Wednesday, October 17, 2007
The Dolan's third attempt to take Cablevision private in a $10.6 billion transaction appears to be teetering on the brink. Earlier this week, Mario Gabelli, whose mutual funds own 8.3 percent of Cablevision, wrote to the company to signal that he would vote against the plan. And the Wall Street Journal is reporting today that ClearBridge Advisors LLC, Cablevision's biggest investor with a 14% interest, plans to vote against the deal. Two other large institutional shareholders T Rowe Price and Marathon Asset Management have also indicated their intention to oppose the buyout. Finally, ISS Governance Services, and Proxy Governance Inc have recommended that their clients vote against the transaction. Last night, Cablevision Chief Executive James Dolan released a statement asserting that the Dolan family would not raise its offer.
Under the merger agreement, the required vote to approve the plan is:
Public Stockholders holding more than 50% of the outstanding shares of Class A Stock held by Public Stockholders other than executive officers and directors of the Company and its Subsidiaries . . . .
Public Stockholders excludes "the Family Stockholders, Family LLC, any Subsidiary of Family LLC and the Other Dolan Entities." These terms as defined in the merger agreement are essentially the Dolan family group. So, in order for the proposal to succeed it needs to be approved by a majority of the minority of the unaffiliated, public stockholders. According to the proxy statement this comprises approximately 113 million shares of Cablevision Class A shares. But, even if the majority of the minority provision is met, the deal can still fail because it is conditioned on no more than 10% of Cablevision's class A shareholders exercising appraisal rights under Delaware law (DGCL 262). The condition specifically requires that:
The total number of Dissenting Shares shall not exceed 10% of the issued and outstanding shares of Class A Stock immediately prior to the filing of the Merger Certificate . . . .
In his 13D filing last week, Mr. Gabelli indicated that he was considering exercising these rights. This would mean only 1.7% more of the Class A shares would need to exercise appraisal rights for the condition not to be met. Appraisal rights in Delaware must be exercised prior to the vote on the transaction, and are typically exercised immediately prior to the meeting. Thus, this deal may still fail even if the majority of the minority condition is met. I seriously doubt the Dolan's would want to face the substantial uncertainty of Delaware appraisal proceedings and the significant extra costs it may impose on their acquisition. If the 10% threshold is met, my instincts are that they will walk.
Oh -- and for those waiting for the plaintiffs' lawyers to bail them out of this mess. Don't. At the time this third attempt at a take private was announced, the press release had the following statement:
Lawyers representing shareholders in the pending going private action in Nassau County Supreme Court actively participated in the negotiations, which led to improvements to the financial terms of the transaction as well as significant contractual protections for shareholders. . . . The parties have agreed in principle to the dismissal of the pending going private litigation, subject to approval by the Nassau County Supreme Court.
In the proxy statement, Cablevision stated:
following participation by representatives of the plaintiffs in the Transactions Lawsuits in the negotiations. . . . the Dolan Family Continuing Investors agreed to a $30 million increase in the merger consideration . . . . For their work on behalf of stockholders in the Transactions Lawsuits and in the actions relating to alleged options backdating in the Nassau County Supreme Court and the U.S. District Court for the Eastern District of New York, plaintiffs’ counsel intends to request that the Nassau County Supreme Court award them fees, including expenses, of $29,250,000. The settling defendants have agreed not to challenge the fees and expenses application for this amount. Cablevision has agreed to pay such amount, if approved by the court, following completion of the merger.
This just doesn't seem right. The shareholders plaintiffs' attorneys are receiving $29.25 million in fees for adding (at best) value of $30 million, and settling well before a full assessment of the transction could be made. For more criticism, I'll link to Vice Chancellor Strine's opinion in In re Cox Communications about the perils of such practice under Delaware law and the possibility of selling minority shareholders short, particularly here where the Dolan family has been repeatedly accused of underbidding for Cablevision.