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Monday, July 9, 2007

Topps and Upper Deck: The Antitrust Risk

The Topps Company, Inc. today announced that its Board of Directors had unanimously recommended that its stockholders reject the pending, unsolicited Upper Deck tender offer. Upper Deck is offering $10.75 a share or $416 million.  In connection with their rejection, the Topps board asserted that the terms of the Upper Deck tender offer are substantially similar to the acquisition proposals submitted by Upper Deck to Topps on April 12, 2007 and May 21, 2007.  However, Topps stated that it will continue discussions with Upper Deck to see if a consensual transaction is possible.  Topps has currently agreed to be acquired by The Tornante Company LLC and Madison Dearborn Partners, LLC for $9.75 a share in cash, or about $385 million.  Topps' board has not changed its recommendation for that transaction.   

On July 2, Upper Deck, Topps main competitor in the trading card market, filed with the Federal Trade Commission and the Department of Justice the documentation necessary to commence the initial 15-day antitrust regulatory review period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976  with respect to the tender offer. The review period is 15 days and not the normal 30 days because it is a tender offer, and the period is scheduled to expire on July 17, 2007.  However, there is a strong chance the FTC or DOJ will issue a second request for this proposed transaction, delaying the process.  Until this review is completed, Upper Deck will not be able to close its tender offer. 

And the antitrust risk is clearly in both parties minds, as Topps 14D/9 filed today details that the substance of the parties' negotiations have concerned antitrust issues.  Topps is requesting that Upper Deck agree to a $56.5 million reverse termination fee and a modified hell or high water provision (a provision in which Upper Deck would agree to sell or hold separate assets to satisfy governmental antitrust concerns).  Upper Deck has resisted these provision, and the parties have agreed to suspend negotiations on the matter until the antitrust risk is clarified through the HSR process. 

Topps was scheduled to hold a shareholders meeting to vote on the Tornante acquisition on June 28.  But, the Delaware Court of Chancery enjoined the holding of the meeting to permit Upper Deck to commence its tender offer.  Topps has yet to announce the new date for the meeting but has set the record date for the close of business on July 3. 

For the time being, the deal is in the hands of the antitrust  authorities.  If and when they clear the transaction, expect the bidding for Topps to continue.  In the case of a second request, Topps may try and push forward with the Tornante bid, perhaps with a sweetener from that consortium to hasten the process.  At the very least the market agrees with a higher offer, Topps is trading today at $10.42 as I write, above Tornante's current offer price. 

http://lawprofessors.typepad.com/mergers/2007/07/topps-and-upper.html

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