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:
- 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!
- 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.
- 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.
- 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.
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