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Monday, September 24, 2007

Accredited Home Lenders: The Anatomy of a MAC Negotiation

Accredited Home Lenders filed the 16th amendment to its recommendation statement on Schedule 14D-9 yesterday.  The document is a must read for all M&A lawyers as it details the history of the behind the scenes negotiations MAC settlement between Accredited Home Lenders and Lone Star.  Among the tid-bits are:

  1. On August 29th, Lone Star offered to settle the litigation for $10.50 and Accredited Home Lenders countered with a revised deal at $11.33.  This deal was rejected by Lone Star who the next day made a public offer for $8.50 a share.  NB. The ultimate settlement between Lone Star and AHL was for $11.75! 
  2. During the last 40 days, AHL was approached by a third party buyer.  On Sept. 5, AHL requested "permission" from Lone Star to explore this approach and Lone Star informed AHL on Sept. 7 that any consent from Lone Star should be considered as part of an overall settlement of the Delaware Litigation.  No further disclosure is made on this third party offer. 
  3. Bear Stearns refused to provide an updated fairness opinion to AHL because Bear viewed any decision by the AHL board to enter into a restructured transaction at a reduced offer price as a settlement of litigation. The AHL Board ultimately hired Milestone Advisors to provide a financial opinion for $450,000.   Bear Stearns was probably right to do this; AHL was better off hiring an advisor more sophisticated in these types of valuation (though I have never heard of Milestone so I am not sure if they are indeed so experienced).  Although looking at Milestone's analysis they did not value the litigation but instead conducted a transaction premium and a comparable company analysis -- a bit absurd and highlighting the manipulability of fairness opinion analyses. Another explanation for Bear's refusal is that AHL and Bear could not agree on compensation for this second opinion. 
  4. On Sept. 13, Lone Star increased its offer to $11.75 above the $11.33 originally offered by Lone Star and a raise from its $10.50 offer made on Aug 29 (subsequently reduced to $8.50).

So, this leads to the interesting question of how did AHL get Lone Star to raise its offer from $8.50 to $11.75 and above $11.33 in one meeting on Sept 13?  I would have loved to have been a fly on the wall at that one.  And ultimately, the AHL/Lone Star history points to an important commonality about MACs -- negotiation during these times is often constant but kept private as the parties struggle to assess risks and settle in a manner that reduces such risk and allocates the losses against the background of the uncertainty of a MAC litigation.  The back and forth between AHL and Lone Star once again prove this point. 

Thanks to the reader who pointed all of this out. 

http://lawprofessors.typepad.com/mergers/2007/09/accredited-ho-4.html

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