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Boston College Law School

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Tuesday, July 10, 2007

Icahn Goes for the Kill

Lear Corporation, the automotive seating, electronics and electrical distribution systems manufacturer, yesterday announced that it had agreed to amend its merger agreement with Carl Icahn's American Real Estate Partners, L.P. to increase AREP's offer price for shares of Lear common stock from $36 to $37.25 per share.  The $100 million increase in aggregate consideration paid values Lear at approximately $2.9 billion.

The Lear management is participating in the Icahn bid, and have entered into new employment agreements to continue their positions with the post-transaction entity.  And the transaction had a go-shop provision which did not result in any other bidders, perhaps due to bidder wariness at this management participation.  Nonetheless, shareholders in Lear have been actively opposed to the Icahn bid claiming it significantly undervalues the company.  The leader of this charge has been Pzena investment management which yesterday again asserted its opposition to the bid according to Reuters. Pzena maintains that Lear is worth $55-$60 per share.  The California State Teachers Retirement System and Institutional Shareholder Services were also opposed to Icahn's $36 offer.

The interesting twist here is that, in connection with the increase, Lear agreed to pay AREP $12.5 million in cash as well as 335,570 shares of Lear common stock (valued at about $12.35 million) if Lear's stockholders do not approve the merger by July 16, 2007.  The provision is unusual; bidders are usually lucky to get their expenses in a deal that is not approved by shareholders.  And coming on the heels of shareholder opposition and the Delaware court's recent intervention in Lear's sale process in In re Lear Corporation Shareholders Litigation, 2007 WL 1732588  (Del. Ch., June 15, 2007), the move is a bit cheeky (to use the English expression).  Still, in a world where the Lear board had conducted the sale process above board this fee would be a legitimate one.  It would be justifiable to secure an increase in the consideration paid for a deal that the board reasonably believed would now be approved by its shareholders.  The only problem is that these considerations appear absent here. 

http://lawprofessors.typepad.com/mergers/2007/07/lear-corporatio.html

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