June 3, 2007
The Battle for Topps
The battle for Topps Company, Inc. continues to heat up. On May 24, 2007, the company announced that it had received a $416 million offer from its rival, The Upper Deck Company, to acquire Topps for a price of $10.75 per share. Topps currently has an agreement to be acquired by a group consisting of The Tornante Company LLC and Madison Dearborn Partners, LLC for $9.75 per share in cash. The Tornante Company is headed by former Disney CEO Michael Eisner.
Last week, Deal Book reported that the hedge fund Crescendo Partners, owner of 6.6% of Topps, was alleging that certain Topps board members have conflicts of interest that prevent the company from negotiating in good faith with, Upper Deck. Deal Book reported that "[i]n a letter sent to the company’s board of directors, a Crescendo Partners managing director Arnaud Ajdler, who is also a Topps board member, said the chief executive of Topps, Arthur Shorin, “does not want to see the company started by his father and uncles fall into the hands of a longtime rival.”
Crescendo today sent a second letter to the Topps board which states in part:
Finally, in your communications, you like to repeat that Crescendo wants to take over Topps without paying stockholders for their shares. Once again, you are misleading your stockholders. When a buyer wants to take a company private, as Mr. Eisner and Madison Dearborn are attempting to do, the buyer pays stockholders a premium for their shares. While this premium is typically 20 to 30%, you have approved a transaction that would pay stockholders a meager 3% premium and a significant discount to where the shares are currently trading. As you well know, Crescendo is NOT trying to take the Company private. If the ill-advised Eisner merger is voted down, Crescendo will ask its fellow stockholders, the true owners of Topps, to replace seven of the incumbent directors on the Board with a new slate. This well-qualified slate is committed to taking all necessary actions to improve the company's capital structure and operations for the benefit of ALL the stockholders. As detailed in our proxy statement, we believe that the Company could be worth conservatively between $16 and $18 per share if managed properly.
This is yet another example of the increasing potential for conflict between private equity and hedge funds as hedge funds emerge as activist investors in search of extraordinary returns and the private equity bubble rages. But more immediately, the Topps Board now has a competing bid and a hostile proxy contest on its hands formented by one of its own members. Stay-tuned.
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