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Boston College Law School

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Wednesday, November 7, 2007

Deason's Big Move

This deal just keeps the surprises coming.  Today, Affiliated Computer Services filed the following disclosure on a Form 8-K:

On November 6, 2007, Darwin Deason, Chairman of the Board of Directors of Affiliated Computer Services, Inc. (the "Company"), notified the Company that he has filed a notification under the Hart-Scott-Rodino Antitrust Improvements Act (the "HSR Act") for the acquisition of up to an additional one million shares of the Company’s Class A common stock following expiration or termination of the waiting period under the HSR Act. Accordingly, the Company intends to promptly file the notification required under the HSR Act in response to Mr. Deason’s notice.

According to ACS's proxy, as of April 13, 2007, there were 92,530,441 shares of Class A common stock of ACS outstanding.  So, if this transaction is consummated, it will increase Deason's voting control of ACS by about one percent and cost him about $44 million at today's stock price.  HSR filing rules require a filing for incremental acquisitions exceeding threshold dollar levels generally above $50 million so I'm not sure why a filing needed here [I'll check with our antitrust expert and get back on this].  Still, this acquisition will increase Deason's control of ACS, and could be a prelude for him seeking greater than a 50% voting interest.  Now, that raises all sorts of legal issues. 

In addition, the acquisition shows how the paralysis at ACS is working to Deason's advantage.  A normal board in these circumstances would likely block Deason from further acquistions through implementation of a poison pill.  Here though, as I said Monday, the board cannot meet unless Deason or the CEO calls a meeting.  The CEO is firmly beholden to Deason and so will not call one unless Deason wants, and Deason will not do so because then it would allow the independent directors to act.  Deason is now using this power to his advantage.  The independent directors in this situation would do well to act in Del. court to protect the company and not just themselves.  On that note, The Race To The Bottom has a solid, informative post today on how independent these directors have historically been.  Want to guess the answer?

http://lawprofessors.typepad.com/mergers/2007/11/deasons-big-mov.html

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