A lawsuit on the way from Broadview shareholders?
I'm not sure if this is anything or not, but there's a law firm in DC that's launched an investigation into the sale price of Broadview to ADT. To quote:
WASHINGTON--(BUSINESS WIRE)-- Finkelstein Thompson LLP is investigating potential claims on behalf of shareholders of Brink's Home Security Holdings ("Brink's" or the "Company") (NYSE: CFL) arising from the Company's announcement of its intent to be acquired by Tyco International Ltd. ("Tyco").I put a call in right away, but the receptionist threw me right to voice mail and no one's called me back as of yet. Anyway, it's not like the language is overly strenuous here. They just reiterate the terms of the deal and then say:
The investigation is focused on the potential unfairness of the price to Brink's shareholders and the process by which the Brink's Board of Directors considered and approved the transaction.The "potential unfairness" of the deal? Isn't there "potential" unfairness in any deal? Sounds like a fishing expedition to me. Back when I was dumbly wondering whether the GVI price was a good one (I was missing something, yes, the debt that the buyers were taking on) because GenNx360 was upping its offer, a few insiders clued me in to a practice that many law firms engage in, which is to quickly file suit on basically any share-based transaction on behalf of the shareholders (who may or may not have asked them to), quickly negotiate a small settlement price adjustment with very little work involved, and then grab 20 percent (or whatever) of the resulting increase. That may be what's happening here. However, there are some people out there with more strong words to bandy about. The Shareholders Foundation (whose site is down right now) has announced a lawsuit of its own. To wit:
But according to one investigation by a law firm â€œthe transaction appears to be unfairâ€ to current investors of Brink's Home Security Holdings, Inc (Public, NYSE:CFL) because the â€œoffer to purchase Brink's Home Security Holdings, Inc (CFL) appears opportunistically timed to take advantage of the current economic downturnâ€ and is â€œgrossly unfair, inadequate, and substantially below the fair or inherent value of CFLâ€.Which law firm? The Shareholders Foundation? If there was a real law firm, wouldn't you use its name? And, seriously, "grossly unfair?" Let's look at some quick and dirty numbers: It is absolutely true that Broadview is a great company, with $100 million in cash on hand, and $250 million in operating cash flow on $565 million in revenue. Also, the company carries exactly zero debt. Not too shabby there. The company was trading at $31.44 a share on the day before the deal's announcement, which gave it a market cap of $1.44 billion. The deal ended up being $42.50 a share, which represents a 41 percent premium on the share price, which isn't too shabby, and a basic overall deal of $1.95 billion. Further, if you take Broadview's EBITDA of $238 million, you get an 8.18 multiple of EBITDA, which is a pretty good number. Finally, if you consider Broadview's reported $500 million recurring revenue in 2009, divide that by 12 to get $41,666,667 in RMR, you get an RMR multiple of 46.7. That's not the 60xRMR that HSM got when Stanley bought them, but this ain't exactly the boom times of 2007 either. So, is it possible that the Brink's Home Security board should have held out until the economy completely turned around (which it might not do for a decade, some economists think) in order to get a higher multiple? That's possible. But can you argue that a 41 percent premium on market cap is grossly underpaying? I don't think so. I think these "investigations" are likely just lawyers looking for opportunity, but it's something to watch. EDIT: Just heard from Brink's Home Security investor relations head Gary Samberson. Here are his comments on the investigations: Gary: Our position is that basically we canâ€™t speak to the motivation of the firms with their investigations, but we donâ€™t view them as particularly out of the ordinary for a transaction like this. Me: Well, do you think they represent actual shareholders? Have you heard from actual shareholders that are upset with the proposed deal? Gary: Itâ€™s hard to speculate on whether they represent actual shareholders or not; they donâ€™t necessarily have to. A lot of the details that people are interested in will be in the proxy filing. Me: Do you have a time frame for that? Gary: I'm not sure of the timing on the proxy. It will be in the "weeks" time frame, but how many weeks, Iâ€™m not sure. Me: Often, the board represents a lot of shares. Are they significant shareholders? They obviously approved the sale. Gary:The percentatge owned by the board is actually quite low because of the nature of the spin-off. It's under one percent.