September 20, 2007
Topps: Not Over Yet
The Topps shareholder meeting occurred yesterday, and it was yet again mired in controversy and accusations of manipulative practices by the Topps board. According to Topps's press release issued yesterday, Topps's shareholders approved the proposal to be acquired by Michael Eisner's Tornante Group and Madison Dearborn Partners. The press release was notable for not mentioning the preliminary count of votes. But, the vote was likely exceedingly close. Earlier in the day, Topps actually postponed the meeting yet again for a few hours because:
Based on preliminary estimates of the vote count and discussions with a number of the Company's stockholders, the Company believes that substantially more votes are in favor of the transaction than against it, including stockholders who are in the process of voting or changing their votes to "FOR." However, at this time, the number of votes cast in favor of the transaction is not sufficient to approve the transaction under Delaware law. The Company has postponed the special meeting in order to provide an opportunity for these stockholders' votes to be received and for additional stockholders to vote "FOR" the merger. The Company intends to continue to solicit votes and proxies in favor of the merger during the postponement. During this time, stockholders will continue to be able to vote their shares for or against the merger, or to change their previously cast votes.
This raises a host of questions, including: who were these shareholders? Why did they not vote favorably the first time around? And what did Topps say or do to get these shareholders to change their minds? In addition, Topps's repeated postponement of the shareholder meeting to gain approval yet again shows their bias as well as the pernicious effects of Strine's recent decision in Mercier, et al. v. Inter-Tel which provided much wider latitude for Boards to postpone shareholder meetings in the takeover context in order to solicit more votes (more on that here).
There is still substantial uncertainty that this deal will close. Almost immediately after the announcement of the shareholder vote, Crescendo Partners issued its own press release announcing that it intended to "assert appraisal rights with respect to the shares it owns of The Topps Company, Inc. in connection with the merger agreement between Topps and entities owned by Michael D. Eisner and Madison Dearborn Partners, LLC." The merger agreement is conditioned upon:
holders of no more than 15% of the outstanding shares of our common stock exercis[ing] their appraisal rights under Section 262 of the DGCL in connection with the merger
According to a recent 13D/A, Crescendo owns 6.9% of Topps. However, assertion of appraisal rights in Delaware tends to be an exercise in herd behavior. Crescendo's steps are likely to lead to more dissident shareholders exercising their appraisal rights, hoping to free-ride on Crescendo's efforts. In any event. given the hostility and distrust of many shareholders of the Topps board's practices here and their criticism of the perceived low price, I would expect there to be significantly more shareholders taking the appraisal route than normal. This may lead to the 15% condition not being satisfied thus putting Eisner & Co. in the position of facing litigation in Delaware with a very uncertain outcome. Topps has already lost once in Delaware court; Eisner may not want to take that chance again by waiving the condition if it is not fulfilled. The Topps board may still lose here.
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