Tender Offer

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Dell going private transaction shines light on risksSo you are set on taking your company private.  Well, before you put your plans in motion, there are a lot of risks and potential consequences to consider along with the benefits.  At the moment, no one knows this better than Michael Dell, CEO of Dell Inc.  

Back in February 2013, Mr. Dell and his financial partner, Silver Lake Management LLC, entered into a merger agreement with Dell that would make Dell a private company.  The merger was valued at $13.65 per share, with a deal value of $24.4 billion.  The deal would keep CEO Michael Dell and others in his investment group in charge of the company. 

The driving force behind the deal is the perceived need to restructure Dell due to fundamental changes in the computer industry.  Consumers are focusing more on tablets and smartphones, which is hurting Dell’s core computer business.  The thought is that the company needs a couple years to restructure and that being a private company would allow the restructuring to occur without so directly impacting the price of the stock.  Since most investors these days have shorter time horizons and less patience for restructuring, this looked like a smart move. 

As negotiations progressed and the deal was announced, however, the door was opened for other offers because Dell was in play.  This is one of the uncertainties involved with a going private transaction and makes this type of deal more risky.  In particular, there is the risk that the initial group loses control of the bidding process and gets out bid. 

Here, despite initial thoughts that no other parties would top the Silver Lake bid, two additional bids that are arguably superior have surfaced and make the outcome uncertain.  One of these bids is lead by investor Carl Icahn and the other is lead by Blackstone.  Both bids were deemed by Dell’s special committee to be potentially
Continue Reading Dell shines a light on the risks of going private

Dual track acquistion structureWhen the private equity firm 3G Capital took Burger King private in 2010, it used an innovative “dual-track” acquisition structure to minimize the amount of time to consummate the acquisition. This involved 3G simultaneously pursuing both a friendly tender offer to Burger King shareholders as well as a traditional merger that would need to be approved by shareholders at a special meeting. Since the Burger King deal, nearly 20 other companies have used this structure. 

In basic terms, a tender offer allows the acquirer to make a direct offer to shareholders to purchase shares of the target company at a specified price. Consummation of the tender offer is usually contingent upon the target shareholders tendering a minimum number of shares so that the acquirer can take advantage of a subsequent short-form merger to squeeze out any non-tendering shareholders thereby resulting in the acquirer being the 100% shareholder of the target company. On the other hand, a traditional merger involves the solicitation of shareholder votes to approve the acquisition by proxy or in person at a special shareholder meeting. 

From a timing perspective, acquirers typically prefer to use tender offers to accomplish acquisitions because it normal takes less time to complete because, among other things, it does not require a special meeting of the shareholders to approve the transaction. Where a traditional merger can take upwards of three to six months to complete (depending on the circumstances), a tender offer can be completed in as few as 20 business days following the date the tender offer is initiated (the minimum period that a tender offer must remain open). However, if shareholders of a target company do not tender the minimum number of shares necessary to consummate the acquisition, the acquirer would be forced to abandon the tender offer and switch over to a traditional merger structure. 

In the Burger King deal, rather than waiting to see whether the tender offer was successful, 3G simultaneously prepared documents and made filings to proceed with a traditional merger concurrently with the tender offer. By doing this, 3G would have a head start on the traditional merger transaction if the tender offer ultimately failed, thereby saving significant time. However, public companies considering this type of approach should be aware that the timing of certain key events when undertaking a dual-track approach could result in an inadvertent violation of the Exchange Act rules. 

Specifically, Rule 14e-5 issued under the Exchange Act prohibits an acquirer from
Continue Reading Acquirers beware! New expedited acquisition method could violate the Exchange Act