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Boston College Law School

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Thursday, September 20, 2007

Accredited Home Lenders: The Back-End

Accredited Home Lenders has filed the second amendment to their merger agreement with Lone Star.  The amendment is a bit odd in that it contains a provision permitting Lone Star to terminate the tender offer if 50% of AHL's shareholders don't tender into the offer within 20 business days of the filing of AHL's amended 14d-9 statement.  More specifically, the agreement provides for one 10 business day extension after the first expiration date which will itself be 10 business days after the statement is filed.  This provision is probably meant to deal with any objecting shareholders such as Stark Investments who would have preferred that AHL go to trial for the full price.  As one person put it to me in better words than I can, it can be read as "if there is any dissent get me out of this crummy deal."  By the way for those wondering, exercising dissenter's rights under Delaware here appears problematical as DGCL 262 requires the appraisal valuation to be "the fair value of the shares exclusive of any element of value arising from the accomplishment or expectation of the merger or consolidation . . . ."  AHL appears to be worth less here than the price Lone Star is paying, itself a product of contractual commitments made in the Spring before the sub-prime crisis had completely unfolded.   

Otherwise, the conditions on the tender offer look very tight.  In addition, if one examines the back-end conditions for the merger in the merger agreement they also remain unchanged and are similarly strict.  This deal now appears about as contractually certain as one can get.   But the stock is trading at about $11.58 which appears to be a big discount of about 2% off the offer price for such a certain deal.  And dissent by shareholders is very unlikely given the mechanics of the above provisions -- they are likely to take what they can get.  Perhaps I am missing something. 

http://lawprofessors.typepad.com/mergers/2007/09/accredited-ho-3.html

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