's 13D amendment filed today). ValueAct Capital Partners is also a hedge fund and so the news and blogs are highlighting this as a clash of two hedge fund trends: hedge funds taking on private equity roles and hedge funds as activist shareholder investors. It is also yet another real example this week of shareholder resistance to private equity/hedge fund buy-outs -- the other two being Clear Channel and OSI Restaurant Partners. More interesting to me was the following language in MMI's letter to the Acxiom board:
Our concerns about valuation are only amplified by our frustration with both the timing and structure of this transaction. Given the strategic initiatives currently underway (and recent earnings pain that your existing stockholders have had to bear) we struggle to understand why this is the right time to sell our company. Moreover it is our belief that the “go-shop” mechanism is a poor substitute for a full auction for a comprehensively marketed property. We can only hope that the “go-shop” for our company is a genuine one, with clear, concise, and thoughtful distribution of information, and thorough outreach to potential buyers from Acxiom’s industry, as well as those in comparable or tangential industries, and financial buyers (many of whom have significant experience and resources in the marketing data and informatics industry).
Acxiom has yet to file the acquisition agreement. But according to a conference call last week, Acxiom's "go-shop" is a relatively robust form of the provision. Pursuant to its provisions, Acxiom will have 60 days to solicit other superior proposals, and if it agrees to one, is required to pay only a reduced break-up fee of 1% of the equity value of the company. Nonetheless, on that same conference call Acxiom management disclosed it permitted only one other bidder to conduct due diligence prior to agreeing to the ValueAct transaction, and only then because Acxiom was approached. According to Acxiom, the transaction will require a 2/3rd majority vote of Acxiom's shareholders to win approval. Given this requirement, shareholder resistance and the fact that Acxiom stock is trading above the offer price, the current offer appears to be only an opening gambit, yet again highlighting the perils of "go-shops" and the head-start and cover they provide to a chosen acquirer.
Update: Acxiom filed its merger agreement later today; it contains the above provisions.