Tuesday, October 30, 2007
I've been meaning to jot down a few of my thoughts on possible lessons learned from the failed Cablevision take-private.
- Gabelli's 13D Filings. Mario Gabelli's funds eschew 13G filings and always file their holdings on 13Ds. The reason is obvious -- it provides significantly more latitude to an institutional investor to influence management and lobby against takeover transactions. These days, this is something almost every institutional investor should allow for. And, in the case of Cablevision, it was a successful strategy -- Gabelli's activist position and use of the 13D amendment process to disclose its opposition to the deal facilitated its defeat. Given this, most institutional investors should strongly consider adopting a similar policy and filing 13Ds instead of a 13G for passive holders. It is clearly a hassle because you need to constantly amend it for changed information, but a 13D provides much wider latitude to act. It can also avoid possible future SEC trouble for a failure by the filer to convert from a 13G to a 13D when influencing activity is taking place. This is particularly important since the Wall Street Journal Deal Journal noted last week that the SEC is investigating a number of 13G filers for failing to act as passive investors and taking 13D like "activities".
- The Majority of the Minority. The Cablevision deal was one of those rare takeover transactions which was actually voted down by the shareholders. Lear earlier this year was another one. However, while some papers cited this as a victory for institutional shareholders and once again signaling a new age of shareholder activism, I wouldn't make too much of it. This is because, the Cablevision deal was required to be approved by a majority of the minority. The minority here held only 35.4% of Cablevision. This meant only 17.7% of the Cablevision shares needed to vote against the merger for it to be defeated (and Gabelli held 8.25%). This was a much lower threshold than a simple majority and also meant defeat was easier.
- The Stink Stays on a Bad Deal. Given their past bids, the Dolans had significant pre-existing adverse opinion to effect in this third attempt to take Cablevision private. It likely made shareholders more skeptical and less willing to trust that the Dolans were acting fairly here. Their quick settlement of the shareholder litigation for a $30 million increase in the consideration and payment by Cablevision of approximately $30 million in plaintiffs' attorneys fees did not help.