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Boston College Law School

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Friday, August 10, 2007

Topps' Dilemma

Topps and Upper Deck exchanged a puzzling set of letters this week (see the Topps letter here, the Upper Deck letter here).  To get a gist of the discussion, here is an excerpt from the Topps letter:

When we hadn't heard from you by Monday morning, we sent you a revised draft of the merger agreement we had been negotiating with you over the past several weeks. The only substantive changes from the version we had nearly fully negotiated with you related to the mechanics of the two-step transaction (first step tender offer and second step merger). We believe that all of the other substantive provisions had been negotiated with you and your colleagues, including the representations, covenants and termination provisions. . . . . We were disappointed to hear that as of Tuesday afternoon, Upper Deck had not yet even reviewed the draft.

At least as troubling, we were shocked to hear on our call with you Tuesday that Upper Deck is expressing an unwillingness to proceed with its tender offer. This is the very form of transaction for which Upper Deck sought and obtained judicial relief, so it is startling at this point in the process to be told that Upper Deck's new preference is to terminate its offer and proceed with a one-step merger, knowing full well that would require several months, expose our stockholders to transaction risk during that time and, giving effect to the time value of money, reduce the value of the consideration received by our stockholders.

We are eager to find out if we can execute a transaction with your client, and are hopeful that we can do so. However, as we have told you on several occasions, Upper Deck's behavior has raised an increasing amount of skepticism among our directors as to whether Upper Deck truly intends to acquire Topps, or whether it is simply taking steps to interfere with the current transaction with Tornante-MDP and otherwise harm Topps' business.

Upper Deck responded by disputing Topps' assertions, maintaining that it had committed financing and stating that the reason it was not able to comment on Topps's merger agreement on Tuesday was because "Ms. Willner, who is co-counsel . . . . was out of the office on Tuesday."

This last Upper Deck comment is sure to bring a laugh to any M&A lawyer.  In this high pressure world, I've never heard of anyone using that excuse and actually meaning it.  As an M&A lawyer you are always available.  So, it's hard to know what is going on in Upper Deck's mind right now, but it appears to be stalling.  But for what purpose is unknown.  Perhaps it actually is unable to keep its financing in place or otherwise is pressing ahead to interfere with Topps' current bit to be acquired by the private equity firms The Tornante Company LLC and Madison Dearborn Partners, LLC.  But the latter explanation seems a bit far-fetched -- Upper Deck has spent a lot of time and money simply to interfere with a competitor's deal. 

Upper Deck's tender offer expires tonight at midnight.  If you look in the amended tender offer statement, there are sufficient conditions in Upper Deck's offer that are unsatisfied that it will be able to let the offer simply expire and walk.  If Upper Deck extends the offer, it will (to some extent) be an expression of its seriousness.  Still, in its letter, Upper Deck again requested  "due diligence materials (which have been repeatedly requested since at least April) so that Upper Deck may finalize its due diligence and analysis of Topps."  If Upper Deck is indeed serious, this deal still has a bit more to go  before an agreement can be reached.   But Upper Deck only has so much time:  the special meeting of Topps’ stockholders to consider and vote on the proposed merger agreement with the Tornante consortium is on August 30.

Final Note:  Upper Deck may also be able to terminate its tender offer at any time.  The key is whether the Williams Act tender offer rules prohibit this practice.  The one court to consider this issue held that shareholders could not state a claim under the antifraud provisions of the Williams Act for a bidder's early, intentional termination of a tender offer because "[w]here, as here, the tender offer was not completed, plaintiffs have not alleged that the misrepresentations affected their decision to tender, they have not claimed reliance, [and] plaintiffs have failed to state a cause of action under § 14(e)."  P. Schoenfeld Asset Management LLC v. Cendant Corp., 47 F.Supp.2d 546, 561 (D.N.J. 1999) vacated and remanded on other grounds Semerenko v. Cendant Corp., 223 F.3d 165 (3rd Cir. 2000).  But, whether other courts would go so far in the face of an intentional withdrawal by a bidder is unclear.  This is particualrly true if the bidder lacked an intent to complete the tender offer from the beginning. 

http://lawprofessors.typepad.com/mergers/2007/08/topps-dilemma.html

Hostiles, Takeovers, Tender Offer | Permalink

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