6 ms·

The issue is that some shareholders were forced to sell at $13/share even if they didn't want to. There were a minority of shareholders who were holding onto th

by pilom 10y ago

The issue is that some shareholders were forced to sell at $13/share even if they didn't want to. There were a minority of shareholders who were holding onto the shares on the assumption that the new long term vision would work out great and expecting their shares to be worth something >$13/share. Those people were forced to sell at $13 because the majority of shareholders agreed to take $13/share and let the company go private. Maybe someone bought at $14 a share years ago and simply was a buy and hold investor living off the dividends and convinced that it was under priced but totally ok with that because they expected to own the company forever. That person would be pissed at the $13/share offer.

alistairSH 10y ago
Pissed? Sure. But, anger isn't generally grounds for a successful lawsuit.
- TheCoelacanth 10y ago
  No, but a law that gives you grounds for a lawsuit is grounds for a lawsuit. Shareholders who were forced to sell are entitled by law to have the sale reviewed by a judge.
jonknee 10y ago
Well that is how it works when owning a minority stake of a public company. Or how it should work at least, this lawsuit is absurd.
jawilson2 10y ago
Isn't that part of the risk when you invest in equities? If you don't want to be forced to sell (or deal with bankruptcies, etc.) you can always buy bonds or ETFs or other less risky ventures.
- rayiner 10y ago
  Shareholders take that risk against the backdrop knowledge that in situations like this they can seek appraisal from the court. Not that I think such appraisals make all that much sense with publicly-traded equities, but nonetheless these shareholders bought the stock assuming the appraisal right would be available.
  - tomp 10y ago
    Courts of course should always be last resort, after all, there could be fraud (e.g. if the CEO was deliberately hiding some information that would have increased the market price). But the problem with this ruling is, that it's ridiculous - the court's argument is basically that the "fair value" is above what PE paid because PE wanted to make a profit! It basically contradicts the whole idea of the market (buying something if you think it's worth more than the current price)!
    - TheCoelacanth 10y ago
      In a market, typically things are sold voluntarily. These are people who were forced to sell.
      - scotty79 10y ago
        Exactly, you are abandoning market and its prices once you say "those stocks are just pieces of paper now, we'll give you few bucks for each so you won't sue us"
    - rayiner 10y ago
      The appraisal right makes sense for smaller companies, even in the absence of fraud. There, you can have a majority shareholder come in and force a minority to sell based on a lowball valuation. There are no competing PE offers or public exchange prices to use as a reference in that scenario, so the appraisal right at least ensures an independent look at the purported valuation.
    - cortesoft 10y ago
      It isn't ridiculous, it is the law: https://www.sec.gov/Archives/edgar/data/878280/000119312508204014/dex99f.htm https://www.sec.gov/Archives/edgar/data/878280/0001193125082... The PE firms bought the company knowing this could, and probably would, happen. It is factored into the price they are willing to pay.
- TheCoelacanth 10y ago
  Yes, but part of the risk of acquiring a company is that shareholders who opposed the sale will get the sale examined by a judge as they are entitled to under Delaware law.
- cortesoft 10y ago
  It isn't an inherent risk, because the law allows for you to demand a judicial appraisal for the 'true' value of their shares. You can say the same to the people buying a public company; there is an inherent risk that you will be forced to pay some shareholders more, so it should be factored in to the price you are willing to pay for the company.
Vraxx 10y ago
This all makes sense as to why they might not have wanted to sell, but doesn't this ruling invalidate the entire reason to vote? Constituents don't get any sort of compensation if their preferred political candidate doesn't win the election, or if a bill passes that they voted against. Why would this be different in the case of a vote for a buyout?
- robotresearcher 10y ago
  Here's the idea: I own 51% of the shares, so have a strict majority of all votes. I call a shareholder meeting and propose to take the company private by selling all the shares to me, for any price I choose. The vote passes by majority. To prevent the 49% being completely screwed with regularity, the law provides for those who voted against such a takeover to have the sale reviewed by a judge. The 51% owner takes this into account when proposing a price. In the case of a political election, the losing minority does not have their property instantly and compulsorily purchased at an arbitrary price set by the winner.
  - SilasX 10y ago
    Thanks, that makes a lot more sense now. I remember using the reverse of that strategy in Railroad Tycoon 2: if my company had a lot of cash, I'd buy up as many shares of a smaller company as I could, and then make a wildly-over-the-top bid for it to divert my company's money into my pocket! Interestingly, I think it capped the amount you could offer at something like 2x the current market price, their own version of imposing an "arm's length" restriction...
  - tsmffh 10y ago
    >In the case of a political election, the losing minority does not have their property instantly and compulsorily purchased at an arbitrary price set by the winner. Perhaps not instantly, but it that's exactly what happens.
  - SilasX 10y ago
    Also, forgot to add: >In the case of a political election, the losing minority does not have their property instantly and compulsorily purchased at an arbitrary price set by the winner. Actually, in many poorly-run democracies, they do something very close! I'm reminded of the Dilbert comic: "If you vote for me, I'll take money from the people who didn't, and give it to you!"
SilasX 10y ago
How can that be "the" issue? That's fundamentally how business equity -- the entire stock market -- works. Certain decisions are put up to a vote of shareholders, one-share-one-vote, and the result binds all shareholders. It's no more unusual than "forcing" naysayer shareholders to accept the dilution that comes with e.g. a secondary offering. (Certainly, there are reasons to dispute the prudence of the decision, but that would be orthogonal to your argument, which seems to be about the mere fact of overruling minority dissenters.)
scotty79 10y ago
How can anybody be made to to sell a thing that he doesn't want to sell? I understand government can do it for greater purpose, like building infrastructure but a company? How can a company say "you know what, these stocks that were issued to represent ownership won't be a thing since next month, we can give you 13 bucks for each so you won't feel like a total looser"? Suddenly I'm all for judge deciding how much people that were basically sold piece of paper with some meaningless letters should get.
facepalm 10y ago
Is there anything wrong with that? Surely that is an known risk when deciding to become a minority shareholder? What is next? Maybe I can buy Apple stock because I expect them to launch a self driving car next year, and if they then don't focus on self driving cars I can sue because it is not what I expected?

by pilom 10y ago

alistairSH 10y ago

Pissed? Sure. But, anger isn't generally grounds for a successful lawsuit.

TheCoelacanth 10y ago
No, but a law that gives you grounds for a lawsuit is grounds for a lawsuit. Shareholders who were forced to sell are entitled by law to have the sale reviewed by a judge.

jonknee 10y ago

Well that is how it works when owning a minority stake of a public company. Or how it should work at least, this lawsuit is absurd.

jawilson2 10y ago

Isn't that part of the risk when you invest in equities? If you don't want to be forced to sell (or deal with bankruptcies, etc.) you can always buy bonds or ETFs or other less risky ventures.

rayiner 10y ago
Shareholders take that risk against the backdrop knowledge that in situations like this they can seek appraisal from the court. Not that I think such appraisals make all that much sense with publicly-traded equities, but nonetheless these shareholders bought the stock assuming the appraisal right would be available.
- tomp 10y ago
  Courts of course should always be last resort, after all, there could be fraud (e.g. if the CEO was deliberately hiding some information that would have increased the market price). But the problem with this ruling is, that it's ridiculous - the court's argument is basically that the "fair value" is above what PE paid because PE wanted to make a profit! It basically contradicts the whole idea of the market (buying something if you think it's worth more than the current price)!
  - TheCoelacanth 10y ago
    In a market, typically things are sold voluntarily. These are people who were forced to sell.
    - scotty79 10y ago
      Exactly, you are abandoning market and its prices once you say "those stocks are just pieces of paper now, we'll give you few bucks for each so you won't sue us"
  - rayiner 10y ago
    The appraisal right makes sense for smaller companies, even in the absence of fraud. There, you can have a majority shareholder come in and force a minority to sell based on a lowball valuation. There are no competing PE offers or public exchange prices to use as a reference in that scenario, so the appraisal right at least ensures an independent look at the purported valuation.
  - cortesoft 10y ago
    It isn't ridiculous, it is the law: https://www.sec.gov/Archives/edgar/data/878280/000119312508204014/dex99f.htm https://www.sec.gov/Archives/edgar/data/878280/0001193125082... The PE firms bought the company knowing this could, and probably would, happen. It is factored into the price they are willing to pay.
TheCoelacanth 10y ago
Yes, but part of the risk of acquiring a company is that shareholders who opposed the sale will get the sale examined by a judge as they are entitled to under Delaware law.
cortesoft 10y ago
It isn't an inherent risk, because the law allows for you to demand a judicial appraisal for the 'true' value of their shares. You can say the same to the people buying a public company; there is an inherent risk that you will be forced to pay some shareholders more, so it should be factored in to the price you are willing to pay for the company.

Vraxx 10y ago

This all makes sense as to why they might not have wanted to sell, but doesn't this ruling invalidate the entire reason to vote? Constituents don't get any sort of compensation if their preferred political candidate doesn't win the election, or if a bill passes that they voted against. Why would this be different in the case of a vote for a buyout?

robotresearcher 10y ago
Here's the idea: I own 51% of the shares, so have a strict majority of all votes. I call a shareholder meeting and propose to take the company private by selling all the shares to me, for any price I choose. The vote passes by majority. To prevent the 49% being completely screwed with regularity, the law provides for those who voted against such a takeover to have the sale reviewed by a judge. The 51% owner takes this into account when proposing a price. In the case of a political election, the losing minority does not have their property instantly and compulsorily purchased at an arbitrary price set by the winner.
- SilasX 10y ago
  Thanks, that makes a lot more sense now. I remember using the reverse of that strategy in Railroad Tycoon 2: if my company had a lot of cash, I'd buy up as many shares of a smaller company as I could, and then make a wildly-over-the-top bid for it to divert my company's money into my pocket! Interestingly, I think it capped the amount you could offer at something like 2x the current market price, their own version of imposing an "arm's length" restriction...
- tsmffh 10y ago
  >In the case of a political election, the losing minority does not have their property instantly and compulsorily purchased at an arbitrary price set by the winner. Perhaps not instantly, but it that's exactly what happens.
- SilasX 10y ago
  Also, forgot to add: >In the case of a political election, the losing minority does not have their property instantly and compulsorily purchased at an arbitrary price set by the winner. Actually, in many poorly-run democracies, they do something very close! I'm reminded of the Dilbert comic: "If you vote for me, I'll take money from the people who didn't, and give it to you!"

SilasX 10y ago

How can that be "the" issue? That's fundamentally how business equity -- the entire stock market -- works. Certain decisions are put up to a vote of shareholders, one-share-one-vote, and the result binds all shareholders. It's no more unusual than "forcing" naysayer shareholders to accept the dilution that comes with e.g. a secondary offering. (Certainly, there are reasons to dispute the prudence of the decision, but that would be orthogonal to your argument, which seems to be about the mere fact of overruling minority dissenters.)

scotty79 10y ago

How can anybody be made to to sell a thing that he doesn't want to sell? I understand government can do it for greater purpose, like building infrastructure but a company? How can a company say "you know what, these stocks that were issued to represent ownership won't be a thing since next month, we can give you 13 bucks for each so you won't feel like a total looser"? Suddenly I'm all for judge deciding how much people that were basically sold piece of paper with some meaningless letters should get.

facepalm 10y ago

Is there anything wrong with that? Surely that is an known risk when deciding to become a minority shareholder? What is next? Maybe I can buy Apple stock because I expect them to launch a self driving car next year, and if they then don't focus on self driving cars I can sue because it is not what I expected?